The Law Commission Consultation on Leasehold Reform - does it affect you?

The Law Commission Consultation on Leasehold Reform – does it affect you?

The laws that entitle leaseholders to buy the freehold to their flats or houses or to extend those leases are complicated and often very expensive and time consuming.    Many leaseholders have been caught by unscrupulous freeholders who are perceived to be taking advantage of those who need lease extensions when they wish to sell or re-mortgage.    Others who have bought leasehold houses were often not aware that their houses were indeed leasehold and had onerous ground rents.   

This consultation has been issued as part of the wider political and public debate about leasehold reform. The Law Commission's aim is to make the enfranchisement process simpler, fairer and cheaper.

The consultation tries to seek a balance between the competing interests of freeholders and leaseholders. However, this depends largely on political judgment and it remains to be seen as to whether a balance can truly be achieved.    A lot of media coverage has put forward the leaseholders’ point of view, but often the freeholders’ viewpoint is missed or ignored.    Freeholders own assets in the free market.  Not all freeholders are billionaires.  Similarly, not all leaseholders are downtrodden or lacking in funds.  Allowing someone who already owns a flat for example, to obtain a lease extension cheaply is only going to benefit that person – it won’t necessarily benefit anyone else.    On the other hand, should those who have unwittingly allowed their lease to fall below 80 years pay a much higher premium?       Achieving “fairness” is going to be difficult depending on which side of the fence one is on. 

It is therefore important that both freeholders and leaseholders take note of the consultation (and respond) to ensure that the proposals that are just.

The Proposed Changes

These include:

1. You will no longer have to own the lease for the last two years in order to qualify for the right to a lease extension;
2. Prescribing standard forms for bringing and responding to a lease extension claim.   This would reduce the costs and the time wasted in solicitors arguing over the validity of the notices;
3. Streamlining the procedure for dealing with disputes and issues that arise during a claim for a lease extension. Under the proposals, all disputes would be dealt with by the First-Tier Tribunal instead of split between the court and the Tribunal.   This will make the process quicker, easier and cheaper;
4. Simplifying the way in which the price payable for the new lease is calculated by prescribing a simple formula, with the aim of reducing the prices payable by the leaseholders.   The aim is to make the process easier, quicker and cheaper by reducing the valuation costs.

The above is not an exhaustive list, but shows some of the more radical proposals. Whether you should wait before claiming a lease extension depends upon your circumstances.   The number of years left on the length of your lease will be a major factor because the current law is that you have to pay “marriage value” if your lease has less than 80 years left to run.     The proposed reforms are only provisional at this stage and a public consultation is ongoing. No date has been set for the publication of the Law Commission’s final report setting out its recommendations for reform, so it is a case of “wait and see”.   Typically, these reforms take years to implement and as everyone knows, the government is quite busy on other things at present. 

Next Steps

Generally, if you have more than 85 years left to run, or you have no intention of selling or re-mortgaging in the near future – then you can probably afford to wait and see if the law changes.    However, it is always prudent to extend your lease or buy your freehold if you can afford to do so because the longer your lease length, the cheaper it will be.    Further, not all of the proposals are necessarily going to become law.    The political landscape changes all of the time, and it would be risky to wait simply because you think that the valuations are going to be lowered significantly.   

Conclusion

This is a major consultation on an important area of law for landlords/freeholders and leaseholders/tenants. Responses to the consultation are due by 20 November 2018.

The outcome of the consultation could have a significant impact on this area of law for many years to come.

You can read the consultation here and there are instructions on how to comment on them.  

If you are own a leasehold property and wish to discuss your options with regards to extending your lease please contact  Chi Collins (T:0207 462 6027 E: cyc@cbglaw.co.uk) to discuss further.