The Law Commission has opened the consultation on its proposed series of radical reforms designed to provide a better deal for leaseholders who want to purchase the freehold or extend the lease of their home.
The Commission outlined its proposals earlier this year but has now published its consultation paper and is inviting responses by the deadline of 20 November 2018.
Its proposals aim to:
■ make the process of enfranchisement easier, cheaper and quicker;
■ improve and enhance the rights of leaseholders to buy their freehold or extend their lease;
■ introduce a simpler unified procedure for houses and flats;
■ remove limitations on the right to enfranchise, including the requirement that leaseholders must have owned their property for two years before making a claim.
In addition, at the government’s request, it has provided options to reduce the price payable by leaseholders to buy the freehold or extend their lease, while seeking to ensure sufficient compensation is paid to landlords to reflect their legitimate property interests.
The Commission says that, while many of its proposed changes would primarily benefit leaseholders, others would benefit landlords. It adds: “We also think that the introduction of a simpler and more efficient regime will benefit landlords as well as leaseholders.”
However, writing for EG earlier this month, Paul Winstanley, residential valuation partner at Allsop LLP said that the Commission “arguably appears to have been set a practically impossible task” in reducing enfranchisement prices for leaseholders while at the same time fairly compensating freeholders, adding: “In looking to benefit one party (the leaseholder), the other party (the freeholder) must by definition be left worse off.”
The Commission is inviting views on its options for reducing premiums payable by leaseholders, and has begun the work of considering whether those options are likely to be considered to provide landlords with sufficient compensation and therefore be compatible with the European Convention on Human Rights (ECHR).
It says that, following consultation, its final report will set out the options for reducing premiums and its conclusions on their compatibility with the ECHR. It will then be for government to decide whether, and if so how, premiums should be reduced.
Announcing the consultation, law commissioner Professor Nick Hopkins said: “The current system is complex, slow and expensive and it’s failing homeowners. Many feel that they are having to pay twice to own their home. Our proposals would make it easier and cheaper to buy the freehold or extend the lease of their home, ensuring the system works for ordinary homeowners across the country.
“We want to hear views from across the spectrum on how this complicated area of law can be improved.”
The Law Commission was requested by the Ministry of Housing, Communities and Local Government (MHCLG) and the Welsh government to propose reforms that would promote transparency and fairness in the residential leasehold sector.
Housing minister Heather Wheeler said: “The government is committed to banning leaseholds for almost all new-build houses and restricting ground rents to a peppercorn. It’s also unacceptable for leaseholders who want to buy their freehold or extend their lease to be faced with overly complicated processes and disproportionate costs.
“I welcome the Law Commission’s proposals that have the real potential to help those leaseholders who are having to deal with these outdated practices.”
The full report, Leasehold home ownership: buying your freehold or extending your lease, and details of how to respond to the consultation can be found here.
The proposals in detail
The Law Commission is seeking views on a range of plans to make the enfranchisement process easier, cheaper and quicker, including:
■ Improving and enhancing the rights of leaseholders to buy their freehold or extend their lease.
■ Removing the requirement that leaseholders must have owned the lease of their property for two years before making a claim.
■ Providing government with options to reduce the price payable by leaseholders to buy their freehold or extend their lease, while providing sufficient compensation for landlords.
■ Creating a single simplified procedure for leaseholders to buy their freehold or extend their lease, to minimise disputes and prevent leaseholders falling into legal traps.
■Providing clarity about the terms on which a freehold is purchased or a lease extended, to reduce the scope for disputes between leaseholders and landlords
■ Allowing all disputes that do arise to be heard by a single tribunal
■ Streamlining the enfranchisement process by limiting the types of challenges that can be made and creating a common procedure for dealing with the problem of missing landlords
■ Scrapping the requirement that leaseholders must contribute to their landlord’s legal costs, or controlling those costs.
What the proposals would mean for leaseholders of houses:
| Current law | Law Commission 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. |
What the proposals would mean for leaseholders of flats:
| Current law | Law Commission proposals |
| All claims | |
| Different regimes for leasehold houses and flats. | One regime for both houses and flats, reducing complexity and costs. |
| No prescribed forms for claims by leaseholders of flats, and frequent challenges by landlords to validity of notices given by leaseholders. Risk that leaseholders’ notices are deemed withdrawn, so the claim fails, if procedural time limits are not met. | Prescribed forms for making and responding to any enfranchisement claim, making mistakes less likely to occur. Limiting challenges to notices and removing deemed withdrawal, preventing unnecessary costs and landlords taking advantage of leaseholders’ mistakes. |
| Procedures for dealing with missing landlords of flats is complex and costly. | Leaseholders to apply to the Tribunal so the claim can continue and be finalised, ensuring leaseholders can exercise their rights, and saving 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 flats 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. |
| 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 flats 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. |
| Additional proposals for lease extension claims | |
| Minimum two-year period of lease ownership before a leaseholder of a flat can bring a claim. | No minimum period of lease ownership, reducing delay and costs for leaseholders. |
| Additional proposals for collective enfranchisement claims | |
| Where a building contains only two flats, the leaseholders of both flats must participate in a claim to acquire the freehold. | The leaseholder of one of the two flats can bring a claim to acquire the freehold, stopping one leaseholder from blocking a claim by another. |
| No right to join an earlier collective freehold acquisition. | A new right to participate in an earlier collective freehold acquisition, stopping leaseholders from being locked out of ownership. |
| Successive collective freehold acquisition claims by competing groups of leaseholders resulting in “ping pong” claims. | No collective freehold acquisition claim can be made if one has been made in the previous five years. |
| Landlords can choose to take a long lease of any part of the building not held by leaseholders (for example, flats held on a short tenancy, or commercial units). | Leaseholders can require a landlord to take long leases of any parts of the building (except common parts) which are not let to participating leaseholders, reducing the cost of acquiring the freehold. |
What the proposals would mean for landlords:
| Current law | Law Commission proposals |
| Different regimes for leasehold houses and flats. | One regime for both houses and flats, reducing complexity and costs. |
| A collective enfranchisement claim cannot be made if more than 25% of the building has non-residential use. | The 25% limit to apply to all freehold acquisition claims, allowing landlords to retain buildings with substantial commercial use. |
| No obligation on leaseholders acquiring a freehold within an estate to continue to contribute to the costs of maintaining the estate. | A power to require contributions to be made after the freehold is acquired, allowing estates to continue to be maintained. |
| Separate procedures apply to each of the different enfranchisement rights. | A single procedure to apply to any enfranchisement claim, reducing complexity, confusion and costs for all parties. |
| No prescribed forms for claims by leaseholders of flats. | Prescribed forms for making and responding to any enfranchisement claim, making mistakes less likely to occur. |
| Frequent challenges to the validity of notices given by leaseholders and landlords. | Limiting the types of challenges to notices that can be made. |
| A landlord who has failed to serve a valid counter-notice on the leaseholder of a flat is forced to sell on the terms proposed in the leaseholder’s notice of claim. | The terms to be determined by the Tribunal in such cases, removing windfall gains for leaseholders. |
| 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 for all parties. |
| Valuation is complex and requires parties 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. | While options to reduce premiums necessarily benefit leaseholders, changes to the procedure may benefit both parties. For example:
• prescribed rates would prevent disputes • provision of an online tool to calculate the premium makes the process quicker and easier for both parties.
|
| Valuation disputes are resolved by the Tribunal at a full hearing with expert evidence produced by both parties. | Low value claims to be resolved by a valuation member of the Tribunal alone, without the need for a hearing or expert evidence, reducing delay and costs. |
To send feedback, e-mail jess.harrold@egi.co.uk or tweet @estatesgazette
