The Housing Secretary Michael Gove has recently vowed to introduce legislation to ‘change the leasehold system’ by the end of 2023. However, one Private Member, Lord Young of Cookham, doesn’t want to wait that long and instead is sponsoring the Leasehold Reform (Forfeiture) Bill, which had its first reading in the House of Lords on 1 December 2022. While still at a very early stage, this Bill proposes to drastically change a landlord’s right to forfeit a residential property, by forcing it to account to tenants for their financial interest in the property when exercising this right.
Forfeiture has long been seen as a draconian remedy whereby a landlord can seek to terminate a tenant’s leasehold interest in a property if they have breached the terms of their lease. While it is uncommon for the courts to make such an order, the outcome represents a huge financial windfall for a landlord who will take back ownership of the property at the expense of the tenant.
The proposed Bill intends to change that. As currently drafted, when exercising its right to forfeit a landlord would be required to calculate a tenant’s equity in the property and pay this sum to the tenant within three months of regaining ownership. This figure would be calculated by determining the open market value of the long lease less any sums or costs due and owing to the landlord. As for those costs, a landlord would be limited to the lesser of either its actual costs of the forfeiture proceedings or 5% of the open market value of the long lease.
While amendments to this Bill are anticipated, these proposals if implemented could significantly change the relationship between landlords and tenants. For example, tenants might be less fearful of their landlord and more inclined to breach the terms of their leases but, on the other hand, courts may be more willing to grant forfeiture if the financial consequences are less severe. It may also result in landlords being less willing to embark on the forfeiture process given the additional complications, limited cost recovery and absence of a windfall payment.
For now, nothing changes for landlords or tenants but all relevant parties would be well advised to keep an eye out for developments regarding this Bill. Only time will tell if or how these proposals will develop, or indeed whether they are consistent with the wider Government pledge to reform the ‘outdated feudal’ leasehold system.
Click here to read the Bill.
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