Residential Lease Extensions and Freehold Purchases: current proposals for reform

Social Share
Share this post on

In the latest UK200Group blog post Daniel Ginsbury, Partner Ingram Winter Green discusses some of the key matters addressed in the response of the Leasehold Forum, established following recent government proposals

Daniel Ginsbury
Readers may be more or less familiar with the current law on what is known as “Leasehold Enfranchisement”: broadly speaking, this means, the rights of residential flat or house owners, who hold their properties on long leases, to apply to their landlords and require the landlords either to extend the lease, or to sell the freehold (to a group of leaseholders collectively, in the case of flats), upon payment of a suitable premium. This is either agreed by negotiation between landlord and tenant(s), after service of notices and counter notices, and subsequent negotiations; or ruled upon by the First-tier Tribunal, upon the application of either party.

The government (via the Law Commission) has recently announced a consultation which is being undertaken, with a view to simplifying the rules in relation to leasehold enfranchisement, and generally, improving the position of leaseholders, and to a lesser extent, that of landlords, in relation to various issues.

A forum of professionals who specialise in the valuation aspects of leasehold enfranchisement has been assembled, led by Nesbitt & Co Chartered Surveyors, and the forum has submitted a written response to the government proposals.

This blog post summarises some of the key matters addressed in the response of the Leasehold Forum.

1. General Comments
The Forum is keen to embrace changes to the current law which will make the enfranchisement process, easier, quicker and cheaper for all parties involved. It is felt however that the impetus for reform has arisen out of the recent mis-selling scandal of new residential properties on leases subject to escalating ground rents.

The Forum is not convinced that the existing system is in need of such major reform as suggested by the proposals contained in the consultation paper.

That said the Forum recognises that there is scope for sensible reform to remove some of the anomalies that have arisen out of some sections of the current legislation being up to 50 years old.

2. Proposals for reform broadly agreed by the Leasehold Forum
The Forum is broadly in agreement with the following proposals:-

i. One single regime for houses and flats, reducing complexity and costs.
ii. Prescribed forms for making and responding to any enfranchisement claim, making mistakes less likely to occur.
iii. Limiting challenges to notices and removing “deemed withdrawal”, preventing unnecessary costs, and landlords taking advantage of leaseholder’s mistakes
iv. In cases of missing landlords, leaseholders ability to apply to the Tribunal so a claim can continue and be finalised, saving costs.
v. The ability for both leaseholders - landlords to argue terms for a freehold transfer or lease extension to be restricted.
vi. All disputes to be determined by the Tribunal - removal of the jurisdiction of the county court.
vii. Removal of the two year minimum period of lease ownership, before a leaseholder of a flat can bring a claim.
viii. A new right to participate in an earlier collective freehold acquisition.
ix. Leaseholders of houses able to extend their lease for a longer period at a nominal rent, with no limit on number of extensions.
x. Right for all leaseholders on an estate (whether they own a flat or a house) to join together to acquire the freehold of the whole estate.
xi. A single procedure to apply to any enfranchisement claim, reducing complexity, confusion and costs.
xii. Limiting the types of challenges to Notices that can be made.
xiii. 25% commercial use limit to apply to all freehold acquisition claims, allowing landlords to retain buildings with substantial commercial use.
xiv. The terms to be determined by the Tribunal in cases where the landlord has failed to serve a valid counter notice on the freeholder of a flat.

3. Various Qualification and Valuation Issues

i. Retain (existing) section 9(1) methodology but amend the test for its application by excluding houses within the highest Council Tax band for England and the highest Council Tax for Wales.
ii. Retain the existing regime for valuing all claims whether or not they can be identified as being “low value and/or straight forward”.
iii. It is desirable to treat commercial investors differently to owner-occupiers by increasing marriage value contribution to 75% for commercial investors and reducing marriage value contributions to 25% for owner-occupiers.
iv. There is no need for capitalisation rates, deferment rates or relativity to be prescribed.
v. It is desirable to retain existing 80 year cut off for applying marriage value.
vi. The proposed new right for leaseholders to require the landlord to take lease backs of non-participating flats is desirable. However there should also be a right for landlords to require leasebacks on non-participating flats obviating the need for leaseholders to exercise such a right when the landlord prefers to take leasebacks.
vii. The current discount for leaseholders improvements on an enfranchisement valuation should be retained.
viii. The use of an online calculator is not appropriate or desirable.
ix. Where a building contains only two flats the current requirement for both to participate in the claim for the freehold should be retained.
x. In a lease extension claim involving an intermediate interest the rent payable by an intermediate landlord should be commuted on a pro-rata basis.

For any further information concerning leasehold enfranchisement or advice on property-related legal matters generally, contact Daniel Ginsbury of Ingram Winter Green LLP Solicitors:

Tags: UK200

Back to Blogs
Facebook Twitter LinkedIn YouTube