The long-anticipated reports that form part of The Law Commission 13th Programme of Law were published on 21st July 2020.
The reports contain a series of proposed changes for three particular areas of reform for the leasehold sector, namely:
- Leasehold Enfranchisement
- Right to Manage (RTM); and
- Commonhold
THE ORIGINAL TERMS OF REFERENCE:
The work of the Law Commission must be put in context.
The Law Commission was tasked by the Government to “improve consumer choice and provide greater fairness and transparency for leaseholders”.
With reference to the three individual areas, the Law Commission was tasked by the Government to:
- With respect to the leasehold enfranchisement process (lease extensions and freehold purchases): to review the enfranchisement process to make it simpler, easier, quicker and more cost effective, and to examine the options to reduce the price payable by leaseholders to enfranchise;
- With respect to commonhold to recommend reforms to reinvigorate commonhold so that it may offer a workable alternative to leasehold, for both existing and new homes; and
- With respect to Right to Manage to review the existing legislation with a view to making the RTM procedure simpler, quicker and more flexible, particularly for leaseholders
THE KEY PROPOSALS:
Each report contained over 100 recommendations in respect of each specific topic.
For ease, however, below are some of the key highlighted recommendations:
1. Leasehold Enfranchisement:
The leasehold enfranchisement report’s sets out extensive recommendations of reform which include:
- a new right for leaseholders of both houses and flats to obtain an extended lease for a term of 990 years, with no ongoing ground rent going forward;
- a new right for leaseholders to “buy out” the ground rent under their lease without also having to extend the length of their lease;
- removal of the requirement for leaseholders to have owned their leases for two years before exercising lease extension rights;
- new rights for allowing flat owners to buy the freehold of a block where up to 50% of the building is commercial space;
- right for groups of flat owners to acquire multiple buildings in one claim and allowing leaseholders to require landlords to take “leasebacks” of units within the building which are not let to leaseholders participating in the claim;
- ensuring leaseholders are protected against the imposition of onerous or unreasonable obligations on acquisition of the freehold title;
- replacing the various procedures for making enfranchisement claims with one, streamlined procedure;
- all enfranchisement disputes and issues to be decided by the Tribunal; and
- eliminating or controlling leaseholders’ liability to pay landlord’s costs, in place of the current requirements for leaseholders to pay their landlord’s uncapped costs, which can equal or exceed the enfranchisement price.
2. Right to Manage
The Law Commission recommendations in respect of the Right to Manage include amongst others:
- that RTM should be exercisable in respect of leasehold houses as well as flats;
- that the non-residential limit be increased to 50%;
- that the RTM should be exercisable in respect of premises which comprise or contain at least one residential unit held by a qualifying tenant;
- the removal of the current rule requiring the participation of both qualifying tenants in premises with only two residential units;
- that shared ownership leases granted for more than 21 years qualify as long leases for the purpose of the RTM legislation, regardless of whether the leaseholder has staircased to 100%;
- that the current exclusion from RTM of premises with a resident landlord and no more than four units should be abolished;
- that it should be possible for a single RTM company to acquire the RTM in respect of more than one building in a single RTM claim;
- that at least one director of each RTM company should be strongly encouraged to undertake online training; and
- the fault-based grounds for the appointment of a manager should be expanded to include circumstances where no director of the RTM company has undertaken training, and it is just and convenient to appoint a manager or terminate the RTM.
3. Commonhold
In its Commonhold Report the Law Commission made the following recommendations including:
- that it should be possible to convert to commonhold if either:
(a) the freeholder consents; or
(b) the leaseholders carry out a collective freehold acquisition claim as part of the process of converting to commonhold;
- that conversion to commonhold should be possible without the unanimous agreement of the leaseholders and through a collective freehold acquisition claim, and convert to commonhold, by following a streamlined “acquire and convert” procedure;
- that unit owners should have a right to apply to the Tribunal under the Law Commission’s recommended minority protection provisions.
- that “anti-avoidance” provisions should be introduced to ensure that a developer does not attempt to secure a greater degree of control by:
- taking powers of attorney from the purchasers of commonhold units (or seeking to control votes in any other way); or
- attempting to control how unit owners vote by inserting terms in the purchase contracts.
- that shared ownership leases be granted in commonholds;
- that it should be compulsory for all commonhold associations to have a reserve fund;
- that the commonhold dispute resolution procedure should be updated to refer specifically to the Housing Complaints Resolution Service, the Commonhold Regulator, and the New Homes Ombudsman, once these bodies are established.
HEALTH WARNING:
Nick Hopkins, Property Law Commissioner, said: “The leasehold system is not working for millions of homeowners in England and Wales. We have heard how the current law leaves them feeling like they don’t truly own their home.
“Our reforms will make a real difference by giving leaseholders greater control over their homes, offering a cheaper and easier route out of leasehold, and establishing commonhold as the preferred alternative system. The reforms will provide a better deal for leaseholders and make our homes work for us, and not somebody else.”
The papers are arguably the biggest review into the leasehold legislation for a generation. Will the Government seize this opportunity and take up the challenge?
We can only continue watching this space….
For more information on the Law Commission’s report please click here: https://www.lawcom.gov.uk/project/leasehold-enfranchisement/
NEED ASSISTANCE?
Whether you are a landlord or a tenant, if you have any questions on how to safeguard your statutory leasehold claim or discuss the implications of these proposed recommendations, please contact Yashmin Mistry, Partner and Head of Leasehold by email ymistry@jpclaw.co.uk / telephone: 020 7644 7294 or
