Residential lease extensions – where are we now?

We are receiving a considerable number of enquiries from flat owners as to the current position and how they should proceed following LAFRA’s enactment. Unfortunately, there are still no easy answers, because although LAFRA “is on the statute book”, it has not been “commenced” and some parts of the Act have been left blank (in particular, pertaining to the valuation method), pending further consultation by Government with stakeholders, including industry experts and landlord and tenancy advocacy groups. A summary of the key changes under LAFRA is set out below. Some of these changes could be introduced immediately, such as granting a 990 year extended lease term or removing the two year ownership rule (indeed since this blog was first published the Government has announced that the two years requirement will be abolished January 2025).

However, changes to the valuation method are likely to take much longer – months if not years – and these are the changes that would be most beneficial to flat owners.  The latest update from the Government in November 2024  is that they will be launching a consultation on this next Summer which means in practice the position is unlikely to be resolved until at least 2026 as further legislation will need to be introduced to deal with this in detail and fix any current flaws in the legislation.

To add to the uncertainty, some large landlords, concerned by possible erosion of substantial elements of value from their portfolios (in particular, by the removal of so called “marriage value”) are set to launch Human Rights challenges – based specifically on Article 1 of Protocol 1 ECHR grounds (“A1P1”) which relates to the protection of property.  It is not at all clear how these challenges would play out, but they may make the Government less inclined to enshrine the parts of LAFRA that would really significantly reduce the cost to flat owners of extending their leases.

Given the prospect of reform, many flat owners had adopted a wait and see approach, pending LAFRA’s introduction. However, LAFRA (thus far) has proved to be something of an anti-climax. The truth is that no one in the industry is currently able to make an assessment as to when, what, or if, the various proposed reforms will come into play. Flat owners are left hanging – wondering whether to keep waiting for new developments, or to take the plunge under the rules as they (still) are.

If you are thinking about extending your lease or if you are a landlord, please feel free to speak to one of our expert real estate lawyers to discuss your options.

For flat owners whose lease terms are approaching the 80 year “marriage value” threshold, or if they are looking to sell or remortgage in the coming year or so, our advice will most likely be to press ahead with a lease extension claim under the current statutory framework.  However, for those with longer terms and who are otherwise in a position to wait and see, there is likely no harm in doing so. If no significant reforms are introduced, or if they are watered down to see off Human Rights based challenges, their position will not have been materially compromised, but if significant reforms are introduced then they stand to benefit in a meaningful way.