The Leasehold and Freehold Reform Act 2024 – Part 3
Other rights of long leaseholders
Welcome to the latest in our series of bulletins where we consider each of the different ‘parts’ of the Leasehold and Freehold Reform Act 2024 (LAFRA). In this bulletin we turn our attention to the slightly smaller ‘Part 3’ which deals with ’other rights of long leaseholders’.
Part 3 appears to be designed to catch some residual changes that didn’t fit very well into any of the other parts. It provides extra protections for leaseholders in relation to the right to manage (RTM) and introduces a new right for a leaseholder to claim a variation of the lease to reduce the rent payable to a peppercorn (to ‘buy out’ the rent).
The provisions of Part 3 are not yet in force, but Labour’s manifesto outlined their commitment to leasehold reform, so it is anticipated that secondary legislation will follow in the foreseeable future.
The right to purchase the rent payable
LAFRA introduces a new right for a leaseholder who has at least 150 years left on their lease to effectively ‘buy out’ their ground rent. This involves a variation of the lease to replace the existing rent with a peppercorn rent. The claim would be brought in a very similar way to a lease extension and there would be an exchange of notices between the parties. The rent variation notice served by the leaseholder would set out the proposed price (and any other necessary variations) and the landlord would then either deny or admit the claim.
LAFRA confirms that where the qualifying lease is a shared ownership lease, any claim for a peppercorn rent would not impact on the specified rent payable. No doubt registered providers will welcome this clarity following the recent case of Sovereign Network Homes v Vanessa East, which indicated that a rent increase notice under Section 166 of the Commonhold and Leasehold Reform Act 2002 may be required in relation to specified rent.
As with the Leasehold Reform (Ground Rents) Act 2022, this right would not apply to community housing leases or home finance plan leases.
The First-tier Tribunal (Property Chamber) (FTT) would have jurisdiction to deal with disputes arising out of a claim for a peppercorn rent.
Changes to the RTM
LAFRA amends the threshold for premises excluded from the RTM due to non-residential use. Currently if the non-residential parts exceed 25% of the internal floor area of the premises (as a whole, disregarding any common parts) the RTM cannot be exercised. However, this increases under LAFRA to 50% meaning that more buildings would qualify for the RTM and commercial use within a block would be less of a barrier in the future.
There are also changes to the cost provisions regarding the RTM. Once the relevant provisions of LAFRA are in force, neither the RTM company nor their members would be liable for the landlord’s costs of dealing with a claim. There are, however, special rules included where the claim notice is withdrawn or ceases to have effect and the RTM Company has acted unreasonably. In those circumstances, the FTT would have jurisdiction to order the RTM Company to pay reasonable costs of other parties involved in the claim.
Impact of the proposed changes
The changes included in LAFRA in relation to the RTM are significantly watered down to those originally proposed by the Law Commission in their 2020 report. Furthermore, Labour has pledged to tackle ground rents and have said that they will limit or cap ground rents in existing leases, potentially making rent variation less attractive. Therefore, it remains to be seen whether the provisions in Part 3 would have any real impact on the sector.
If you would like to discuss any leasehold issues, please request a free initial consultation with one of our experts, Lynn James, Gabrielle Roberts or Tara Moseley.
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