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Potential Reform to Lease Extensions and Collective Enfranchisement under the Leasehold and Freehold Reform Bill

The Government first indicated that they are looking into the potential of overhauling the current leasehold enfranchisement process back in 2017 when it asked the Law Commission to review certain areas of leasehold.

Fast forward to January 2021, and a government press release announced that the Government were looking to make significant changes to the current system adopting many of the changes proposed by the Law Commission in its response. The press release focused on amendments that they say would make the process “fairer” for the leaseholder.

The Long-Standing Leasehold Landscape

For over three decades, the Leasehold Reform, Housing and Urban Development Act 1993 has governed leasehold enfranchisement. This legislation, however, has been a source of contention. Critics argue that the cost of extending a leaseholder’s lease was too high and that unwary purchasers of what appeared to be long leaseholds such as 99 years, would soon have to pay potentially significant sums to extend their lease.

Generally, the process has been considered favourable to the landlord as:

(1) they would receive potentially significant premiums, especially once the lease fell below 80 years as it would attract ‘marriage value’;

(2) the leaseholder was obliged to pay the reasonable incurred process costs of the landlord.

Government's Move: The Draft Leasehold and Freehold Reform Bill

As of the close of 2023, the government has unveiled the draft Leasehold and Freehold Reform Bill, currently navigating its way through the Committee Stage. The Bill would make the following key amendments to the current leasehold enfranchisement system:

  • Remove the 2-year ownership requirement for the leaseholder to commence the process;
  • Increase the compulsory extension from 90 years to a whopping 990 years;
  • Remove the requirement for the leaseholder to pay ‘marriage value’;
  • Remove the ability of the landlord to recover their costs from the leaseholder in most situations.

Collective Enfranchisement

The proposed amendments extend beyond individual leaseholders. Collective enfranchisement, particularly in mixed-use buildings, is also in for reform:

  • The percentage limit of non-residential areas in mixed-use buildings that would prevent the residential leaseholds from buying the freehold increase from 25% to 50%;
  • The landlord can be forced to take a leaseback of any flats in the building that are not participating which would reduce the total premium payable.

The Tug-of-War: Landlords vs. Leaseholders

While these reforms bring a breath of fresh air for leaseholders, landlords may not be as thrilled. It is predicted that landlord lobbies may well put pressure on the Government to make amendments, especially about the effective abolition of marriage value. Some landlords will have bought property and paid higher amounts based on the future premiums that would be received by leaseholders. They are now potentially set to lose out on considerable premiums with no compensation. There are questions as to whether this would go against the rights of the landlord, and this could potentially lead to litigation in this area.

The Conundrum for Leaseholders

Leaseholders now face a dilemma. The allure of waiting for these reforms to kick in, securing a longer extension and potentially saving on premiums, is tempting. However, the uncertainty around when these changes will take effect and whether the final version aligns with the current draft raises concerns. Waiting might even lead to increased premiums under the current system.

Contact Us

In this commercial tug-of-war, each leaseholder must make a strategic decision. Ronald Fletcher Baker’s leasehold enfranchisement team stands ready to provide expert guidance, crafting tailored advice to suit the unique nuances of both leaseholders and freeholders. Begin your journey with the right strategic partner by your side. Contact us today.

Ben Frost: Partner │ This email address is being protected from spambots. You need JavaScript enabled to view it. │ 01392 715 310

 

Additional Info

  • News Author: Ben Frost