The Leasehold and Freehold Reform Act 2024 (known as LAFRA) was intended to introduce a new 990 year lease term (up from an extra 90 years), the abolition of marriage value (currently payable on lease terms below 80 years), capping of ground rents in valuation calculations (of particular interest to those with rising ground rents) and the abolition of the landlord’s right to recover the costs of granting the new lease from the leaseholder.
The changes are of obvious appeal to leaseholders, but almost 18 months on from LAFRA receiving Royal Assent, nothing has really changed. Why is this?
In practical terms, the changes require further consultation and secondary legislation to bring them into force (i.e. to make them law) and this was never likely to be a quick process due to the complexity of the existing regime and the magnitude of the changes. However, progress has been further slowed by a group of major landlords who issued judicial review proceedings to challenge the changes on human rights grounds - ARC Time Freehold Income Authorised Fund & Ors, R (on the application of) v The Secretary of State for Housing, Communities and Local Government [2025]. This challenge was dismissed by the High Court last month, but it appears that permission to appeal has now been sought, creating further uncertainty in terms of when and if the proposed changes will become law.
At present, marriage value still remains payable on lease terms of less than 80 years, which can significantly increase the premium payable for a new lease and so with no current timetable for the implementation of any changes, those with lease terms nearing the 80 year mark should be considering their options.
It is also worth noting that, in addition to the abolition of marriage value, LAFRA empowers the Secretary of State to introduce new and potentially lower deferment and capitalisation rates and, in short, the lower the deferment or capitalisation rate, the higher the lease extension premium.
There is speculation that the deferment rate - a discount currently applied in the valuation of the landlord’s freehold reversion- could be reduced from the current standard 5% (as set by the case of Cadogan v Sportelli & ors [2007]) to somewhere in the region of 3.5% - 4.5%. Likewise, the current capitalisation rate – another discount currently applied in the valuation of the landlord’s loss of ground rent income - is typically in the region of 6% - 8% and there is speculation that this could potentially be fixed at a lower rate too, although capitalisation rates generally have less impact on valuation unless ground rents are high.
While this may offer some level of comfort to landlords if marriage value is abolished, this could also potentially make lease extensions more expensive for a wider group of leaseholders and not just those currently faced with the prospect of marriage value.
A government consultation on both deferment and capitalisation rates is expected, but it is not currently clear when this will happen, or whether it will be delayed further pending the outcome of the ongoing judicial review proceedings. We will continue to monitor the situation closely but in the meantime, if you have any questions about the implications of LAFRA or lease extensions more generally, please contact Marjorie Batten, Amy Bennett or Eleanor Lord.
The Renters’ Rights Act: legal implications for landlords and letting professionals
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