Leasehold Reform 2025: What Flat Owners Need to Know

Are you a flat owner in England or Wales with a short lease? Significant changes are underway in 2025 that could directly impact your property ownership. The leasehold system has long been a source of frustration for many, with concerns over high costs, lack of control, and the finite nature of ownership. Finally, the government is taking substantial steps towards reform, aiming to empower leaseholders and modernise property tenure.

This comprehensive guide will walk you through the key aspects of the 2025 leasehold reforms, explaining what they mean for you as a flat owner with a short lease and how these changes could influence your decisions moving forward. We'll delve into the new legislation, the phasing of its implementation, and what actions you might consider taking.

Understanding the Current Leasehold Landscape

Before we explore the reforms, it's crucial to understand the fundamentals of leasehold ownership. When you own a leasehold property, you own the right to live in the property for a specific period, as outlined in the lease agreement. The freeholder owns the land and the building itself.

This system can often lead to several challenges for leaseholders:

• Diminishing Asset: As the lease term gets shorter, the value of the property can decrease, making it harder to sell or remortgage.
• Service Charges: Leaseholders are typically required to pay service charges for the maintenance and upkeep of the building, often with limited transparency or control over these costs.
• Ground Rent: Most leases include ground rent, a regular payment to the freeholder, which can sometimes escalate significantly over time.
• Lease Extension Costs: Extending a lease can be expensive, especially when the remaining term falls below 80 years, triggering "marriage value" in the calculation.
• Lack of Control: Leaseholders often have limited say in the management of the building and decisions affecting their homes.

These issues have driven the need for significant reform, and 2025 is shaping up to be a pivotal year for leasehold flat owners.

Key Changes Introduced by the Leasehold and Freehold Reform Act 2024

The Leasehold and Freehold Reform Act 2024 received Royal Assent in May 2024, and various provisions are being implemented throughout 2025, with others expected to follow - but the timescale and enactment of some elements is still uncertain. These changes aim to address many of the long-standing grievances of leaseholders. Here are some of the key reforms that are particularly relevant to flat owners with short leases:

1. Abolition of the Two-Year Ownership Requirement (Implemented January 2025)

Previously, leaseholders had to own their property for at least two years before they could commence a Statutory lease extension or initiate the process to buy the freehold (enfranchisement). This rule has now been abolished. As of January 31, 2025, you are eligible to pursue a statutory lease extension or freehold purchase as soon as you become the registered owner of the property.

This is a significant early win for new flat owners with short leases, providing immediate flexibility and potentially reducing costs associated with delaying these processes.

2. Increased Standard Lease Extension Term (Yet to be implemented)

The Act increases the standard lease extension term for both houses and flats to 990 years. This is a substantial increase from the previous additional 90 years for flats. Furthermore, upon extension, the ground rent will be reduced to a peppercorn (zero financial value).

This change offers greater long-term security and effectively makes the extended lease almost equivalent to freehold ownership in terms of duration. It removes the worry of the lease running down within a typical ownership period.

3. Removal of 'Marriage Value' (Yet to be implemented)

"Marriage value" is a calculation that comes into play when a lease has less than 80 years remaining. It represents the increase in the property's value resulting from the marriage of the leasehold and freehold interests. Currently, leaseholders have to share this value with the freeholder during a lease extension. The Act abolishes marriage value, which could significantly reduce the cost of extending leases with shorter terms if implemented as expected.

This is a crucial reform for owners of flats with shorter leases, as it directly tackles one of the most significant costs associated with lease extensions.

4. Easier and Cheaper to Take Over Management ('Right to Manage' Reforms - Implemented Spring 2025)

The Act makes it easier for leaseholders to exercise their Right to Manage (RTM). Key changes include:

• Increased Non-Residential Limit: The threshold for the amount of commercial space in a building that would prevent leaseholders from accessing RTM has increased from 25% to 50%. This means more mixed-use buildings will now be eligible.
• Removal of Freeholder's Costs: In most cases, leaseholders will no longer be required to pay their freeholder's legal costs when making an RTM claim.

These reforms empower leaseholders to take control of the management of their building, allowing them to appoint their own managing agents and have greater oversight of service charges and maintenance.

5. Transparency of Service Charges (Yet to be implemented)

The Act introduces measures to improve the transparency of service charges. These include:

• Standardised Format: A standardised format for service charge demands will be introduced.
• Annual Service Charge Reports: Landlords will be required to provide annual service charge reports, accompanied by a service charge account statement for blocks with four or more properties.
• Right to Request Information: Leaseholders will have a right to request information on service charges from their landlord, who will be legally obligated to comply.
• Ban on Insurance Commissions: Opaque and excessive buildings insurance commissions for freeholders and managing agents will be banned, replaced by administrative charges.

These changes aim to provide leaseholders with a clearer understanding of what they are paying for and the ability to challenge unreasonable costs.

6. Restriction on Forfeiture (Yet to be implemented)

While not yet fully detailed, the government has expressed its intention to address the disproportionate threat of forfeiture (losing your property) as a means of ensuring compliance with the lease agreement. Future legislation is expected to strengthen leaseholder protection in this area.

The Path to Further Reform: The Leasehold and Commonhold Reform Bill

Looking beyond the immediate implementation of the 2024 Act, the government has committed to introducing a draft Leasehold and Commonhold Reform Bill in the second half of 2025. This bill aims to bring about even more fundamental changes, including:

• Banning the Sale of New Leasehold Flats: The long-term goal is to make commonhold the default tenure for new-build flats, effectively ending the creation of new leaseholds, except in specific circumstances (consultation on exemptions is expected).
• Reinvigorating Commonhold: The bill will seek to modernise the legal framework for commonhold, making it a more viable and attractive alternative to leasehold. This includes addressing barriers to its adoption and simplifying its implementation for mixed-use buildings and shared ownership properties.
• Regulating Ground Rents for Existing Leaseholders: The government intends to tackle existing ground rents, ensuring they are no longer unregulated and unaffordable.
• Strengthening Regulation of Managing Agents: Further measures to regulate property managing agents and improve standards of practice are expected.

The Leasehold and Commonhold Reform Bill represents the next significant step in overhauling the leasehold system and promoting commonhold as the future of flat ownership.

What These Reforms Mean for You as a Flat Owner with a Short Lease

The 2025 leasehold reforms offer several potential benefits for flat owners with short leases:

• Reduced Lease Extension Costs: The expected abolition of marriage value and the potential for a fairer valuation process in the future could make extending your lease more affordable.
• Long-Term Security: The 990-year lease extension provides peace of mind and protects the value of your asset for the long term.
• Greater Control: The Right to Manage reforms empower you and your fellow leaseholders to take control of your building's management and finances.
• Increased Transparency: Improved transparency in service charges allows you to scrutinise costs and challenge unfair demands.
• Improved Marketability: A longer lease makes your property more attractive to potential buyers and lenders.

Should You Extend Your Lease Now or Wait?

This is a critical question for many flat owners with short leases. While the reforms aim to make lease extensions cheaper in the long run, several factors need consideration:

• Lease Length: If your lease is already below 80 years, acting sooner rather than later might be advisable to avoid further depreciation and the complexities of a very short lease. The alternative view is that if the marriage value is removed, then your lease may become cheaper to extend in the future.
• Urgency to Sell or Remortgage: If you plan to sell or remortgage in the near future, extending your lease now might be necessary to make the property more appealing to buyers and lenders.
• Uncertainty of Future Valuation Rates: The government will be consulting on the valuation rates used to calculate lease extension premiums in the summer of 2025. The outcome of this consultation could influence future costs, but the exact impact is currently unknown.
• Implementation Timelines: While some reforms are already in effect, others, such as the removal of marriage value and the standardisation of a 990-year lease, will take more time and potentially further legislation.

It is highly recommended to seek professional advice from an expert to assess your individual circumstances and make an informed decision about the best course of action for your property.

Exploring Commonhold: A Potential Future for Flat Ownership

The government's commitment to reinvigorating commonhold signals a potential long-term shift in how flats are owned in England and Wales. Commonhold is a form of freehold ownership where individuals own their specific unit within a building or development, and collectively own and manage the shared areas through a commonhold association.

Key benefits of commonhold include:

• True Freehold Ownership: You own your property outright, with no finite lease term.
• Direct Control: As a member of the commonhold association, you have a say in the management and upkeep of the building.
• No Ground Rent: Commonhold properties do not have ground rent.
• Greater Transparency: Costs for shared services are decided collectively by the owners.

While the transition to commonhold will take time, understanding this alternative tenure is crucial for future flat owners. The government aims to make the legal framework for commonhold more accessible and applicable to a wider range of developments.

Taking Action: What You Can Do Now

While the full impact of the reforms will unfold over time, here are some steps you can take now if you own a flat with a short lease:

1. Understand Your Current Lease: Review your lease agreement carefully to understand the remaining term, ground rent provisions, and service charge arrangements.
2. Assess Your Options: Consider whether extending your lease or pursuing enfranchisement is the right course of action for you, taking into account your current circumstances and future plans.
3. Seek Professional Advice: Consult with an expert to get a valuation for a lease extension or freehold purchase and to understand the legal implications when navigating the process.
4. Stay Informed: Keep up-to-date with the latest developments in leasehold reform through reputable sources, such as the government's official website (https://www.gov.uk/) and the Leasehold Advisory Service (https://www.lease-advice.org/).
5. Consider Collective Action: If you and your neighbours are facing similar issues with short leases or building management, consider exploring the Right to Manage collectively.

Conclusion: A Brighter Future for Leasehold Flat Owners?

The leasehold reforms of 2025 represent a significant step towards a fairer and more transparent system of flat ownership in England and Wales. For owners of flats with short leases, these changes offer the potential for reduced costs, greater security, and more control over their properties.

While the full implementation of all the proposed reforms will take time, the direction of travel is clear. By understanding your rights and options under the new legislation and seeking professional advice, you can navigate these changes effectively and make informed decisions about your property.

If you are a flat owner with a short lease and would like to discuss your options or understand how the 2025 leasehold reforms might affect you, please do not hesitate to contact us for expert assistance. We are here to help you navigate the complexities of leasehold and freehold and secure your property interests for the future.