Planting the seeds of Leasehold Reform – the start of a new dawn?
Planting the seeds of Leasehold Reform – the start of a new dawn?
The Law Commission has published its long awaited recommendations for reform of the leasehold sector, to include changes to Leasehold Enfranchisement, the Right to Manage and Commonhold. Their report is over 850 pages in length and supplements the report earlier this year with proposals for reforming how the premium (or price) is calculated for any enfranchisement claim.
There is still much to digest, consider and interpret, and it might still take several years for some or all of the proposals to be made law, but for now, the main highlights for both landlords and tenants to note are summarised below:
Enfranchisement Reform - Highlights
Entitlement:
A 990 year lease extension instead of a 90 year lease extension (as under the current regime)
For leases longer than 250 years in length, a new right to buy out the ground rent, without having to extend the lease
An immediate entitlement to a lease extension on purchase and no longer a need to acquire 2 years of ownership first
An automatic assignment of a lease extension claim with a purchase unless this is specifically excluded or disclaimed
The parties cannot agree lease terms as they wish, either can only pursue limited changes to the new lease
A building with up to 50% commercial space would qualify for freehold enfranchisement (up from 25% commercial space under the current regime)
Mandatory leasebacks can be required of the outgoing freeholder for non participating or non qualifying flats, so as to reduce the premium payable for enfranchisement
An enfranchisement claim can exclude any common parts subject to development, again to reduce the premium for the tenants
Estate Enfranchisement rights – this is to allow multiple blocks to be purchased together under one claim
Tenants would only make a fixed costs (or a no costs contribution) to the landlord’s professional fees depending on what valuation method is adopted by the government for valuing the premium.
Procedure:
One prescribed form for all claims. There will be no invalidity for mistakes on notices
No automatic deemed withdrawal of claims, only a right for a landlord to apply to strike out the claim
A long stop date of 2 years from when a claim is submitted to complete
No automatic entitlement to a new lease/freehold if the landlord fails to respond within 2 months but the Tribunal can order the new lease/freehold for a price it determines
A new lease or transfer must accompany a Landlord’s Response Notice
The Tribunal will be the forum to resolve all disputes (removing the jurisdiction of the county court).
Right to Manage (RTM) - Highlights
Entitlement:
Multiple blocks can make a claim together so an entire estate can be acquired under one claim
Only limited circumstances when a claim is invalid. The Tribunal can waive any mistakes
Premises with 50% commercial use would qualify for RTM (up from 25% commercial use under the current regime)
Free training for RTM directors on company law and management
Landlords would not be entitled to recover any of their professional fees for dealing with a RTM claim.
Procedure:
A simplified procedure to make a claim
Fewer notices required to acquire management
Limited circumstances when a claim could be invalid. The Tribunal can waive mistakes.
Commonhold - Highlights
Only 50% leaseholders consent would be required for commonhold conversion. This would change it from the requirement for unanimous consent under the current system
Non consenting leaseholders would be given equity loans to assist with conversion to commonhold
Developers to be encouraged and incentivised to develop more commonhold
The Commonhold Community Statement to be made more robust and enforceable to ensure compliance with rules and regulations
Flexibility to include commercial units and houses in any commonhold claim.
The recommendations have just been published and whether and when any of it becomes law is now down to the will of Parliament and subject to allocating Parliamentary time. Given there are arguably more pressing matters occupying Parliamentary time, for now, the current law and procedure continues to apply. Whatever changes are introduced, Wallace will always be at the forefront to advise landlords and tenants of their rights in enfranchisement.
Please contact Samantha Bone, Fleur Neale or Shamin Kashem for further information.
The contents of this email are intended for general information only and do not constitute legal advice. Wallace LLP cannot accept responsibility for any loss arising from the use of the content in this email. This information was prepared on 30 July 2020.