Law Commission publishes enfranchisement plans for leasehold homeowners
The Law Commission has published proposals to change the law and make it easier for leasehold homeowners in England to buy the freeholds of their properties.
The Commission is currently looking at a programme of work which includes residential leasehold, enfranchisement and commonhold reform. The latest pre-consultation paper comes in advance of a more detailed consultation on leasehold flats and houses which is due in autumn.
While leaseholds have traditionally been used for flats and developments with shared spaces, of the 4.2 million private sector residential leasehold properties recorded in England, 1.4m are leasehold houses. The current paper sets out The Law Commission’s thinking on how to make the enfranchisement process easier and cheaper for owners of leasehold houses.
Proposed reforms to the enfranchisement process include:
· Removing technical barriers and complexities in the rules governing eligibility for enfranchisement rights
· Replacing the current right of leaseholders of houses to purchase a one-off 50-year lease extension at a high ground rent with a right to acquire unlimited longer lease extensions without a ground rent
· Enhancing enfranchisement rights for owners of leasehold houses on estates with shared services
· Removing the requirement that leaseholders must have owned the lease of their home for two years before making a claim
· Improving and simplifying the enfranchisement procedure, so that it contains fewer traps for the owners of leasehold houses, is easier to operate, and is less likely to result in protracted and costly disputes between the parties.
As part of its proposals, The Law Commission is also looking at ways to reduce the price that leaseholders pay for a freehold. Two options have been put forward including:
1. The introduction of a simple formula which is not based on the market value of the interest being acquired by the tenant (e.g. ten times the ground rent or 10% of the value of the property)
2. A premium based on market value that more closely resembles the current regime, but which would remove the marriage value element and/or involve the prescription of standardised rates to be used in the calculation.
The government is also looking at leasehold arrangements and, in addition to working with the Law Commission to modernise the enfranchisement process, has already announced that it plans to ban almost all new leasehold arrangement for new-build houses (although there are expected to be exemptions to the policy).
While leaseholders are welcoming the review, there are concerns that it is not clear if the Commission’s proposals provide sufficient compensation to landlords.
For example, commenting in Out-Law, property law expert Paul Pinder said: “To oversimplify the process to ten times the ground rent, as proposed by the paper, would appear to pay scant regard to the interests of landlords; yet the alternative proposal of a standard premium of 10% of the value of the property would over-compensate landlords in situations with 999-year leases with no ground rent review from the late 1800s or early 1900s”.
“Residents have purchased their properties and landlords have purchased their reversions based on the existing valuation system and the risks in that system. To radically overhaul the system and change the premiums to be paid would result in some form of detriment to one of the parties. Perhaps a better way forward would be for a transition period to apply pending full implementation – this, in my view, would seem fairer”.
You can see the Law Commission proposals here.