LC: Leasehold law set for radical reform

19 Jul 2018 12:00 PM

Radical new proposals to provide a fairer deal for leasehold homeowners have been announced by the Law Commission.

Following hot on the heels of plans by the Government to ban the sale of houses on a leasehold basis, the independent legal body is outlining a range of measures to help existing leasehold homeowners buy the freehold of their houses.

These include:

• options for changing the valuation formula, having been asked by Government to examine how to reduce the price while providing sufficient compensation to landlords
• making it easier for homeowners to buy the freehold
• removing the requirement that leaseholders must have owned their house for two years before making a claim

The proposals will give leaseholders security and control over their homes.

Law Commissioner Professor Nick Hopkins said:

“Enfranchisement offers a route out of leasehold but the law is failing homeowners: it’s complex and expensive, and leads to unnecessary conflict, costs and delay.

“We’ve heard of untold stress caused to homeowners who have had to put their lives on hold because of issues with their leases.

“Clearly, that’s not right, and our solutions for leasehold houses will provide a better deal for leaseholders and make sure that the law works in the best interests of house owners.”

Secretary of State for Communities the Rt Hon James Brokenshire MP said:

“This government is committed to tackling the unfair leasehold practises that exploit homeowners.

“We have already announced radical new measures to ban leaseholds for almost all new build houses and reduced rents to a peppercorn.

“I welcome these proposals by the Law Commission that will help homeowners get a fair deal.”

Leasehold trap

In England and Wales properties are normally bought and sold on either a leasehold or a freehold basis.

Leasehold ownership is sometimes described as owning the house but not the land it’s on. In fact, leasehold means that the buyer owns a property for a fixed number of years on a lease from a landlord (the freeholder).

The Government has estimated that there are over 4 million leasehold properties across England alone including 1.4 million houses – and it’s been suggested those figures are significantly underestimated – but concerns have been raised over this ownership type.

More than 6,000 responses were submitted to the recent government consultation on unfair leasehold practices. The vast majority of responses expressed their concerns about buying and living in a leasehold property.

Current process for owners of houses

Enfranchisement rights give leaseholders the right to purchase the freehold of their property or to obtain an extended lease of their property.

The statutory enfranchisement process itself has been widely criticised. Problems include:

• it is costly for leasehold homeowners
• there are different rules for leaseholders of houses and of flats, often with no logical reason for the distinction
• it encourages an unhelpful tactical “gaming” approach to negotiations, which tends to favour more experienced landlords over leaseholders
• it is too complicated – the product of over 50 Acts of Parliament, totalling over 450 pages, with numerous anomalies and unintended consequences

These problems with the current regime cause unnecessary conflict, stress, cost, and delay.

Proposals to provide a fairer deal

 So as part of plans to improve the enfranchisement process for leasehold home-owners, the Law Commission has published proposals for leasehold houses which include:

• options for reducing the price that leaseholders pay to the landlord such as by changing the formula used to calculate the cost, following the Government’s request to set out ways that the price could be reduced
• improving the right for leaseholders of houses to buy the freehold from their landlord
• introducing an alternative right to purchase unlimited longer lease extensions without a ground rent – of (say) 125 or 250 years
• making the enfranchisement procedure simpler to understand, to minimise disputes and prevent leaseholders falling into legal traps
• removing the requirement that leaseholders must have owned the lease of their house for two years before making a claim
• potentially scrapping whether leaseholders should contribute to their landlord’s legal costs, and if not, capping the contribution at a fixed maximum amount.

Further information

The Law Commission is a non-political independent body, set up by Parliament in 1965 to keep all the law of England and Wales under review, and to recommend reform where it is needed. Since then more than two-thirds of all reports have been accepted or implemented in whole or in part.

In December 2017 the Law Commission announced that it was to start a project on residential leasehold and commonhold reform as part of its 13th Programme of Law Reform.

As part of this, the Law Commission was asked by Government to prioritise enfranchisement solutions for existing leaseholders of houses, and to set out those solutions before summer recess 2018.

In relation to the price leaseholders must pay to their landlords, the Commission was asked by Government “to examine the options to reduce the premium payable … whilst ensuring sufficient compensation is paid to landlords”.

In September 2018, we will publish our consultation paper on enfranchisement. This will propose a new, single regime for leasehold enfranchisement designed to benefit leaseholders of houses and flats. The proposal will then be subject to full public consultation.

The Law Commission also intends to publish consultation papers on commonhold and Right to Manage before the end of the year.