Reform in the reform – The Law Commission’s final report
The world of Leasehold reform is changing! But I wouldn’t make any plans based on it just yet……
The Law Commission has now published its eagerly awaited final reports on leasehold reform and the future of leasehold ownership. These reforms are squarely aimed at helping to improve the existing system of leasehold ownership, and to try to create a viable alternative to leasehold ownership. The ‘new’ idea is Commonhold, which is not new at all, it has been around for years, but there is now a concerted effort to make it widespread in the future.
As you can imagine, the project, which started back in September 2018, provoked quite a response from both Landlords and Tenants, with over 2,500 responses. It made over 100 recommendations, many which has significant implications for the enfranchisement sector.
It is a long list, but some of the recommendations include;
- A simpler and more efficient enfranchisement regime, increasing the accessibility of enfranchisement rights to leaseholders.
- Merging the current two-tier system of Flats and Houses into the one scheme.
- The right to a lease extension of 990 years plus the remaining term of the existing lease at a peppercorn rent on payment of a premium.
- A leaseholder who already has a very long lease is entitled to buy out their ground rent obligations without extending the term.
- On collective enfranchisements, the percentage limit of permitted non-residential use is raised from 25% to 50%. This will increase the number of buildings that are eligible for enfranchisement.
- The two-year ownership requirement (which is currently relevant to house claims and lease extension claims) will be abolished.
- The restriction that prevents tenants who own three or more flats in the same building from enfranchising will no longer apply.
Full details of all the recommendations can be found here; https://www.lawcom.gov.uk/project/residential-leasehold-and-commonhold/
I am sure the Commission’s reforms will be welcomed by leaseholders and seen to try and help them with the complexity and cost of extending their lease or buying their freehold. It will also have dismayed many freeholders, who stand to lose out on money invested in the sector. There is no getting away from the fact that this has the potential to shift the market considerably. As the Commission stated, its aim was a ‘root-and-branch’ review of enfranchisement rights with the purpose of making ‘our homes our own, rather than someone else’s asset’ and these reforms have potential to do that.
However, much of the will depend on politics (As most things seem to do nowadays!) and whether some or any of the reforms are enacted. Recommendations like these can take significant time to become law, with the quickest so far around 5 years. There are also many other factors like Brexit and coronavirus which the government must deal with and are likely to be higher on the agenda, but long term it will be interesting to see what happens…….