The Leasehold Group of Companies has said the Law Commission’s recommendations for enfranchisement reform could pave the way for a comprehensive overhaul of the leasehold system but has cautioned that the fight for reform is not over and any legislation is still several years away.

The Law Commission published its long-awaited report on leasehold enfranchisement reform (“Leasehold home ownership: buying your freehold or extending your lease”) on 21 July 2020. Spanning 860 pages, the report offers more than 100 recommendations on enfranchisement reform for the Government to consider.

Belinda Walkinshaw, Managing Partner of Leasehold Law (part of the Leasehold Group), said: “We have taken time to digest the Law Commission’s recommendations and its comprehensive analysis of the inconsistencies and unfair aspects of the existing law, which have denied leaseholders the opportunity to purchase their freeholds or extend their leases for many decades.”

“Leasehold reform is a complex process, and we expect it may be several years before any of these recommendations become law. The fight is far from over and there is no guarantee that the outcome of this process will deliver the reforms needed to make the property market fair for leaseholders.

“It is very important to stress that although the Law Commission’s report is the result of a very extensive consultation process, it is only a set of recommendations. These proposals are not law, and the next step will be for the Government to decide which recommendations to put forward to Parliament as a draft bill.

“We now call on the Government to fulfil its promise to make extending a lease or purchasing a freehold ‘much easier, faster and cheaper’. It is essential that decision makers reform the law as quickly and effectively as possible, as any protracted delay will only work against leaseholders.”

 Following its review of The Law Commission’s report, The Leasehold Group notes several key recommendations, which it says would significantly strengthen leaseholders’ rights:

Lease extensions 

• Abolishing the requirement for leaseholders to own their flat for two years before they can apply to purchase the freehold will enable leaseholders to enfranchise immediately and reduce the potential for the freehold to be sold on to other investors during the initial two-year period.
• Increasing the term from an additional 90 years to a new term of 990 years will save leaseholders the considerable cost of repeatedly extending short leases.
• Restricting non-statutory lease extensions to only include the same (or very similar) terms as the existing lease will deny a landlord the opportunity to introduce new onerous provisions into the lease terms.
• Buying out the ground rent under the existing lease will provide a cheaper alternative to paying the premium for a lease extension and free leaseholders from the ongoing responsibility to pay ground rent, especially where they already have relatively long leases and so don’t require an extension of the term but have onerous ground rent provisions.

Walkinshaw continued: “The Law Commission’s recommendations in relation to leaseholders’ rights to extend their lease would provide welcome opportunities for leaseholders to take back control of their properties, should they eventually make it into law.

“However, we caution any leaseholder whose lease is approaching the 80-year mark not to rely on the Law Commission report and wait for any reforms, but to move swiftly to extend their lease now, as the cost to extend their lease will skyrocket once it falls below 80 years.”

Freehold purchases 

• Raising the non-residential use threshold from 25% to 50% will enable enfranchisement by leaseholders who were previously excluded and bring the law in line with the right of first refusal enjoyed by the majority of residential leaseholders under the Landlord and Tenant Act 1987 when the freeholder wants to sell.
• Removing the resident landlord exclusion which many landlords rely upon to deny leaseholders’ rights will enable more leaseholders to apply for the Right to Manage.
• Including live/work units (which will only become more prevalent in a society of remote working) and shared ownership leases will enable enfranchisement by leaseholders who were previously unable to by their freehold under existing laws.
• Removing the charitable housing trust landlord exemption, given that the grant of a residential long lease is a commercial enterprise, and often freeholders may have charitable status but remain under an obligation to get the best possible price and so can hold their tenants to ransom if they wish to extend their leases or purchase their freeholds.

A number of key recommendations will also improve the enfranchisement process, including:

• Introducing a single set of prescribed Notices for both lease extensions and freehold purchases for flats and houses to ensure consistency and make the process clearer for all parties involved.
• Limiting the pitfalls and trappings which prevent leaseholders from progressing their claims such as removing the requirement for two years ownership and limiting the ability for the landlord to modify the lease, even when the extension is agreed on a voluntary basis.
• Allowing claims to be transferred to the leaseholder automatically on assignment of the lease, which will reduce the complexity of the enfranchisement process.

Belinda concluded:

“It is now essential that we keep up the pressure on Government, to ensure leaseholders’ views are represented throughout the legislative process.”