The Law Commission Report on Leasehold Enfranchisement

Posted on August 3, 2018
Jefferies Solicitors - The Law Commission Report on Leasehold Enfranchisement

A Summary of Proposed Solutions for Leaseholders of Houses

The Law Commission published their highly anticipated report setting out their initial proposed solutions for leaseholders of houses. The issues surrounding leasehold and high ground rents have rarely stayed out of the news in recent months and as a result, the Government has had no choice but to take action.

In December 2017 the Government announced a ban on houses being sold on a leasehold basis. This, of course, applies only to future property sales and does not assist those already “trapped” within a potentially onerous lease.

Leaseholders already have “enfranchisement rights” available to them which allow a leaseholder to obtain their freehold or to extend their lease. However, these “enfranchisement rights” are contained in various pieces of legislation, could result in litigation and can result in a lengthy and costly process for the leaseholder.

The Law Commission Report seeks to propose a “new, single regime” that aims to benefit leaseholders of houses and flats alike. The Report highlights a number of issues including:

Premium

Two proposals set out in the Report seek to reduce the “premium” (price payable to the landlord as compensation for loss of ground rent). The first being that the premium should simply be ten times the ground rent within the lease. The other is similar to existing valuation methods but the calculation of “marriage value” should be abolished.

Both of these proposals seek to standardise the valuation process and would remove the requirement for professional valuation costs. The Report does note that the Law Commission is not stating that leaseholders should not be able to exercise their “enfranchisement rights” for free and the landlord should receive a fair premium.

Eligibility

It is proposed that the current eligibility criteria for leaseholders should be relaxed, such as the requirement to have owned the lease for two years before seeking their claim. The Government has already taken steps to this effect back in 2002 when the requirement for the leaseholder to reside in the Property was removed.

Costs

Under the current regime, leaseholders must pay the freeholder’s non-litigation costs. However, these costs can be extremely high in comparison to the value of the claim. The Report states that a consultation will take place as to whether leaseholders should be required to contribute to the freeholders costs. If it is decided that leaseholders are still bound to contribute to the freeholders costs then a “potential fixed-costs regime” could be outlined.

Process

The proposals centre on simplifying the procedure to ensure that it is cost effective and fair for both parties. Just some of the ways this can be achieved through the Report are:

  • Allowing leaseholders to serve the claim notice at a specified category of address so that whether a notice was “served” is not an issue to be determined
  • Should a category of address not apply to their freeholder allowing the leaseholder to apply to the First Tier Tribunal as an alternative
  • Requiring freeholders to provide a draft transfer within their response to the claim notice
  • Limit the options open to a landlord to invalidate a claim notice

Whilst all of the above is a positive step to provide more rights for leaseholders the Report does note the complexities in introducing a standardised procedure as all leases are invariably different.

In September 2018 The Law Commission will publish a detailed Consultation Paper that will detail provisional proposals for an enfranchisement procedure for leaseholders of flats and houses.

If you are concerned about the terms contained within your lease, are looking to purchase your freehold or extend your lease please get in touch with one of our leasehold enfranchisement specialists, Amelia Hayes or Callie Tuplin. Call 01702 332 311 today.

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