13.1 Overview of Post-2020 Leasehold Reform Proposals
Implemented Changes
Certain provisions of the Leasehold and Freehold Reform Act 2024 (LFRA 2024) have been enacted, enhancing accessibility and security for leaseholders under the amended Leasehold Reform, Housing and Urban Development Act 1993 (LRHUDA 1993).
Removal of the Two-Year Ownership Rule
Effective from 31 January 2025, the requirement for tenants to own their property for at least two years before claiming a statutory lease extension has been abolished. This applies to both flats and houses, allowing immediate applications upon registration. The change promotes market fluidity, enabling recent purchasers, particularly those acquiring short leases, to extend without delay, potentially increasing property values and reducing mortgage barriers. However, it may lead to a surge in claims, pressuring freeholders and tribunals.
Other enacted measures include enhanced Right to Manage (RTM) provisions from 3 March 2025, facilitating easier building management takeovers, which can indirectly support extension processes in blocks.
Proposed Future Changes
Many transformative elements of LFRA 2024 are pending, subject to consultations and a High Court judicial review launched in August 2025, which questions human rights compatibility of valuation changes. Rates for deferment and capitalisation are expected to be set following consultations delayed until after the judicial review.
Extension to 990-Year Terms
Lease extensions would provide a 990-year term at a peppercorn rent, up from 90 years for flats and 50 years for houses. This offers long-term certainty, eliminating future ground rent and extension needs. However, as of September 2025, this provision (under sections 28-30 of LFRA 2024) has not commenced, with no set date, pending secondary legislation. Premiums would be calculated under new methodologies once in force.
Abolition of Marriage Value
Marriage value, the shared uplift in property value from a lease extension when the unexpired term is below 80 years, is set to be abolished, removing the 50% split payable to freeholders. This would substantially reduce premiums for short leases, potentially saving leaseholders billions. However, the reform is contested in the judicial review, with freeholders arguing it infringes property rights. If implemented, it could encourage more extensions for sub-80-year leases.
Ground Rent Compensation and Caps
Proposals include capping ground rents for premium calculations at £250 annually or 0.1% of the freehold value, addressing onerous escalating rents. This would lower compensation payable to freeholders for lost future income, calculated via capitalisation rates. A new right to buy out ground rents without extending the lease is also proposed. Consultations seek views on implementation, with potential for peppercorn rents in extensions. Challenges from investors highlight risks of legal disputes.
Deferment Rate Adjustments
The deferment rate, currently 5% for flats per the Sportelli case, discounts the freeholder's future reversionary interest in premium calculations. Government plans to standardise rates via consultation, potentially lowering them to reflect lower-risk investments. During a Public Bill Committee in 2024, Professor Tim Leunig suggested: "You need one number that you stick with through thick and thin, and the default rate, I think, is the Green Book discount rate of 3.5%. I am happy to believe that if we were in the Department and I was employed, you could sway my belief that 3.5% is the right answer, but that is where I would start."
A decrease (e.g., to 3.5% or 4%) would increase premiums by raising the present value of the reversion. While reforms could make extensions cheaper for leaseholders with fewer than 80 years remaining, primarily through marriage value abolition, they may prove more expensive for those with over 80 years if the deferment rate is reduced, as this would elevate the cost of compensating for the freeholder's deferred interest without offsetting savings from marriage value.
For example, a £250,000 flat would experience an increase of £8,000 on the premium, in addition to the existing premium, if the deferment rate dropped from 5% to 3.5%.
Shifting of Freeholder Costs
Leaseholders will generally no longer pay freeholders' reasonable non-litigious costs, with freeholders bearing their own expenses. Exceptions may apply for high-value transactions (e.g., premiums exceeding £50,000). This aims to reduce overall extension costs but is part of the judicial review scrutiny.
Tribunals Considering Future Changes in Decision-Making
Tribunals are increasingly factoring prospective reforms into valuations, applying limited weight to uncertainties. In First Floor Flat, 6 Downs Road (LON/00AM/2024/0302, March 2025), the tribunal increased the capitalisation rate by 2.5% from 6% to 8.5% to reflect potential ground rent caps: "With regards to The Leasehold and Freehold Reform Bill, as stated above, this is proposed legislation that has not yet been enacted and the timetable for such application is still uncertain. As such, whilst this should be factored into to the valuation, only limited weight should be given to it at this moment in time. However, the tribunal finds that an adjustment of 2.5% in the capitalisation rate is appropriate to reflect this."
This approach may extend to deferment rates if reforms appear imminent, potentially lowering current premiums but adding variability.
Expert Quotes and Opinions
Former Housing Secretary Michael Gove described the system as exploitative, stating in 2023: "We will squeeze every income stream that freeholders have." Previous Housing Secretary Angela Rayner, before her resignation in July 2025, affirmed: "These reforms will improve home ownership for millions."
Catherine Callaghan KC, in her Law Commission advice, emphasised proportionality: "Options to cap premiums must balance leaseholders' interests with freeholders' Article 1 Protocol 1 rights."