Real Estate and the Law Commission's proposals for law reform

After an extensive consultation, the Law Commission has published its proposals for the 13th programme of law reform.

The proposals set out the areas of law where the Law Commission believes that the law needs modernisation and there is government support for bringing the law up-to-date. This article considers the proposals of interest to real estate clients.

Electronic Signatures

Electronic signatures are an increasingly important aspect of modern business. However, there has been an understandable element of caution about their use for selling or letting property given the Land Registry's requirements, the legislative framework relating to contracts for disposing of an interest in land and concern about how an electronic signature should be witnessed. The Law Commission wants to bring certainty to this area of law. Shoosmiths' lawyers will be meeting with the Law Commission to highlight the areas of concern and how they can be addressed.

Modernising Trust Law for a Global Britain

The Law Commission will consider this outdated area of the law, with a view to modernising trust law to enhance the competitiveness of trust services in a global market. The general law of trusts has not been comprehensively reviewed since 1925. The review will not address the taxation of trusts. It will, however, consider alternative, flexible trust and trust-like structures used in other jurisdictions to determine whether they could be used in England and Wales. The project will be an initial scoping study investigating problems with trust law with a view to identifying aspects of trust law to take forward in one or more law reform projects.

Registered Land and Chancel Repair Liability

The Land Registration Act 2002 was supposed to bring the problems with chancel repair liability to an end where the right had not been protected by 12 October 2013. In practice, arcane legal arguments have been raised meaning that the liability may not have disappeared. A small project will aim to close any remaining loopholes so that land owners can be certain that they are not affected by an ancient and outdated liability.

Residential leasehold

Residential leasehold law is complex, subject to a number of inconsistencies and does not sometimes work logically or fairly. The Law Commission will first tackle three main areas of residential leasehold law with other areas being kept under review:

• why commonhold ownership has failed and what reforms are necessary to the law to enable it to operate successfully
• the rights of a leaseholder to purchase their freehold or a lease extension (enfranchisement) and ways to simplify the procedure and make the valuation fairer and more transparent.
• regulation of managing agents following the Department of Communities and Local Government's recent call for evidence of any issues in this area.

The initial list does not refer to reform of tenants' rights of first refusal under the Landlord and Tenant Act 1987. This area of law needs to be overhauled. We hope that this will be kept under review by the Law Commission.

Unfair Terms in Residential Leasehold

A tenant has the right to challenge terms of its lease that he or she considers unfair. However, it is only the original tenant to the lease that has this right. If the lease is assigned, the new tenant cannot challenge its terms. The Law Commission will consider whether this anomaly should be removed so that successors to the original tenant have the right to challenge unfair terms in a lease.

What is not included?

Sadly, some important suggestions for reform have not made it into the final version of the Law Commission's report. The key ones that have been omitted are reform of business tenants' security of tenure and reform of the Landlord and Tenant (Covenants) Act 1995. This latter one is particularly disappointing as recent court judgments have meant that the 1995 Act now acts as a barrier to normal legitimate assignments of leases (for example, see Court rules that a tenant cannot assign its lease to its guarantor).

The Law Commission acknowledges that the law creates commercial uncertainty and stifles legitimate commercial transactions, and that there is extensive and long-standing cross-industry support for reform. However, the Department for Communities and Local Government has said that other departmental priorities mean that it is not able to support the project at the moment. We are left to deal with the problems in the meantime.