Enfranchisement in the spotlight

The Law Commission has published its expected consultation on reforming leasehold enfranchisement - the area of law that enables tenants of residential houses and flats to buy the freehold of their properties or to extend their leases.

The laws that entitle tenants of residential properties to buy the freehold to their flats or houses or to extend those leases are complex. They have developed on a piecemeal basis over 50 years and are perceived by both landlords and tenants to be unfair, contain traps for the unwary and are costly to exercise. As a consequence of the complexity of this area of law, there are often court cases surrounding tenants' rights to enfranchise.

This consultation has been issued as part of the wider political and public debate about leasehold reform. The Law Commission's aim is to make the enfranchisement process simpler, fairer and cheaper.

The consultation also seeks a balance between the competing interests of landlords and tenants. The Law Commission reports that the differing perspectives of landlords and tenants are genuinely held and irreconcilable. Decisions about which side to favour, and how to strike the balance between the competing interests, depend to a large extent on political judgment.

In light of the Law Commission's comments, it is important that both landlords and tenants take note of, and respond, to the consultation to ensure that the proposals that are put in place are fair, workable and not unduly biased in favour of either party.

Proposals

The Law Commission's consultation is comprehensive - running to nearly 550 pages and 135 questions, to which responses are requested. It is not possible to summarise all of the proposals in this article.

A unified regime with new enfranchisement rights

The Law Commission proposes a new streamlined regime that will apply to both leasehold flats and houses. All tenants of long leases will be given a right to a lease extension or to acquire the freehold title to their house or building. The Law Commission also proposes new rights for tenants across an estate to acquire the freehold title to it, collectively, and for tenants who do not join in at the time of that acquisition to join in the enfranchisement at a later date.

Removing barriers to enfranchisement

The right to enfranchise will continue to be available to tenants whose leases are for a term of more than 21 years. This reflects the current position but the Law Commission proposes that some other conditions are removed. In particular, qualifying criteria based on financial tests will be removed as will the requirement (for lease extensions) that the tenant has owned its lease for at least two years.

A new test of being a tenant of a "residential unit" is proposed to remove some of the complexities in defining a "house". Despite five cases decided at appeal court or Supreme Court level, there is still doubt about what a house really is!

Streamlining the enfranchisement process

It is proposed that the process for exercising the right to enfranchise should be simplified and less costly. The Law Commission want to eliminate technicalities that, currently, can invalidate the procedures.

All disputes about an enfranchisement claim will be handled by the First-tier Tribunal (Property Chamber).

Paying for the freehold title or lease extension

The biggest area of controversy over the latest proposals will undoubtedly centre on the process of determining how much tenants pay their landlords to enfranchise. Calculating the premium payable is complex and made up of a number of different elements. The gGovernment has asked the Law Commission to consider options for reducing the premium payable by leaseholders, whilst ensuring sufficient compensation is paid to landlords, given that enfranchisement is effectively a form of compulsory purchase. Options considered in the consultation include a simple "ground rent" multiplier or paying a percentage of the capital value of the property. Other options being considered by the Law Commission retain, but simplify, the current valuation bases.

Conclusion

This is a major consultation on an important area of law for landlords and tenants. Responses to the consultation are due by 20 November 2018.

The outcome of the consultation will have a profound impact on the relationship between tenants of flats and houses and their landlords for many years to come.

You can read the consultation here