Leasehold Enfranchisement A Summary of Proposed Solutions for Leaseholders of Houses

On 19 July 2018, the Law Commission published a paper, with the same heading as this article, setting out some proposals for Leasehold Reform. It should be noted that this is not intended to be the final consultation paper, but rather is an indication as to some of the proposals that they may put forward in the future. The intention in September 2018 will be to publish a detailed consultation paper, which will at that time set out full details of their intended reforms.

Ultimately, from a consideration of the paper, it is noted that they are attempting overall to;

  1. Remove technical barriers and complexities:
  2. Enable lease extensions to be obtained for a longer period of time rather than the current fixed period of time set out within the relevant legislation;
  3. Enhancing enfranchisement rights for housing estates (to enable them to enfranchise the estate in the same way that flat owners can enfranchise their building);
  4. Remove the restrictions that require there to be a specified period of ownership before enfranchisement can occur;
  5. Improving the process generally.

It should be noted that this paper does look closely at the enfranchisement of houses rather than the enfranchisement of flats, albeit the proposals overall that will be applied in the September 2018 consultation paper will apply to both.

Ultimately from a consideration of the paper, the Law Commission is seeking to streamline the two processes so that they become similar. At present, depending on whether you own a leasehold house or own a leasehold flat will depend under what piece of legislation you proceed, and therefore the procedure that is to be followed. The Law commission wished to change the process so that there is only one procedure, regardless of the status of your ownership.

Off the back of the negative press which has recently occurred in relation to the loss of leasehold ownerships, this is even more important, to ensure that both leasehold house owners and leasehold flat owners have equal rights to enfranchise.

It should be noted however, that the intention of this paper is not intended to prevent the owners of the freehold from losing their right to charge a premium. Ultimately the Law Commission is seeking to readdress the balance so that the cards are not within the freeholder's hand, but rather there is an equal playing field. The intention therefore will remain that there will be a premium payable upon acquisition of the freehold, but how that premium is calculated will change.

The paper seeks to suggest that in order to protect the position generally, a more streamlined process should be implemented where there are standard forms to utilise which are almost impossible to challenge, to prevent a freeholder from making a challenge on the basis that a Notice is invalid and thereby pushing up the premium and/or costs. It will also be intended that the process will be front loaded, to enable all matters to be attended to, together with premium. This also prevents premium from becoming the guiding factor and reduces cost.

In relation to the premium, the proposals are that the premium should be calculated on a simpler basis. Presently there are a number of factors that need to be taken into account in relation to the valuation process, and those factors are then multiplied by various rates, known in the business as deferment rates and capitalisation rates. The suggestion in the consultation paper, is that either those factors should be scrapped in their entirety, so that the premium is calculated on a multiplier of the ground rent or a percentage of the freehold value of the property; or the other option is to retain those rates, but to set them in stone, so that they cannot be disputed and argued over during the course of proceedings. Presently there can be a dispute as to which capitalisation rate to utilise, and this invariably incurs additional legal costs why the parties argue over the procedure.

Of course the benefit with one of the simpler options, is that there would be no need for necessarily the complex valuation advice to be obtained, and again this reduces the costs to be paid by each party in going through this process. The second option would still need valuation evidence, and therefore there would still be the need for surveyors to be instructed and fees to be; but overall the amount of work that is required will be reducing, and again cost savings will be implemented.

There is even some suggestion in all of this, that the costs associated with the procedure before Tribunal proceedings are required, should be borne by each party equally, so that there is no requirement for the leaseholder to pay the freeholder's costs. In the current regime, even though an offer may not be particularly advantageous, looking at what the situation could be on a more formal basis together with costs makes a ordinarily unattractive initial offer become very attractive, and therefore forces the leaseholder into an offer that they do not necessarily wish to accept.

For those interested in the enfranchisement process, or concerned about the leasehold status of their properties, the consultation paper certainly makes an interesting read. The proposals put forward appear to be sensible, albeit how they will actually be put into practice remains to be seen, as some of the suggestions which have been advanced would require careful consideration, careful statutory wording, and very complicated and in-depth consultation, to ensure that those clauses would actually work. A number of the problems with the current legislation, is that when the legislators sat down to draft it, they simply did not consider the impact that the legislation would have in the future, and this in turn has resulted in gaps in the legislation and therefore the need to have Court proceedings to determining the law that should fit into those spaces. As long as the Law Commission can adequately put in place the appropriate legislation in relation to their proposals, there is no reason why in theory they should not work.

The September 2018 consultation paper is however now awaited.

If you are interested in reading the consultation paper please find a link to the paper below.

https://s3-eu-west-2.amazonaws.com/lawcom-prod-storage-11jsxou24uy7q/uploads/2018/07/Solutions-for-Leasehold-Houses.pdf

Should you have any queries regarding the potential consultation, or indeed the current status of your leasehold property, please do not hesitate to contact our Real Estate Litigation Department on 01702 338338 or llancaster@paulrobinson.co.uk