Will the government reform leasehold ownership in 2019 ?

In 2017 the Ministry of Housing issued a white paper setting out the government’s plans to reform the housing market. The issue of extending a flat’s lease was one of the topics of the proposed reforms. The Law Commission was then asked to review the extension and enfranchisement processes. In September 2018 the Law Commission published initial recommendations on what aspects of the current system could be changed and a period of public consultation followed, that consultation closed on 07 January 2019.

The focus of the Law Commission’s proposals concerning lease extensions were in summary:-

  • To remove the traps of the current 1993 Act extension process.
  • To bring in deemed service provisions for legal notices and prescribed form notices to curtail Landlords’ from being able to deny leaseholders the right to extend.
  • To limit further the amount of legal and valuation costs that a landlord should be entitled to recover from the flat owner for bringing a lease extension claim.
  • Bringing consistency to the valuation methodology to allow for less arguments around what a leaseholder should pay.

The Law Commission is now at the policy development phase and expects to publish a final report with its final recommendations this year. It’s very unlikely that reform of the current legislation will occur until 2020.

The last two proposals if implemented would redress the perceived imbalance between leaseholder’s and freeholder’s in relation to their respective bargaining positions. If landlord’s were forced to bear their own professional costs of the extension process they would be more inclined to settle at an early stage. Currently leaseholders can be forced to pay over the odds or to spend additional professional costs to run their claims through the First-tier Tribunal with no certainty as to the premium outcome. There are however a large number of landlord’s that readily agree what is termed the appropriate 1993 Act price and who do not seek to unilaterally introduce adverse lease terms, in these cases the proposed reforms are unlikely to change the total cost of extending.

The possibility of reform puts existing leaseholders in a dilemma. Should you hold on and see what the government decides or extend now?

If your lease is approaching the 80-year mark or currently under the 80 year mark then you should take action now and extend. Every day you delay the premium is likely to increase.

If your lease has more than 82 years unexpired and you are not looking to sell then you could wait and see what effect the reforms have.