So, this certainly is a piece of Leasehold Reform News …

We now have the publication of the Law Commission’s long awaited consultation on its proposed changes as these will affect the law relating to buying your freehold and extending your lease. You will note that even in the title they do not use the word ‘enfranchisement.’

We had a flavour of what lay in store when we received the report back to parliament as promised under the terms of reference that came out of the ‘Tackling Unfair Practices in the Leasehold Market’ Consultation. This was published on 20th July 2018 and we had the sentiment as set out in that document that in fact, rather than tackle the issue of leasehold houses on their own, the Law Commission’s proposal was rather to move towards a solution that would involve the rationalisation and simplification of the process of enfranchisement. Something of a ‘grand unified theory’ if you will, bringing together the right to extend your lease and also to purchase your freehold in a single statute with a simplified approach to valuation.

What we have now is the next step in the process. Don’t forget that the short snappy document released today (which runs to some 546 pages), is quite like a book on the whole topic. Not necessarily a bad thing, but it has to be borne in mind that this document is in fact is a Law Commission Consultation Paper (no.238 to be precise).

All interested parties have two months (until 20^thNovember 2018) to respond to the 135 questions that it poses.

The next step in this process after the consultation closes will be a full report with recommendations for change, although this is not likely to be published until during 2019. (i.e. the recommendations themselves may not be in a format that could be acted on until the end of next year).

This is likely to seem like a frustratingly slow pace of change for many organisations such as the LKP (Leasehold Knowledge Partnership) and the NLC (National Leaseholder Campaign) who are keen to see urgent and radical change in this area. They may well be right that the area is ripe for reform, but the process that has to be followed will require a further report back from the Law Commission with final recommendations for reform that parliament can then look at.

As to when the Parliamentary timetable will permit leasehold to be looked at is of course another question. The short answer is that with Brexit there may not be that much time for government to then find the available time to pass what will be – if these proposals are to be believed – a single grand unifying act bringing all enfranchisement rights together in one place. An objective that is very much to be commended and something that I and a number of commentators have been suggesting for years. One of the more satisfying things about the proposals is that they do bring to the fore the issues that ALEP (the Association of Leasehold Enfranchisement Practitioners) and others have identified to numerous housing ministers over the years as being inconsistencies between the various regimes that clearly warrant harmonisation.

One of the biggest bits of news, given that its terms of reference require the Law Commission to ‘examine the options to reduce premium whilst ensuring that compensation is still paid to landlords’ are the extent to which the proposals would affect the basis on which freeholds are valued. Some parts of the institutional market have already begun to take account of these possible changes but, because of the uncertainty, it is difficult to make any definitive statements as to what (if any) long term affect they will have on value.

Once the full consultation document is fully digested, I anticipate that there will be numerous parties that will want to make comments on this – as well they should – so that these proposed changes are as well thought out as they can be – I anticipate comments from politically interested groups, professional bodies and practitioner groupings such as ALEP, along with many other commentators.

It is certainly true that 2018/19 is shaping up to be an exciting time in leasehold and that there are going to be some significant changes in the next few years.

I have set out below (thank you to the Law Commission for providing their own summary document) a few highlights of the possible changes, which are a very handy summary to the key points from the consultation document:

Proposals for leaseholders of houses

Current law	Proposals
Different regimes for leasehold houses and flats.	One regime for both houses and flats, reducing complexity and costs.
Minimum two-year period of lease ownership before a leaseholder of a house can bring a claim.	No minimum period of lease ownership, reducing delay and costs for leaseholders.

Leaseholders of houses who wish to extend their lease (rather than buy their freehold) only able to extend their lease once, by 50 years at a (relatively high) “modern ground rent”.	Leaseholders of houses able to extend their lease for a longer period, at a nominal rent. No limit on number of extensions.
Where an estate includes houses and flats, the leaseholders of houses cannot join with the other leaseholders to acquire the whole estate.	A right for all leaseholders on an estate (whether they own a flat or house) to join together to acquire the freehold to the whole estate.
Separate procedures apply to each of the different enfranchisement rights.	A single procedure to apply to any enfranchisement claim, reducing complexity, confusion and costs.
Frequent challenges by landlords to the validity of notices given by leaseholders	Limiting the types of challenges to notices that can be made.
No procedure for dealing with missing landlords where a leaseholder wishes to extend the lease of a house. Procedures for dealing with missing landlords in other cases complex and costly.	Common procedure for dealing with missing landlords, ensuring leaseholders can exercise rights and save costs.
Both leaseholders and landlords can dispute terms on which freehold is transferred or lease extended.	Ability to argue about terms restricted.
The power to determine disputes is split between the county court and the Tribunal. A single claim may require a number of separate applications to be made before it is concluded.	All disputes to be determined by the Tribunal, reducing complexity and costs.
Leaseholders of houses are required to pay their landlord’s reasonable non-litigation costs.	Leaseholders no longer required to pay their landlord’s non-litigation costs or those costs to be controlled; for example, through a fixed costs regime.
Most favourable valuation basis only available to leaseholders who satisfy complex financial criteria.	Replacing financial criteria to reduce complexity and costs, whilst preserving most favourable valuation method for those who already benefit.
Valuation is complex and requires leaseholders to obtain expert valuation evidence in respect of each element of the valuation (including the value of the term, the reversion, any marriage value, and other elements), and legal advice to resolve disputes.	Options to reduce premiums payable by leaseholders of houses including: a simple formula (ground rent multiplier, or percentage of capital value) the removal of, or prescription of rates for, some or all elements of the valuation.Sufficient compensation to be paid to landlords.

Proposals for leaseholders of flats

As stated above, the coming year is likely to see big changes in residential leasehold.

Mark Chick 

20th September 2018

To discuss any of the issues raised in this article or to contact Mark Chick please email leasehold@bishopandsewell.co.uk. If you require legal advice please visit www.bishopandsewell.co.uk

This case came out during the summer and arrived at something of a lull the in leasehold pending the outcome of the consultation and not much other news on things statutory.

However, it does serve as a reminder of the position concerning the position of executors wanting to bring a lease extension in the name of the deceased and provides some further clarity in this area.

As readers may well know, Section 42 of the 1993 Act gives the executors of a deceased flat owner the Right to make a claim for a new lease within two years of the date on which a Grant of Probate has been obtained. This is so that the Executors can (if the deceased qualified) make a claim in their name. In Villarosa the executors had made a transfer of the property and subsequently had then gone on to hold the property for more than two years as executors.

They then made a claim to an extended Lease.

The Landlords contended that the personal representatives only had two years from the date of Grant of Probate to make an application to an extended Lease and accordingly, the Notice was invalid.

The Tenant appealed to the High Court.

The Court held that the claim was valid and that the right of executors to bring a claim within two years of the grant did not negate their ability to subsequently bring a claim by virtue of been the registered proprietors for more than two years under Section 39 (2) of the 1993 Act. Accordingly, there was no special restriction on executors who had taken a transfer of the title and had held the property for some time.

Comment – the case provides a degree of clarity for personal representatives and is welcome clarification of what would otherwise be an illogical interpretation of the statute. It does seem that the Landlord was seeking to rely on a very narrow interpretation of section 39 (3A).

Mark Chick