Three options for reforming leasehold enfranchisement

By Monidipa Fouzder

A year after receiving hundreds of responses to proposals for reforming the process enabling leaseholders to buy or extend their lease, the Law Commission today presents the government with three options.

The law reform body’s proposals appear amid mounting concern about the sums leaseholders must pay for enfranchisement to buy the freehold or extend the lease on a property.

Under a pledge to end unfair and abusive practices in the leasehold system, the government asked the Law Commission to review enfranchisement law to make the residential leasehold sector more transparent and fair. The commission was tasked with providing options to reduce the premium payable for existing and future leaseholders to enfranchise their homes, while ensuring landlords are sufficiently compensated.

A consultation paper published in September 2018 attracted more than 1,100 responses. An online survey about leaseholders’ experiences received more than 1,500 responses. The commission said leaseholders had advocated sweeping reform to lower enfranchisement costs. However landlords and investors, including charities and pension providers, expressed opposing views.

Today commission presents three schemes for a new regime to calculate the cost of enfranchisement. Each is based on a different assumption about the market in which the landlord’s interest is valued. Within each regime are further ‘sub-options’ for reform. These include capping the level of ground rent to calculate the premium and creating an online calculator to work out the cost of enfranchisement.

The commission says it does not hold views on which scheme and other reform options to adopt. But Professor Nicholas Hopkins, property law commissioner, said the commission is ‘ready to help the government in implementing whichever options for reform they choose’.

Housing secretary Robert Jenrick MP welcomed the report. He said: ‘I will consider the proposals outlined in this report carefully and set out our preferred way forward in due course.

‘We have already committed to addressing the abuses of leasehold seen in recent years, by reducing ground rents to a peppercorn level and limiting new leasehold to apartments, save in the most exceptional circumstances. The Competition and Markets Authority is examining the alleged misselling of leasehold properties and I will also await their findings with interest.’

The commission will make further recommendations this year on reforms to improve what it calls a ‘complex’ enfranchisement system. Reports on reforms to make commonhold a viable alternative to leasehold and improving the law to give leaseholders management rights will also be published.

(Courtesy: Law Gazette Society)