leasehold home ownership consultation proposals
Have you ever experienced that feeling of dread when an important client asks you to serve a Notice claiming the Freehold of a property under the provisions of the Leasehold Reform Act 1967?
How on earth do you interpret the questions in the schedule and provide the correct replies?
Well, if the proposals contained in the Law Commissions’ recent consultation paper ‘Leasehold Home Ownership – Buying your Freehold or Extending your Lease’ comes into Law, then that dread may vanish. The Government wants to make buying the Freehold of a house or extending the Lease of a house or flat “cheaper, quicker and easier” for all. Some might say that’s impossible to achieve without there being consequential damage elsewhere. However, the Law Commission were tasked with the job, and, as a result have published a consultation paper of over 540 pages on the subject. Given that the current law has developed over a period of over of 50 years, is an amalgamation of several Acts of Parliament and countless court decisions, it’s no wonder that the inquiry has had to be thorough. So, if the proposals make their way through Parliament, what can you expect?
In no order the salient points of the proposed changes are as follows:-
1. The qualifying period for tenants to claim the Freehold of their home or an extended Lease of their flat or house will be eliminated altogether (in contrast to the two year waiting period under the current law).
2. For the first time, it will be possible for tenants of mixed developments (i.e. houses and flats) to collectively acquire the Freehold of their estate.
3. The new right to an extended lease of a house will mirror that of a right to extend a flat lease. Under the current law a leaseholder has a right to a 50 year lease extension whereas a flat-owner has a right to a 90 year lease extension.
4. A brand new and much revered right for leaseholders who did not participate in a previous collective enfranchisement to do so at a later date (a new right to participate).
5. A simplified basis of valuation both in respect of reversionary interests and of extended leases. The proposal is to determine valuation by an online calculator with fixed or variable credentials, thus helping to eliminate the most difficult obstacle, agreement as to price. Whether the new basis will include a margin for marriage value (as is currently the case in certain circumstances) or not, will be a hot issue for landlords.
6. A simplified method of calculating the amount of the landlord’s costs.
7. Except in very limited circumstances, a statutory obligation that a nominee purchaser must be a company limited by guarantee, rather than by shares.
8. A fundamental new right of participating tenants to compel the landlord to take a lease back of any parts of the building which are not let to participating tenants in a collective enfranchisement. This will mean leaseholders will not have to pay for non-participating flats.
9. A complete overhaul of the procedural system to harmonise different types of claims. There will be a single Notice for all types of claim, and in a form that should be capable of being completed by a relative novice. The work of the Law Commission has focused a great deal on the practicalities of the exercise of enfranchisement or lease extension rights, since so many disputes have arisen about form and content.
10. A new and simplified system for dealing with missing landlord cases. The new procedure will harmonise the claims in the early stages.
11. The proposal is that all disputes regarding enfranchisement, or a claim for an extended Lease including missing landlord cases should fall within the jurisdiction of the First Tier Tribunal thus removing the County Court’s involvement.
12. Prescribed periods for completion of claims are proposed. This, along with the removal of some of the guillotine provisions under the current law will take a good deal of the stress out of making claims in the beginning and hopefully result in quicker settlement between the parties.
13. Apart from the thorny issue of valuation, a further difficulty that landlords and tenants face is agreeing the terms of the conveyance or lease extension deed. It is proposed that in all three types of claims (enfranchisement, collective enfranchisement and lease extensions) a template deed of assurance will be prescribed with optional additional clauses available to the parties to pick from a list as circumstances require.
Those of you who practice in this area will know how complex and difficult the law relating to leasehold reform is. Often where the value of the reversionary interest or the premium payable for the lease extension is low, the cost of enforcing the tenants’ rights can far exceed the premium payable. The hope is that the new law if enacted as proposed will eliminate the traditional areas of dispute, lead to earlier settlement terms being agreed, and facilitate implementation in the spirit of compromise, which simply doesn’t exist under the current framework. Time will tell whether Parliament legislates in favour of the Law Commissions proposals, but one thing is certain. It is changing, and hopefully for the better.
Mark Adcock is a solicitor in private practice and part time lawyer with the Law Commission