A year has passed since the Leasehold and Freehold Reform Act (LAFRA) passed in to law, with the aim of ‘making it cheaper and easier for people to extend their lease or buy their freehold so leaseholders pay less to have more security in their home’. Technically, the Act enabled reduced costs, transparency over management and service charges, and fairer enfranchisement. But for many increasingly frustrated homeowners and their advisors, these benefits remain out of reach.
In practice, the legal architecture remains largely unchanged. Despite the fanfare, LAFRA has not yet been brought into full effect. Key provisions lie dormant, awaiting secondary legislation. Some of these delays are due to timing, others dependent on case law and others appear to have been overlooked as the current government looks beyond the previous government’s Act to its own imminent Leasehold and Commonhold Reform Bill.
Market insight
Research carried out by ALEP (the Association of Leasehold Enfranchisement Practitioners) confirms the prevailing mood. In a recent survey, 67% said the process of extending a lease had not become easier, and 33% said it had not changed. One practitioner summed it up bluntly: “We are all stuck in limbo.”
That sentiment has hardened over the past year. Most ALEP members viewed the original Bill as rushed but more recently comments from practitioners ranged from “a poisoned chalice” to “a dog’s dinner”. Some were more pragmatic, seeing the Act as a necessary but flawed first step, but almost all agreed that it has created more uncertainty than clarity.
For solicitors and valuers, the impact on client behaviour is concerning, as enfranchisement work slows dramatically. Clients are deferring decisions, unable to judge whether now is the right time to extend or enfranchise. In many cases, leaseholders are only proceeding when forced by external circumstances - such as remortgage requirements or bereavement. Others are pursuing the Right to Manage (RTM) as a halfway house, uncertain whether full enfranchisement remains worthwhile if commonhold is around the corner.
Advising in uncertain circumstances
For those of us advising clients in this environment, the challenge is that we’re being asked to make predictions, not just give advice. The central dilemma is well understood: if payment of marriage value (the increase in a property's value that occurs when a leasehold interest and a freehold interest are combined, typically through a lease extension or freehold purchase) is abolished, then waiting makes sense. But if it remains - or if premiums rise because of changes to deferment rates - then waiting could cost more in the long term. In the meantime, leases continue to depreciate, and so the opportunity cost of inaction grows.
It’s not that homeowners don’t understand the issues. Many do - some in great detail. But the lack of certainty means decisions are often driven by personality as much as policy: a risk-tolerant investor might proceed; a cautious homeowner may wait. In both cases, professionals are being asked to advise on legal hypotheticals, not legal certainties - and that’s an uncomfortable place to be.
As one practitioner put it, “It feels like when you close one door, five more open”. The anxiety this creates should not be underestimated. The leasehold system was already complex and technical. LAFRA, in its current state, has simply made it more opaque.
The Human Rights hurdle
Some of the delays could have been foreseen - particularly around the removal of the payment of marriage value. This is a substantial financial shift, and it was always likely to attract challenge. The Human Rights claims being brought by freeholders have added a significant layer of legal uncertainty. Even if initial rulings arrive this year, further appeals seem inevitable. Until these are resolved, it seems the government is unlikely to press ahead with full implementation.
The irony is that the core aim of the Act was simplicity. Ministers talked of making leasehold easier and cheaper. So far, it’s neither. And the gap between the political message and the legal reality is growing.
Where next for leasehold?
There is consensus across the industry that reform is needed. But there are lessons to be learnt from the past year. The next phase of reform - whether through secondary legislation or a new Leasehold and Commonhold Reform Bill - must be subject to proper scrutiny and built on real engagement with professionals. That means listening to ALEP, the Law Society and others who deal with the practicalities day in, day out.
There is an opportunity here to create legislation that works ‘front to back’, rather than being riddled with cross-referencing and ambiguities. But that takes time and political will.
Commonhold - the next frontier or another distraction?
The government continues to promote commonhold as the long-term alternative to leasehold for multi-occupancy buildings. In principle, this is not unfeasible - there are international models to draw upon. But it cannot be delivered overnight.
For developers perspective, commonhold removes the ongoing income streams that are built into their business models, specifically ground rents and management fees. For mortgage lenders, unfamiliarity and lack of precedent are major barriers. For buyers and sellers, the mortgage issue is significant, as is a general (inevitable) lack of awareness of the strengths and weaknesses of commonhold.
In my experience most clients who look into commonhold conclude that it’s not viable. And in most cases, they’re right: there are far too few examples to demonstrate the impact and too few lenders are on board.
That said, it could work if done properly. A phased approach, starting with certain types of new builds, could allow commonhold to evolve in a way that is manageable and sustainable. But this will take political commitment, legal clarity and industry buy-in.
Ambition and reality
Government ministers will be only too aware of impulsive assurances about ‘banning leasehold’ following an election win, and a political imperative to achieve this. Consequently there is a danger that the political momentum behind commonhold distracts from the immediate need to fix leasehold. But until LAFRA is properly implemented - and its unintended consequences addressed fully - the market will remain in a holding pattern.
