So, is this going to be the biggest change in enfranchisement in the last 17 years ?

The law Commission have today published their long awaited report into the legal aspects of the proposed reforms for the law in this area.

The Commonhold Leasehold Reform Act 2002 was the last big legislative foray into reform in this area, which came into force in 2003.

Bearing in mind the non-neutral terms of reference that the Law Commission were given the proposals seek to redress the balance between landlords and tenants and show a big change of emphasis towards the tenant’s side of the equation.

https://www.lawcom.gov.uk/project/leasehold-enfranchisement/

There are also two other reports on the Right to Manage and Commonhold. I set out below the key enfranchisement changes from the Law Commission’s own summary document as they propose them in their own words. The main report runs to 859 pages ! So there is plenty more to read and digest in the days and weeks ahead.

“Enfranchisement rights — our key recommendations

• We recommend that leasehold owners of houses and flats should no longer have different enfranchisement rights, reducing the complexity of the current system. Wherever possible, our recommendations apply uniformly, irrespective of whether a property is a house or a flat.

• We recommend that leaseholders of both houses and flats should have a new right to a lease extension for a term of 990 years, in place of shorter extensions of 90 or 50 years under the current law. There would be no ongoing ground rent under the extended lease, and landlords could not use the lease extension process to impose new, onerous obligations. Our recommendations place the vast majority of the home’s value in the hands of the leaseholder, preventing the need for further extensions and providing increased security for the leaseholder.

• We recommend a new right for leaseholders with very long leases to “buy out” the ground rent under their lease without also having to extend the length of their lease. This will enable those leaseholders to free themselves from the ongoing obligation to pay ground rent.

• We recommend that the scope of enfranchisement is expanded so that more leaseholders can buy the freehold or extend their lease. We recommend that leaseholders should be able to enfranchise immediately after acquiring their lease rather than having to wait two years, as they do now. And flat owners should together be able to buy the freehold of premises where up to 50% of the building is commercial space rather than the current limit of 25%.

• We make several recommendations to make it easier for leaseholders of flats to enfranchise. For example, we recommend that groups of flat owners should be able to acquire multiple buildings (such as an estate) in one claim, rather than incurring the unnecessary expense of acquiring each building individually. We recommend that leaseholders should be able to require landlords to take “leasebacks” of units within the building which are not let to leaseholders participating in the claim, which will significantly reduce the price that leaseholders must pay.

• We make recommendations to protect leaseholders from the imposition of onerous or unreasonable obligations when they buy the freehold of their house or flat. In particular, our recommendations protect leaseholders from obligations which are designed to generate a profit or provide an ongoing income stream for landlords.

• We recommend replacing the various procedures for making enfranchisement claims with a single, efficient procedure. This procedure removes the legal traps which cause claims to fail and which enable unfair procedural or tactical advantages for landlords with experience of the system.

• We recommend that the current requirement for leaseholders to pay their landlord’s costs of dealing with an enfranchisement claim should be eliminated or controlled. Leaseholders must currently pay their landlord’s uncapped costs, which can exceed the price that leaseholders have to pay to their landlords in an enfranchisement claim. The approach we recommend depends on Government’s response to the options we have presented about how to calculate the price but, either way, leaseholders will know up front what the costs of a claim will be.

• We recommend that, where possible, the Tribunal should determine enfranchisement disputes and issues, replacing the current division between the Tribunal and the county court. Alongside the role of the Tribunal, we recognise the importance of alternative dispute resolution. Our recommendations will save leaseholders and landlords time and money.

• Landlords and leaseholders can enter into voluntary agreements (for example, freehold transfers) that are not consistent with our recommended statutory scheme. Those agreements fall outside our Terms of Reference, but we recommend that Government consider taking steps to regulate these transactions to prevent leaseholders from being persuaded to agree to lease extensions or transfers that have been drafted on unreasonable terms.”

Comment

What does all this mean? Well, it shows the direction of travel and of course this report would have to be turned into law by a future parliament. That itself could take some time and might indeed not happen, or the changes might be quite different once parliament has had their hands on them.

However, this all has to be seen in the context of a set of wider proposed changes – banning the creation of new leasehold houses, and separate government proposals to ban ground rent for new leases. There is an agenda of change and there will be a lot of work to do on the detail of this, but this report does set the agenda for a big sea change in this area.

However, it is likely to be a good 3-5 years before any of these recommendations might become law, as this depends on parliamentary time and inclination.

A lot to digest, but interesting times ahead in leasehold – watch this space!

Mark Chick

21st July 2020