The Law Commission has, at the behest of Ministry of Housing, Communities & Local Government, pitched a series of reforms designed “to provide a better deal for leaseholders who want to purchase the freehold or to extend the lease of their home”, and opened up the proposals for feedback from the industry.
Overall, the ambition is to save leaseholders time, stress and money, reducing legal costs and helping to prevent unnecessary disputes. The Commission has also outlined – at the Government’s request – some options “to reduce the price payable by leaseholders to buy the freehold or extend their lease while ensuring sufficient compensation is paid to landlords to reflect their legitimate property interests.”
The “radical” set of policy updates have four principal aims:
- To make the enfranchisement process easier, cheaper and quicker
- To improve and enhance the rights of leaseholders to buy their freehold or extend their lease
- To introduce a simpler unified procedure for houses and flats
- To remove limitations on the right to enfranchise, including the requirement that leaseholders must have owned their property for two years before making a claim
The current leasehold system has been roundly criticised in the past few years, with some headline-grabbing horror stories about heinous charges and relentless admin (it’s currently arranged around no fewer than 50 different Acts of Parliament, with rules running to hundreds of pages).
A consultation is now open until 20th November. Details are here.
Key proposed changes have been broken down into some relatively clear guidance for different stakeholders: leaseholders of houses, leaseholders of flats, and landlords.
Proposals for leaseholders of houses
Current law |
Law Commission proposals |
| Different regimes for leasehold houses and flats. | One regime for both houses and flats, reducing complexity and costs. |
| Minimum two-year period of lease ownership before a leaseholder of a house can bring a claim. | No minimum period of lease ownership, reducing delay and costs for leaseholders. |
| Leaseholders of houses who wish to extend their lease (rather than buy their freehold) only able to extend their lease once, by 50 years at a (relatively high) “modern ground rent”. | Leaseholders of houses able to extend their lease for a longer period, at a nominal rent. No limit on number of extensions. |
| Where an estate includes houses and flats, the leaseholders of houses cannot join with the other leaseholders to acquire the whole estate. | A right for all leaseholders on an estate (whether they own a flat or house) to join together to acquire the freehold to the whole estate. |
| Separate procedures apply to each of the different enfranchisement rights. | A single procedure to apply to any enfranchisement claim, reducing complexity, confusion and costs. |
| Frequent challenges by landlords to the validity of notices given by leaseholders | Limiting the types of challenges to notices that can be made. |
| No procedure for dealing with missing landlords where a leaseholder wishes to extend the lease of a house.
Procedures for dealing with missing landlords in other cases complex and costly. |
Common procedure for dealing with missing landlords, ensuring leaseholders can exercise rights and save costs. |
| Both leaseholders and landlords can dispute terms on which freehold is transferred or lease extended. | Ability to argue about terms restricted. |
| The power to determine disputes is split between the county court and the Tribunal. A single claim may require a number of separate applications to be made before it is concluded. | All disputes to be determined by the Tribunal, reducing complexity and costs. |
| Leaseholders of houses are required to pay their landlord’s reasonable non-litigation costs. | Leaseholders no longer required to pay their landlord’s non-litigation costs or those costs to be controlled; for example, through a fixed costs regime. |
| Most favourable valuation basis only available to leaseholders who satisfy complex financial criteria. | Replacing financial criteria to reduce complexity and costs, whilst preserving most favourable valuation method for those who already benefit. |
| Valuation is complex and requires leaseholders to obtain expert valuation evidence in respect of each element of the valuation (including the value of the term, the reversion, any marriage value, and other elements), and legal advice to resolve disputes. | Options to reduce premiums payable by leaseholders of houses including:
• a simple formula (ground rent multiplier, or percentage of capital value) • the removal of, or prescription of rates for, some or all elements of the valuation. |
Proposals for leaseholders of flats
Current law |
Law Commission proposals |
| All claims | |
| Different regimes for leasehold houses and flats. | One regime for both houses and flats, reducing complexity and costs. |
| No prescribed forms for claims by leaseholders of flats, and frequent challenges by landlords to validity of notices given by leaseholders. Risk that leaseholders’ notices are deemed withdrawn, so the claim fails, if procedural time limits are not met. | Prescribed forms for making and responding to any enfranchisement claim, making mistakes less likely to occur. Limiting challenges to notices and removing deemed withdrawal, preventing unnecessary costs and landlords taking advantage of leaseholders’ mistakes. |
| Procedures for dealing with missing landlords of flats are complex and costly. | Leaseholders to apply to the Tribunal so the claim can continue and be finalised, ensuring leaseholders can exercise their rights, and saving costs. |
| Both leaseholders and landlords can dispute terms on which freehold is transferred or lease extended. | Ability to argue about terms restricted. |
| The power to determine disputes is split between the county court and the Tribunal. A single claim may require a number of separate applications to be made before it is concluded. | All disputes to be determined by the Tribunal, reducing complexity and costs. |
| Leaseholders of flats are required to pay their landlord’s reasonable non-litigation costs. | Leaseholders no longer required to pay their landlord’s non-litigation costs or those costs to be controlled; for example, through a fixed costs regime. |
| Valuation is complex and requires leaseholders to obtain expert valuation evidence in respect of each element of the valuation (including the value of the term, the reversion, any marriage value, and other elements), and legal advice to resolve disputes. | Options to reduce premiums payable by leaseholders of flats including:
• a simple formula (ground rent multiplier, or percentage of capital value) • the removal of, or prescription of rates for, some or all elements of the valuation. |
| Additional proposals for lease extension claims | |
| Minimum two-year period of lease ownership before a leaseholder of a flat can bring a claim. | No minimum period of lease ownership, reducing delay and costs for leaseholders. |
| Additional proposals for collective enfranchisement claims (A claim by a group of leaseholders together to buy the freehold of their block) | |
| Where a building contains only two flats, the leaseholders of both flats must participate in a claim to acquire the freehold. | The leaseholder of one of the two flats can bring a claim to acquire the freehold, stopping one leaseholder from blocking a claim by another. |
| No right to join an earlier collective freehold acquisition. | A new right to participate in an earlier collective freehold acquisition, stopping leaseholders from being locked out of ownership. |
| Successive collective freehold acquisition claims by competing groups of leaseholders resulting in “ping pong” claims. | No collective freehold acquisition claim can be made if one has been made in the previous five years. |
| Landlords can choose to take a long lease of any part of the building not held by leaseholders (for example, flats held on a short tenancy, or commercial units). | Leaseholders can require a landlord to take long leases of any parts of the building (except common parts) which are not let to participating leaseholders, reducing the cost of acquiring the freehold. |
Implications for landlords
Current law |
Law Commission proposals |
| Different regimes for leasehold houses and flats. | One regime for both houses and flats, reducing complexity and costs. |
| A collective enfranchisement claim cannot be made if more than 25% of the building has non- residential use. | The 25% limit to apply to all freehold acquisition claims, allowing landlords to retain buildings with substantial commercial use. |
| No obligation on leaseholders acquiring a freehold within an estate to continue to contribute to the costs of maintaining the estate. | A power to require contributions to be made after the freehold is acquired, allowing estates to continue to be maintained. |
| Separate procedures apply to each of the different enfranchisement rights. | A single procedure to apply to any enfranchisement claim, reducing complexity, confusion and costs for all parties. |
| No prescribed forms for claims by leaseholders of flats. | Prescribed forms for making and responding to any enfranchisement claim, making mistakes less likely to occur. |
| Frequent challenges to the validity of notices given by leaseholders and landlords. | Limiting the types of challenges to notices that can be made. |
| A landlord who has failed to serve a valid counter-notice on the leaseholder of a flat is forced to sell on the terms proposed in the leaseholder’s notice of claim. | The terms to be determined by the Tribunal in such cases, removing windfall gains for leaseholders. |
| The power to determine disputes is split between the county court and the Tribunal. A single claim may require a number of separate applications to be made before it is concluded. | All disputes to be determined by the Tribunal, reducing complexity and costs for all parties. |
| Valuation is complex and requires parties to obtain expert valuation evidence in respect of each element of the valuation (including the value of the term, the reversion, any marriage value, and other elements), and legal advice to resolve disputes. | While options to reduce premiums necessarily benefit leaseholders, changes to the procedure may benefit both parties. For example:
• prescribed rates would prevent disputes • provision of an online tool to calculate the premium makes the process quicker and easier for both parties. |
| Valuation disputes are resolved by the Tribunal at a full hearing with expert evidence produced by both parties. | Low value claims to be resolved by a valuation member of the Tribunal alone, without the need for a hearing or expert evidence, reducing delay and costs. |
Law Commissioner Professor Nick Hopkins: “The current system is complex, slow and expensive and it’s failing homeowners. Many feel that they are having to pay twice to own their home.
“Our proposals would make it easier and cheaper to buy the freehold or extend the lease of their home, ensuring the system works for ordinary homeowners across the country.
“We want to hear views from across the spectrum on how this complicated area of law can be improved.”
Housing Minister Heather Wheeler: “The Government is committed to banning leaseholds for almost all new build houses and restricting ground rents to a peppercorn.
“It’s also unacceptable for leaseholders who want to buy their freehold or extend their lease to be faced with overly complicated processes and disproportionate costs.
“I welcome the Law Commission’s proposals that have the real potential to help those leaseholders who are having to deal with these outdated practices.”
Welsh Government Housing and Regeneration Minister Rebecca Evans: “There has been widespread criticism of poor practice in the use of leasehold in Wales, and I have been clear that the Welsh Government will not support poor practice that has a negative impact on homeowners. This work is part of efforts to improve transparency and understanding for people who have leasehold agreements as well as those entering into leasehold transactions in Wales.”
The full report, “Leasehold home ownership: buying your freehold or extending your lease”, is available to read here. Details on how to respond to the Law Commission’s recommendations and suggestions can be found here.
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