The Law Commission announced a consultation for its 13th programme back in July 2016, suggesting 13 possible areas of work. The programme commenced on 13 December 2017. It may be pure superstition, but 13 is considered unlucky in some cultures. In tarot the 13th card, represented by death, means transition, change and inevitability.
The 13th programme is overshadowed by the nation’s transition from the EU and resultant change, which is taking up so much government time, with the inevitability that other important law reform proposals just won’t be considered this time around.
The commission’s consultation exercise received 1,315 responses, six times as many as the previous programme. This is as much a testament to the success of the commission in generating engagement in the process as to the real need for law reform in some areas. However, the result is disappointment for the commercial property sector and uncertain, potentially changing times for the residential market.
PLA proposals for reform
The Property Litigation Association (PLA) represents practitioners up and down the country and regularly lobbies for changes in the law where there are repeated difficulties being faced by clients. The PLA had submitted a response paper to the Law Commission asking for change in certain key areas (see www.egi.co.uk/legal/the-property-reformation/). A few of the PLA’s proposals are mentioned below.
■ The Landlord and Tenant (Covenants) Act 1995 was intended to help tenants and guarantors by ensuring that they are released from covenants on assignment of a lease save to the extent that they guarantee the performance of the next tenant. However, the effect of poor statutory drafting and recent case law is that businesses are now facing real difficulties when restructuring.
For example, a tenant guaranteed by its holding company cannot assign to its guarantor, even when all of the parties want this. On current case law the assignment is void. The PLA put forward amended statutory wording to avoid these difficulties that had broad support because it would help business and save money.
However, the commission says that it just did not manage to get government support for this. This is a real shame because it is a sensible measure at a time when, with Brexit ahead, many businesses may want to restructure. Reform in this area would help this jurisdiction remain attractive to inward investment.
With the attention of politicians split between Europe and the electorate’s demands to resolve problems in the housing market, are the needs of the commercial property sector falling between two stools?
■ The Landlord and Tenant Act 1987 has been widely criticised for its poor drafting, which is particularly concerning given that non-compliance brings criminal sanctions. The intention behind the legislation is to ensure that landlords disposing of an interest in a building containing a number of flats will first offer to sell the interest to the qualifying tenants – the right of first refusal. There are problems with the drafting which means that this legislation does not easily accommodate estates containing several buildings.
Specific drafting issues aside, given the right of collective enfranchisement and right to manage, the PLA questioned whether this legislation is still needed. However this proposal is identified as not being a priority.
■ Leasehold enfranchisement is an area of success – the PLA’s submission that enfranchisement be considered for reform has been accepted. The commission is going to look at enfranchisement and in particular whether it can simplify the procedure and make valuation more transparent. We await the detail of this review.
It is worth noting that there is a private member’s bill that is due to have a second reading in the House of Commons in February next year that plans to allow leaseholders to buy the freehold for 10 times the ground rent with a statutory cap. The start date for the commission’s review is December 2017, however, if the bill does gather support in parliament, it may beat the commission to the job.
■ Landlord and Tenant Act 1954: the PLA supported calls for review of this legislation to bring it up to date with the modern commercial property market. The intention of this legislation is to give tenants security of tenure to enable them to plan for their business and invest. However, it was designed for the post-war era and various stakeholders have called for reform. Sadly, this will not be reviewed this time around.
Other areas put forward for reform included the right to manage legislation, service charge consultation procedures, options and rent charges. None of these will be looked at this time around.
So what can we expect?
Items on the Law Commission’s agenda relevant to property include:
■ Residential leasehold: as regards the property aspects of the reform programme, this is the real meat of it, evidenced by the fact that the commission is starting work on this immediately, following a call from 151 consultation responses seeking reform in this area. It ties in nicely with the government’s stated aim of addressing deficiencies in the housing market and improving “outcomes for citizens”. In addition to leasehold enfranchisement the commission will look at why commonhold did not take off and what is needed for it to be a success.
The concept of land held in commonhold was introduced by the Commonhold and Leasehold Reform Act 2002. It is a new form of land ownership, like freehold or leasehold, which combines ownership of property within a larger development with membership of a company limited by guarantee. The idea is that the owners of the unit are in control of the development and that they run the development together.
However, the concept has not taken off and lenders have been reluctant to lend on it. Commonhold could in theory address many of the recent problems associated with leasehold that have attracted headlines, including ground rents and depleting term lengths. So the commission is to look at this again.
■ Registered land and chancel repair: the Land Registration Act 2002 was meant to ensure that after 2013 purchasers of property would not be liable for repair of local churches under chancel liability unless this was registered against the title at the Land Registry. A loophole in the legal status of such liability has been identified, which the commission proposes to close, so this will be a small project, expected to end in a short draft bill, albeit with no start date.
■ Managing agents: the commission will also look at the regulation of managing agents. We know that the government is planning to ban letting agent fees (see the Draft Tenant Fees Bill) and the Department for Communities and Local Government (DCLG) has already called for evidence on the regulation of managing agents. Agents in the property sector are in the government’s crosshairs.
■ Unfair lease terms: under a separate heading of unfair terms, the commission is to consider whether, each time a lease is assigned, assignees should be able to challenge lease terms as unfair. This project is set to address recent concerns raised surrounding ground rents that increase exponentially, as well as fixed service charges and fees on assignment of leases.
However, the commission itself says this would be using unfair terms law to fill a gap in tackling these issues, and, again, there is no start date for this project.
Other related projects
The commission is going to look at electronic signatures and smart contracts, both of which will affect property, with the idea of making business quicker and cheaper. Stakeholders have told the commission that the absence of clear authority on the
validity of such documents leads to uncertainty and needs remedy.
In addition the commission proposes to look at reform of trust law but there is no start date for that and it is a huge potential project, the stated aim being to enhance the competitiveness of this jurisdiction’s trust services in a global market.
So where does this leave us?
The commission itself sounds pretty downbeat about this programme. It points to budgetary constraints and the fact that it could be side-tracked to help on Brexit-related work at any time. Most of the property projects have no start date and will have to await resources.
That is a shame as there is real enthusiasm both within and outside of the commission for reform, evidenced by the successful consultation process. Ultimately the commission has not got the backing of government for many of these projects.
What we do know is that DCLG is on its own mission to bring about changes to the housing market sooner rather than later. Recent consultations include:
■ regulation of letting and managing agents – call for evidence in October 2017;
■ improving the homebuying and selling process – call for evidence in October 2017;
■ banning letting agent fees paid by tenants – consultation outcome in November 2017; and
■ tackling unfair practices in the leasehold market – announcement of reform on 21 December 2017.
There is no doubt that there is real hardship being suffered across the country as a result of the current state of the housing market and so it may be politically the right thing to push through urgent reform.
However, there is no substitute for the sort of considered reflection that the Law Commission seeks to bring to a project. Let’s hope that the DCLG makes use of the commission’s skills to avoid implementing legislation that will be the subject of future consultations.
Emily Wood is a partner and head of the real estate dispute resolution group at DMH Stallard and Natalie Johnston is a knowledge development lawyer at Charles Russell Speechlys LLP. Both are members of the PLA’s law reform committee
