Summary: The Law Commission has set its sights on addressing issues/concerns surrounding houses already held as a leasehold, rather than freehold, interest. In anticipation of the release of the detailed Consultation Paper on these matters/proposals for change in September, we have set out some initial points we are expecting to be covered.
Residential properties are high on the agenda for the government at the moment with the topic featuring heavily in the proposals for the 13th Programme of Law Reform. This isn’t surprising given that most of us either rent or own properties (or aspire to) and the ambitions the government has for housebuilding throughout the UK.
According to the Law Commission there are seemingly a multitude of issues with residential properties that they will seek to consult on and address. The proposed ban on the sale of houses on leasehold and the sale of leases containing obligations to pay ground rents (that ratchet up significantly over the years), have received significant attention.
What has received less attention are the proposals to reform the process where existing leases of flats can be extended, or the freehold purchased. Instances of houses held on leases are less common than flats but given the potential values involved are of high importance to both landlord and tenant.
A consultation paper will be published in September, which we will be reviewing and commenting on, but now is the time to flag/highlight what it is the Law Commission wishes to interrogate. In summary, the Law Commission thinks the current regime relating to leasehold houses is cumbersome and presents too many opportunities for difficulty to both landlord and tenant. Points to consider include:
- That there appears to be no good reason for houses to be held on long leases;
- Ground rent obligations can be onerous, particularly given premiums paid;
- Whether there remains any reason why there should be a difference in the enfranchisement/extension regimes for flats and houses;
- What purpose the ownership condition (meaning a tenant cannot start an enfranchisement/extension process until it has been registered as proprietor for two years) serves and whether it should be removed;
- The simplification of the notice and valuation process to reduce the amount of claims that are referred to the First Tier Tribunal (and accordingly avoid the costs associated);
- The simplification of the valuation process including whether realistically a set calculation method could be imposed together with the possible removal of marriage/hope values;
- Seeking to cap costs generally including setting what costs a landlord can recover from its tenant; and
- Giving rights to longer lease extensions where a tenant chooses not to seek to buy the freehold.
In the round, this sort of reform is to be welcomed, but we reserve judgment/our thoughts until the Consultation Paper is released.