ALL CHANGE FOR LEASEHOLDERS:

ALL CHANGE FOR LEASEHOLDERS:

The Law Commission consults on radical changes to Lease extensions and Freehold purchase

YOUR CHANCE TO COMMENT

Leaseholders can comment on the Law Commission’s radical proposals on how Leaseholders extend the term of their leases.

The current system is far from simple or transparent.  Above all,  the calculation of the premium to be paid by the leaseholder is not immediately accessible and is decided by a potentially adversarial and expensive process utilising a complicated formula with variables that currently seem to favour the landlord, especially following a recent case in which the Judges concluded that the valuation formula should be reconsidered by surveyors, lawyers and Parliament.  In addition a leaseholder faces paying substantial costs, including to his or her Landlord, to exercise the relevant rights.

The Law Commission has issued a 500 page consultation paper raising 135 questions. Its initial proposals will radically change the manner in which lease extensions and freehold acquisitions are made. These include having a single form of enfranchisement for all properties, whether flats or houses, removing the two year ownership requirement, giving a longer extension of 125 or 250 years rather than the current 90 years, having a prescribed claim form, giving the First Tier Tribunal sole jurisdiction and changing the position on costs so that there may perhaps  be a fixed costs regime or the Tribunal can award costs where they cannot currently. Above all, the Commission is considering a new valuation model which, under its terms of reference, must reduce the premium to be paid on enfranchisement. Various options have been proposed, including using a multiplier of the ground rent payable, having an on-line calculation prescribed by the Government, in particular where a lower premium is appropriate, or simplifying the current formula.

It will prove challenging. The Commission will have to make the premium to be paid “ fair” or indeed affordable  for leaseholders, who may have bought  their flat a short time previously  and now  have to pay thousands of pounds for a lease extension to maintain the value of their flat or still be able to  re-mortgage  or sell it.  Equally the Commission has  to satisfy the interests of the freeholders who  through the premium are meant to be “ compensated “for the “ 90 year delay”  in receiving the property back and for the loss of rent. The Freeholder  may have spent  substantial sums purchasing the freehold  as a long term investment , as  Pensions Funds do , or may even be  leaseholders who collectively purchased  the freehold and extended their leases who face the possibility that other leaseholders, who did not invest in the freehold,  can extend their shorter leases for substantially lower premium  under a new valuation model .

These are only proposals and anyone can submit comments to the Law Commission before  7th January 2019 .  You can comment on –line on the Law Commission’s website ( Leasehold Enfranchisement section ) or by  email to propertyandtrust@lawcommission.gov.uk or by  post to Leasehold Enfranchisement Team, Law Commission, 1st Floor, Tower, 52 Queen’s Anne Gate, London, SW1H 9AG

It will then take a number of months for the Law Commission to make their recommendations which should be published next year. The Government  will then decide how and when the proposals are adopted. Professor Nick Hopkins, one of the Law Commissioners , has commented that the Commissioners are looking at an area of the Law developed over 50 years and they have to provide a replacement that’s robust  and has considered all of the issues and criticisms of the law and,  although they will be working on an accelerated timetable,  “Parliament is under certain other pressures at the moment. You are not going to see a Leasehold Reform Act 2019”

If you have any queries concerning this or any other matter please contact Jeremy Teall Partner and Head of Landlord and Tenant on 020 8567 3477 or e-mail jteall@prince-evans.co.uk 

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