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Wholesale reform for residential leaseholders

Following the Law Commission's report on the valuation aspects of enfranchisement rights in January, the Commission has now published its recommendations as to what enfranchisement rights should be. William Bethune looks at what the law reform body has to say.

The result of the consultations and reports is a root and branch reform for the benefit of leaseholders as to the extent of rights and how they are exercised, achieving the objective of making enfranchisement rights cheaper and easier for leaseholders.

To view our January article about the Law Commission's report on valuation aspects of enfranchisement rights please click here.

Although the valuation scheme to be adopted remains with government for a decision, the practical and procedural reforms set out below will likely bring a raft of new claims to landlords, as leaseholders that could not previously enfranchise will be able to under the proposed new regime. The enactment of these reforms can be seen as an opportunity for more transactions for both leaseholders and landlords, encouraging leaseholder owned blocks.

The headline points of the proposed reforms are set out below, which apply to 'residential units', a new concept that would replace the old distinction between flats and houses:

Lease extension

  • Increase the right to a lease extension from an additional term of 90 years to 990 years at a peppercorn rent with an alternative right to buy out the ground rent without extending the term
  • Shared ownership leaseholders will have the right to a statutory lease extension, remaining on a shared ownership basis with clarification of the premium calculation

Enfranchisement (freehold purchase)

  • Removal of exclusions for enfranchisement for where three or more flats are owned by one leaseholder and where there is a resident landlord
  • Clarification that shared ownership leaseholders do not have the right to enfranchise where they have less than 100% ownership
  • Community led housing landlords are to be exempt from enfranchisement
  • Collective right to acquire multiple buildings and Individual right to buy the freehold where the leaseholder doesn’t own the whole house

Procedure

  • All claim notices and counter notices will be in prescribed form, with the removal of draconian deadlines and deemed withdrawals of claims removed
  • The First Tier Tribunal shall have wider jurisdiction, power to execute documents and strike out claims
  • Costs of the landlord will be either not payable by the leaseholder or subject to a fixed costs regime, dependent on the valuation regime the government proceeds with

A crucial aspect of the proposed reforms is the recommendation that the government should impose regulation on non-statutory enfranchisement transactions, seeking to have them on the same terms as set down by statute or otherwise automatically treated as such or subject to tribunal consent as to reasonableness. If enacted, this additional point will require landlords who offer voluntary schemes to overhaul them or require all leaseholders to follow the statutory procedure.

A potentially problematic area is the new right for leaseholders to collectively acquire multiple buildings in an enfranchisement claim. This was previously considered during the Law Commission's consultation process as an estate claim but due to the difficulty in defining an estate, the proposal is now to allow leaseholders to pick which qualifying buildings to claim. This could lead to estate services and charging problems where an estate has been specifically designed to be managed by one entity.

The pending decision on the valuation scheme to be adopted is likely to prove more controversial due to the potential loss of value for landlords, as the government's stated aim is to make the exercise of rights cheaper for leaseholders. Combined with the extended rights and ease of access, enfranchisement is most likely to become a larger, more accessible sector for leaseholders.

These reforms have momentum and if introduced by Government then upon the provisions coming into force a new wave of claims would be expected, with many initial claims likely ending up with direction from the Tribunal due to unfamiliar procedure. Landlords and leaseholders alike should prepare for a decision on the valuation aspect, in the meantime there may be a hold off on claims given the advantages provided by the new schemes proposed.

William Bethune is a senior associate at Trowers and Hamlins LLP. He can be contacted This email address is being protected from spambots. You need JavaScript enabled to view it. or by telephone at (0)20 7423 8558.

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