The Leasehold Reform Act 2024 was introduced with the intention of reducing lease extension costs. However, the financial impact remains uncertain, as changes in valuation methods and potential legal disputes could influence the final outcome.
Key Change 1: Abolishing Marriage Value
One of the most significant changes is the abolition of marriage value, which previously required leaseholders with leases under 80 years to pay a substantial premium to their freeholder when extending. With this removal, leaseholders with shorter leases are expected to see a noticeable reduction in costs. However, freeholders strongly oppose this reform and have initiated legal challenges, arguing that it infringes on their rights.
Key Change 2: Ground Rent Cap
The Act introduces a cap on ground rent calculations for lease extensions, setting a limit at 0.1% of the property’s value. This means leaseholders with particularly high ground rents could see their extension costs reduced. However, exceptions exist, particularly where freeholders can prove that the lease was originally structured with a lower upfront premium in exchange for a higher ground rent. This creates a grey area that may lead to disputes and varying outcomes depending on individual lease terms.
Key Change 3: Standardising Valuation Rates
Previously, lease extension costs were heavily influenced by negotiations between leaseholder and freeholder valuers. The Act grants the government the power to set standardised rates, removing much of this negotiation. However, since these rates have yet to be determined, there is a risk that they could be set at levels that ultimately increase costs for certain leaseholders, particularly those with longer leases who do not benefit from marriage value abolition.
Those Who Will Be Impacted Positively and Those Who Will Be Impacted Negatively
- Those who will be impacted positively: Leaseholders with short leases and high ground rents are likely to see cost reductions when extending their leases. The removal of marriage value alone is a major advantage for those whose leases are approaching the 80-year threshold.
- Those who will be impacted negatively: Leaseholders with longer leases, who never had to pay marriage value, could face higher costs if government-set valuation rates favour freeholders. Freeholders themselves are also likely to see reduced premiums for lease extensions.
Final Thoughts
While the Act aims to make lease extensions cheaper, the lack of clarity around valuation rate adjustments leaves some uncertainty. Until the government finalises these figures, leaseholders should carefully assess their options before committing to an extension.
Contact us if you would like any advice or need any assistance in relation to any lease extension.