Winds of change blowing in with leasehold reforms

Potential for major change in regime and valuations

22 October 2018

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The Law Commission has published proposals to reform the leasehold enfranchisement process to make it easier and cheaper for leaseholders in England and Wales to purchase the freehold of their house or flat. The commission has been tasked by the UK Government to reform the existing law and is consulting on the proposals until 20th November 2018. The Government says that the reforms to the leasehold law are directed at home owners, not investors. It is also committed to banning the sale of the majority of new-build houses on a leasehold basis and to reducing ground rents.

The commission proposes a single, simplified procedure for leaseholders of houses and flats to buy the leasehold or extend their lease, as well as removing the requirement for the leaseholder to have owned the lease for at least two years before entering a claim. There is an intention to introduce a consistent valuation model and reduce the professional costs and premium paid by leaseholders for the freehold or extension of the lease. The commission acknowledges that sufficient compensation must be paid to landlords to reflect their legitimate property interests and that the interests of landlords and leaseholders are diametrically opposed. Both parties, it agrees, would argue that the valuation method is either too low or too high. Other proposals include making it easier to serve claim notices to landlords and for all disputes to be dealt with by Tribunal with a fixed costs regime.

Commenting on the proposed reforms, Rod Perons, Land Agency Director with Cooke & Arkwright said, “Away from the travails of Brexit, the Government is seeking to change the law on leasehold enfranchisement. Potentially, this could lead to a major change in the regime and valuations. The reforms are partly in response to onerous leaseholds put in place by housebuilders over recent years. These incorporated provisions for escalating rent reviews, which often come as a shock to unwary lessees. As a result, the Law Commission is looking at a raft of leasehold reforms which can only be described as being favourable to lessees should they be introduced.

“Landlords need to be aware that this area of property law is under scrutiny and is likely to be politically popular. For landlords, the result is likely to be a decrease in revenue from freehold sales and a reduced opportunity to recover associated costs.”

Click here for the consultation webpage