The Law Commission has been accused of coming up with underwhelming proposals 18 months after it first consulted on reforms to the enfranchisement process.
The legal body was first tasked in 2017 with reviewing how to make it simpler, easier, quicker and more cost-effective for home owners to extend a lease or purchase a leasehold.
It launched a consultation in September 2018 and yesterday finally released a report on how to reform and reduce premiums.
But the 322-page document was immediately criticised for its focus on the human rights of the freeholders.
The report dedicates a whole section to human rights, warning that if legislation that reduces premiums is not compatible with the European Convention on Human Rights, the Government could face compensation claims from freeholders and would have to reverse any legislation.
Reforms must comply with Article 1 of the Convention, the right to enjoy possessions, the Law Commission said.
It recognises that leaseholders have right to respect for their home under Article 8 of the Convention, but insists this is taken into account as part of the valuation process when extending a lease or buying the freehold.
The Law Commission puts forward three schemes.
The first would scrap marriage values – a figure calculated by taking the property price and adding any future losses in ground rent incurred by extending the lease – and the premium will be calculated by reference to the remaining lease term and loss of ground rent only.
A second would also make a calculation using the remaining term and loss of ground rent but also use the hope value – a lower deferred version of the marriage value.
There is also a third option that keeps the current system of using the marriage value, remaining lease term and lost ground rent but combining it with new reforms.
These options would all be boosted by other changes such as prescribing rates used to calculate the value of the term left, lost ground rent and what the property would be worth at the end of the lease.
The Law Commission also recommends capping the treatment of ground rent and having different systems for owner occupiers and buy-to-let landlords.
It also suggests the creation of an online calculator based on the prescribed rates so leaseholders could work out the cost of enfranchisement themselves in a similar way that HMRC offers income tax calculators.
Housing Secretary Robert Jenrick said the Government would consider the proposals.
But the Law Commission’s efforts have not been appreciated across the sector.
Louie Burns, managing director of lease advisers The Leasehold Solutions Group, said it was merely tinkering around the edges.
He said: “The recommendations in the report are incredibly underwhelming.
“However, my real concern is that the document repeatedly defends the freeholders’ human right to own and profit from someone else’s property via the leasehold system, which is absolutely crushing.
“Rather than recognise leasehold as an exploitative feudal anachronism, the Law Commission seems intent to defend the principles of the system, rejecting many options for reform that would make enfranchisement genuinely cheaper, simpler and fairer.
“For example, the option to calculate the cost of enfranchisement by a simple multiplication of the current ground rent was dismissed by the Law Commission as it would contravene human rights legislation.”
Sebastian O’Kelly, director of campaign group the Leasehold Knowledge Partnership, said: “A process which began with the aim of making the enfranchisement process more open and cheaper now has heavy emphasis on the ‘human rights’ of property owners – even when they are anonymous ground rent speculators in the British Virgin Islands.
“For leaseholders, things may end up substantially the same.
“If you need to extend your lease, there is no compelling reason not to get on with it now.”
Mark Hayward, chief executive of NAEA Propertymark, said: “It’s encouraging to see that steps are being taken towards resolving the inherent issues of leasehold which is something we argued for through our 2017 ‘Leasehold: A Life Sentence?’ report which found that 93% of respondents wouldn’t purchase another leasehold property.
“While we still need a robust solution for all of those affected by the issue, this a positive step in making it easier for leaseholders to buy their freehold or extend their lease and we encourage further reform to tackle this problem.”
Comments (2)
It is instructive that nowhere else in the world is rushing to adopt long leasehold now more or less confined to England and Wales. The human rights of a remote, often offshore entity that does nothing for the building, or the leaseholders within it for their fees and ground rents. Versus the human rights of leaseholders to have the quiet enjoyment of their home without having these mafia style organisations demanding money every time the bell strikes. A reasonable person would conclude that the human rights of leaseholders and residents take precedence.
The 1967, 1993 & 2002 Leasehold reform acts were all heavily weighted in favour of Freeholders so this can’t be surprising to anyone owning a lease or in the industry.
The Crown Estate, The Grosvenor Estate, Earl Cadogan, Sir Frederick & Sir David Barclay, The Reuben Brothers, Private Equity firms, George Osborne, Jacob Rees-Mogg et al. None of them have a vested interest in seeing meaningful legislation change in favour of Leaseholders, and, along with hundreds of acres of prime London real estate, these are the people holding the real power.
It’s not just new homes builders that are exploiting home buyers. I’m seeing an increase in the number of existing leaseholders conducting lease extensions on their flats outside of the framework of the 1993 act, where the Freeholder, in exchange for a ‘cheaper’ premium, are inserting hugely onerous ground rent escalator clauses which can render their properties unsellable/unmortgageable, and their lawyers are signing off on them.
Enfranchisement is an incredibly complex and technical area of real estate law (clearly for a reason), and we need to learn more about it as property professionals, lawyers and conveyancers so that we can at least advise our clients properly until we DO get the sweeping reforms we need.