As the first step in a project to reform the law of leasehold enfranchisement, the Law Commission has published a summary of proposed solutions for leaseholders of houses.
The Law Commission has been tasked by the government with suggesting means by which certain aspects of the law relating to leasehold houses and flats can be modernised. The government itself is looking into ways of prohibiting the grant of new leasehold houses in the future. We have been told that a technical consultation paper on its proposals is expected this summer (see our article on 2 January 2018 titled Major changes proposed to how new houses and flats are sold in England), and this is still awaited.
Separately, but as part of the same overall theme, the Law Commission has been asked to consider three projects: simplification of the rules governing leasehold enfranchisement, an examination of the law relating to commonhold to see how it can be made more attractive and a review of the rules that give tenants the right to take over management of their blocks of flats. Separate consultation papers on these three areas are expected to be published later this year.
In relation to leasehold houses, "enfranchisement" is the term given to tenants' rights to buy the freehold of their houses. The term is also used for flats, where tenants currently have the right to buy a 90-year lease extension. In relation to flats, the Law Commission's proposals will not be known until the consultation paper is issued in the autumn. It has already said, however, that it wants to simplify the law and make the procedure relating to houses, and that relating to flats, as similar as possible.
Since the Law Commission was asked by the government to propose solutions for existing leaseholders of houses before the summer recess, it has taken the unusual step of publishing an initial paper that concentrates on the issues and potential solutions for leasehold houses, while looking ahead to the broader consultation paper on the topic that will be published later in the year.
Ascertaining the price
The principal change that is being proposed is the introduction of a new method of ascertaining the price that tenants have to pay their landlords to enfranchise. Two options are suggested: either a simple formula based on a multiple of the ground rent, or a more complicated system, more closely resembling the current regime, with a premium based on market value and standardised deferment rates to be used in the calculation. Either would simplify the process compared to how it operates now.
In addition, either change would be likely to reduce the premiums that the tenants have to pay to their landlords. The Law Commission's terms of reference, however, do require it to keep in mind the interests of landlords. Any changes to the law that are taken forward will need to respect landlords' human rights in terms of ensuring that they receive adequate compensation as part of what some see as akin to a compulsory purchase procedure.
In addition, the Law Commission is proposing other changes including the following:
- simplifying the rules governing leaseholders eligibility to enfranchise, including removing the requirement for two years' ownership before a claim can be made;
- for leaseholders of houses who choose to extend their leases rather than buy the freehold, giving a right to buy an unlimited number of lease extensions without any ground rent, in place of the current option to buy a one-off 50-year lease extension at a high ground rent;
- enhancing rights for owners of leasehold houses on estates with shared services, including providing a new procedure for an estate to be enfranchised as a whole;
- simplifying the procedures to remove traps and reduce protracted and costly disputes; and
- considering whether leaseholders should continue to be required to make a contribution to their landlord's costs, as well as asking what level of contribution might be appropriate.