A flawed foundation: Understanding the “serious flaws” identified in the Leasehold and Freehold Reform Act 2024 (LAFRA)

There is no doubt that the government’s plans for leasehold reform are ambitious. On 21 November 2024, in a written ministerial statement on leasehold and commonhold reform, Minister for Housing and Planning, Matthew Pennycook, reiterated the government’s manifesto commitment to the wholesale reform and, eventually, intended abolition of leasehold.  These included:

• removal of the 2-year ownership rule for leaseholders to extend their lease or buy their freehold (which came into effect on 31 January 2025);
• consulting on LAFRA’s provisions on service charges and legal costs;
• consultation on the valuation rates used to calculate the cost of enfranchisement; and
• publication during the second half of 2025 of the Leasehold and Commonhold Reform Bill.

However, Mr Pennycook also acknowledged that LAFRA “contains a small number of specific but serious flaws which would prevent certain provisions from operating as intended and that need to be rectified via primary legislation. These serious flaws… (undermine) the integrity of the amended scheme”.

Tantalisingly, Mr Pennycook shed no further light on the source of these identified “flaws”, leading to much speculation on the complexity and extent of the issue and adding further uncertainty for landlords and leaseholders alike.

Some insight has now been given.   During Parliamentary questions last week, Mr Pennycook reaffirmed the government’s view that there are indeed “serious flaws” in LAFRA, legislation rushed through in last year’s Parliamentary wash up and intended to strengthen consumer rights in leasehold law.  Mr Pennycook explained the defects identified cover the following:

• allowing third parties to leases, such as resident-led management companies, to recover contributions toward their process costs in some instances;
• correcting the legislation so some entities, like resident-led management companies, are able to recover their costs. This untended consequence of the (current draft) legislation could leave some third parties at risk of liquidation;
• correcting an unintended constraint on landlords’ existing redevelopment break rights that applies in certain limited circumstances; and
• correcting technical cross references and make consequential amendments to ensure the smooth implementation to LAFRA.

In common with other recent legislation such as the Building Safety Act 2022, as well known for its lack of clarity as it is for introducing swingeing changes to building safety legislation, the announcement underscores the need for care over speed when drafting new legislation.   The government has also yet to commit to a defined timeline for its next steps, so the industry continues to wait for clarity.  It seems an already tardy leasehold reform agenda is set to be delayed further.

Patience will continue to be the watchword.