New leasehold reforms now in effect – but how does the law actually work?
Last week, the Housing Minister Matthew Pennycook announced that he was “switching on” measures in the Leasehold and Freehold Reform Act. But how can he ‘switch on’ changes in the law, and what does this mean for the future of leasehold reform?
As of today, the ‘two year rule’ has been abolished. In the past, you couldn’t extend your lease or buy the freehold of a leasehold house until you’d owned it for two years, but you can now start the process at any time. This straightforward change is good news, because the battle to extend a short lease at the last minute has derailed many a property purchase: if you’re buying a flat and are concerned about the length of the lease, you should use that as a factor when considering how much you are prepared to pay for the property, but you no longer need to rely on the vendor to start the lease extension process before you buy.
The Housing Minister is clear that drafting these regulations will take time and, as frustrating as this may be for leaseholders, we agree with his approach
Since this change was part of the Leasehold & Freehold Reform Act 2024, why has it only come into force today? Over the last few months, we’ve heard from lots of leaseholders who were very confused about this, having read about changes that are included in the Act but which have not taken effect.
To explain how and why this happened, let’s take a look at how legislation in England and Wales works.
First, we have primary legislation, in normal conversation referred to as ‘laws’ or ‘statutes’. The Leasehold & Freehold Reform Act 2024 is an example of primary legislation.
The tricky thing here is that primary legislation varies in its level of detail. Sometimes, it will say exactly what you can and cannot do. In other cases, it will outline the broad vision of what should or should not happen but will not include the finer detail.
In those cases, the primary legislation will refer to secondary legislation (also known as regulations) which provide all of the detail. These legislations are created and approved separately, after the primary legislation has been through parliament, and that is exactly what has happened with the Leasehold & Freehold Reform Act 2024 – much of the Act only contains broad outlines of future changes, and so relies on separate regulations being approved before anything actually changes. Today, the Housing Minister signed the new regulations to remove the ‘two year rule’ and so this change has only just come into effect.
In the same way, many other changes under the Act (such as changes to the way service charge accounts are presented, changes to the way managing agents charge leaseholders for insurance-related services, and potentially changes to how much it costs to extend your lease or buy the freehold of your building) will also need new regulations to be created and approved. This is why the Act itself had very little impact in the short term, as we explained in a previous post.
In a detailed statement, Mr Pennycook is clear that drafting these regulations will take time and, as frustrating as this may be for leaseholders, we agree with his approach. The changes needed are extremely complex and could have disastrous effects if not properly considered, so the government needs to consult widely. We will share our analysis of these changes here as they are announced – let us know via the Suggestion Box if there are particular aspects of leasehold reform you’d like us to explain.