Residential leases set for “radical reform”

The government wants to tackle what it considers to be unfair practices in the residential leasehold market. In December 2017 it announced plans to ban the sale of new-build houses on a leasehold basis and to require ground rents in all new long residential leases to be set at a “peppercorn” - or zero financial value. (At the time of writing, we await draft legislation). But such measures would not help existing leaseholders with onerous lease terms and the government estimates that about 18 per cent of England’s housing stock is owned on a leasehold basis.

On September 20, 2018 the Law Commission proposed a series of reforms to plug that gap by making it easier for leaseholders of houses and flats to “enfranchise”: to buy their freehold or to extend their lease. The current enfranchisement regimes are seen as complex, expensive and as causing unnecessary conflict, costs and delay.

The proposals aim to

• Make the enfranchisement process easier, cheaper and quicker, for example by introducing a simpler unified procedure for houses and flats
• Improve and enhance existing rights to enfranchise
• Remove limitations on the right to enfranchise, such as the requirement that leaseholders must have owned their property for two years before making a claim
• Reduce the premium payable by leaseholders to the landlord when they enfranchise.

At the government’s request the Law Commission has also provided a series of options for calculating the premium to be paid, seeking to achieve a balance between reducing current premium levels and ensuring that sufficient compensation is paid to landlords to reflect their legitimate property interests. The options range from the adoption of a simple formula, such as a ground rent multiplier or a percentage of the capital value of the property, to options based on current valuation methodology. This issue may prove to be particularly controversial.

The proposals are open for consultation until November 20, 2018.