Leasehold enfranchisement reform paper published

Napthens - October 2nd 2018

The Law Commission has published its highly anticipated consultation paper detailing proposals to reform the current leasehold enfranchisement process by making it easier and less costly for leaseholders to extend their lease or purchase the freehold of their house or flat.

Leasehold enfranchisement is the process by which leaseholders may exercise their right to purchase the freehold or extend the lease of their property. Current enfranchisement rules are contained in over 50 Acts of Parliament and different rules exist for houses and flats. The current system has been widely criticised for being overly complicated, expensive and slow.  It is against this backdrop that the Law Commission has been tasked by the Government to simplify enfranchisement legislation and provide a better deal for leaseholders as consumers.

In its consultation paper, the Law Commission has proposed a new, single unified procedure applying to leaseholders of both houses and flats and also the removal of the requirement that the leaseholder must have owned the property for at least two years before bringing an enfranchisement claim. Leaseholders would also have the right to seek an extension of their lease at a nominal ground rent, together with the right to acquire the freehold either individually or collectively.

In addition, the Law Commission has considered ways in which the premium payable by leaseholders can be reduced whilst protecting the legitimate interests of landlords, given existing valuation methods are widely viewed as complicated, inconsistent and expensive. The following two options have therefore been proposed:

  1. The adoption of a new single formula which would not be based on market value; and
  2. Options based on current valuation methods, combining various existing valuation components to reduce the premium.

Depending on the valuation methodology adopted, the Law Commission has suggested the use of an online calculator to support valuations and reduce the need for expert assistance.

Among the proposals, the reform of the valuation procedure is likely to be the most contentious. The Law Commission will need to strike a balance between enhancing enfranchisement rights for leaseholders while also protecting the legitimate business and property interests of landlords.

The consultation period closes on 20 November.