Once the provisions of section 1 of the Leasehold and Freehold Reform Act 2024 come into force, if development land is held leasehold rather than freehold and the development site lease was granted after 17 December 2017 then, unless exceptions apply, it will not be possible to grant new leases of houses on the site.
What are the exceptions?
- If the contract for the grant of the development site lease was entered into before 17 December 2017.
- If the new lease of any house on the site will fall within a special category (as specified in the first schedule to the Act) such as a retirement housing lease, shared ownership lease or the extension of an existing lease of a house.
When will section 1 come into force?
We do not know for sure. The statute makes provision for secondary legislation to be drafted to flesh out some details. Whether the Government decides this is necessary and how long this will take will depend on the Government's priorities and schedule.
Further considerations
Alongside the King's speech of 17 July 2024, the new Government announced its intention to legislate in 2024/25 to prohibit new flats being sold leasehold. It is likely that new flats will have to be sold commonhold, which is an interest which can only be granted by a freeholder. This means that it is possible that in the future, developers who have only a leasehold interest will be prohibited from selling flats.
It is likely that there will be an exception where the lease of the development site was granted (or granted pursuant to a legally binding contract dated) on or before a particular date. It is possible that the relevant date would be 17 July 2024, being the date on which the government's intention was made known.
However, it is acknowledged that existing legislation providing for commonhold ownership is not fit for purpose. There could be some delay before suitable commonhold legislation is drafted allowing commonhold ownership for new flats to be made mandatory.