The Leasehold and Freehold Reform Bill – Key takeaways for charities

The Leasehold and Freehold Reform Bill had its second reading in Parliament on 11 December and proposes to introduce a number of important changes to the current legislation governing long residential leases.

The proposed changes are generally designed to create a more favourable regime for leaseholders, making it cheaper and easier to extend their leases, and easier to own leasehold property: It builds on similarly themed recent legislative reforms such as the Building Safety Act 2022.

Some of these changes are particularly worth taking note of for charities who own freeholds of premises let on long residential leases. It is also pertinent for charities who are the Personal Representatives and/or beneficiaries of estates which include freeholds and/or residential flats. The proposed changes are key for maximising the sale value of such properties.

Key changes

The changes currently proposed to come into force have the following key impacts:

How this might affect your charity

Opportunities in relation to leasehold flats

If the requirement to serve notice to extend within two years of grant falls away, this will broaden the opportunity to extend leases of properties left in wills. Accordingly, it may be advantageous to approach freeholders ahead of the changes as extensions may be available when there is no statutory entitled and, in light of other changes, potentially on advantageous terms. Landlords may well wish to secure terms under the old legislation so this can be used to negotiate the premium downward.

Uncertainty for freeholds of residential premises

The proposed changes are less favourable to landlords and are likely to create some uncertainty in the market as to the value of freehold reversions. The changes could, therefore, have an important bearing on how PRs and trustees manage any freehold interests held by or on trust for charitable beneficiaries.

Thee enhanced rights of the leaseholders (i.e., to more easily extend or acquire the freehold), will need to be considered as part of longer-term strategy for managing the trust's interests.

What next?

The Bill is now at the committee stage in the House of Commons, before moving to the Report Stage and then third reading. There have been a number of proposed amendments and additions to the Bill, not least by the Law Society (and we await to see how these will influence the outcome). However, the Bill now looks likely to be passed in substantially the current form and as such Charities should consider it potential impact when planning their strategy to maximise value. If you have any questions at all about how this might impact you, please don’t hesitate to get in touch with our Charity Property team.