The Law Commission: Buying your freehold or extending your lease

Last year the Law Commission’s began its consultation on proposed changes to enfranchisement.

The final report has now been published; we examine the key recommendations below.

Lease extensions

Key recomendations

• Leaseholders of houses and flats should have the right to a lease extension for a 990-year term, replacing the shorter extensions of 90 or 50 years under current law.
• A landlord should be entitled to obtain possession of the property, for the purposes of redevelopment, during the last 12 months of the term of the original lease or in the last five years of each period of 90 years after the commencement of the extended term. 
• Mortgages should automatically transfer to the new extended lease for houses in the way they currently do for flats.
• A new right for leaseholders who already have very long leases to buy out the ground rent under their lease without extending the term of their lease.

Comment

The proposals would greatly reduce the frequency of lease extensions and shift the benefit of the process to the leaseholder. However, some leaseholders may be put off by a higher premium for a 990-year lease. The Law Commission was not asked to look at the question of premiums, so this is not addressed here.

Shared ownership leases

Key recomendations

• Shared ownership leaseholders should be entitled to a lease extension of the same length as that available to all other leaseholders; but that the shared ownership nature of the lease should remain unchanged after the lease extension.

Comment

This has been a long-bemoaned gap in the lease extension pantheon. This recommendation would make more properties suitable for shared ownership and allow leaseholders more timing flexibility in staircasing ownership of properties to 100%.

Enfranchisement 

Key recomendations

• Currently, leaseholders cannot collectively enfranchise if more than 25% of their building is used for non-residential purposes. The percentage of permitted non-residential use should be raised to 50%. 
• The abolition of the current two-year ownership requirement for participating in enfranchisement claims 
• The removal of:
  • the resident landlord exclusion to enfranchisement;
  • the three or more flats rule; and
  • the current qualifying criteria based on financial limits – both the low rent test and rateable values.
• Movement towards the new concept of a “residential unit”, instead of distinguishing between (and creating scope for argument about) the language of “houses” and “flats”. 
• A series of sequential questions that should be asked in order to determine whether a leaseholder or group of leaseholders has enfranchisement rights; 
• A new, single procedure should be adopted for all enfranchisement claims. Parties should bring, and respond to, an enfranchisement claim by completing a single set of prescribed notices; 
• An easier process for leaseholders to obtain the information and proportionate sanctions to encourage landlords to respond on time. 
• After a successful collective freehold acquisition claim, a defence to subsequent claims for a period of two years.

Comment

The allowance for up to 50% of non-residential usage in a freehold for an enfranchisement claim is a significant recommendation. It will bring numerous (currently excluded) leaseholders within the collective freehold acquisition regime. It is not hard to imagine that there will be a large number of developments built over the last 30 years with just over 25% non-residential usage which would now be eligible for enfranchisement.

The simplified procedure should lower the costs involved, making enfranchisement even more accessible.

Dispute resolution & costs

Key recomendations

• Where a party has failed to execute a lease extension or transfer, the Tribunal should have power to execute that document in place of the party in default. 
• Where a party has failed to tender the premium required for a lease extension or transfer, the Tribunal should have the power to order either that any determination made should be set aside and the Claim Notice struck out, or that any contract between the parties should be discharged unless the premium is paid. 
• The Tribunal should have access to the Court Funds Office to take receipt of funds where necessary, without the delay and cost of involving the county court. 
• Valuation-only disputes should be dealt with by a single valuer member of the Tribunal rather than at a full hearing. 
• The elimination or control of the leaseholder’s liability for landlord’s “non-litigation” costs depending on the valuation methodology adopted by Government.
• The Tribunal’s existing limited powers to order one party to pay the litigation costs of another party should apply in relation to all enfranchisement disputes. The Tribunal should therefore normally be able to order one party to pay the other party’s litigation costs only where one party is guilty of unreasonable conduct.

Comment

These recommendations would make a huge impact on the lease extension process and streamline the process significantly. It would remove the considerable expense of having to apply separately to the Court in the above scenarios.

Greater costs powers could also force more disputes to be resolved without recourse to the Tribunal, further reducing the backlog of cases.

How Pinney Talfourd can helpPinney Talfourd are experts in lease extensions and enfranchisement claims. We keep up to date on changes to the law so we can ensure you are given up to date advice.
Please do not hesitate to contact either Stephen Eccles on 01708 463202 or Oliver-James Topping on 01708 463227 should you wish to discuss anything further.   

The above is meant to be only advice and is correct as of the time of posting. This article was written by Oliver-James Topping, Solicitor in the Property Litigation Team at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of July 2020.