Leasehold enfranchisement: Summary of solutions for leasehold houses

As we reported in Law Nows (27.02.18 and 22.12.17 and 21.12.17) following the publication of the Government’s response to the 2017 Consultation “Tackling Unfair Practices in the Leasehold Market”, the Law Commission was tasked to address the need for reform. In its 13th Programme of Law Reform, Enfranchisement was identified to be included as part of the wider project on Residential Leasehold.

As a first step the Law Commission has now published a summary of proposed solutions for leaseholders of houses. It has made clear that this is published ahead of the proposed detailed Consultation paper due in September 2018 which will set out provisional proposals for a reformed enfranchisement regime that will apply to both flats and houses. This initial summary is a response to the Government’s request to prioritise enfranchisement solutions for existing leaseholders of houses.

The Law Commission has made it clear that the enfranchisement rights of leaseholders of houses cannot be entirely separated from those of flats. It considers that a significant problem with the existing regime is the “unnecessary and incoherent distinctions” made between leaseholders of flats and houses. The proposed solutions seek to minimise these distinctions and remove what are considered complications arising as a result.

Solution 1: A new enfranchisement regime

Chapter 3 details solutions based on introducing a new enfranchisement regime that will apply to leasehold houses including a proposed change to the existing qualification criteria which will simplify the current law. It also proposes a single simplified procedure that would apply to all residential units (whether houses or flats) regardless of the enfranchisement right being claimed.

Solution 2: Reducing enfranchisement premiums

Chapter 4 focuses on options to reduce enfranchisement premiums for leaseholders of houses. It identifies three main criticisms of the current approach to valuation namely (1) that the premiums payable are too high (2) the valuation methodology is too complicated and expensive and (3) the methodology is artificial and circular.

The considerations for reform include provision of a more consistent and simplified valuation methodology for all types of claims, the creation of a separate regime for low value cases, differential pricing depending on the identity of the leaseholder, prescribing rates and introducing an online calculator. It also sets out proposed options for reducing premiums divided into two categories:-

Category 1: The adoption of a new simplified formula to calculate premiums;

Category 2: Options based upon but nevertheless amending the existing valuation methodology.

The decision to publish this summary ahead of the summer recess demonstrates the pressure the Government is under to prioritise addressing leasehold houses and to be seen to be delivering solutions. Likewise, the current proposals on houses demonstrate the Law Commission’s current thinking and direction of travel when tackling wider leasehold reforms giving a clear indication of the likely wider enfranchisement reforms we can anticipate in the September 2018 paper.