Consultation launched on enfranchisement rights

Hogan Lovells

Hogan Lovells

What does enfranchisement actually mean and what’s wrong with the current regime? Enfranchisement is the process by which people who own property on a long lease may extend the lease, or buy the freehold.  The procedure for doing so is not, however, universally popular.  Leaseholders argue that it is complex and expensive, leading to unnecessary conflicts, litigation and delay.

In light of this, the Law Commission has recently published a consultation paper setting out sweeping reform of the enfranchisement process.  Comments may be sent using the online form – the consultation is now open and closes on 7 January 2019.

The current enfranchisement rules are contained in over 50 Acts of Parliament. Moreover, there are different rules for leaseholders of houses and of flats, and the qualification criteria are complex and scattered across several statutes. Bringing an enfranchisement claim, even if there is no dispute between the parties, often brings about legal and other costs because of the complexity of the process.  To make matters worse, leaseholders of houses are required to contribute towards the landlord’s non-litigation costs.  Even if these costs are considered unreasonable, leaseholders are often left with no other option than to pay due to the disproportionate cost of disputing the sums.

The scheme is also unpopular due to its highly technical nature; simply beginning a claim can give rise to difficulties for a leaseholder. Minor errors in the tenant’s initial notice may invalidate the claim. Landlords might be difficult to identify, and there can be disputes about whether a notice has been validly served.

Leaseholders argue that the valuation approach in the scheme is overly complex and difficult for the layman to understand. Leaseholders also state that where ground rents are high, the need to enfranchise is even more important for the leaseholder, but premiums are also too high.

In response to all this, the Law Commission is proposing several changes to make the process easier, quicker and more cost effective for leaseholders. These include:

  1. Scrapping the complicated categorisation of “houses” and “flats” and replacing with the new concept of a “residential unit”, for which there would be a universal right to a lease extension available to all leaseholders (whether they own a house or flat);
  2. A right for leaseholders to acquire the freehold of a building individually, or of a building or estate collectively.
  3. A new right for leaseholders who didn’t participate in a previous collective freehold acquisition to do so at a later date.
  4. The removal of the current requirement that a leaseholder wanting to extend their lease or buy the freehold of their house must have held the lease for the last two years.
  5. Introducing a single procedure that would apply regardless of the enfranchisement right being claimed, using standard forms (to reduce the risk of notices being invalid) and deemed service provisions.
  6. Proposals that all disputes be handled by the First-tier Tribunal (Property Chamber), so leaseholders would no longer have to navigate the complex division of responsibility between the County Court and the Tribunal.
  7. Simplifying the legislation by adopting a consistent valuation methodology.

The Law Commission has stated however, that the intention behind the proposals is not to remove the requirement for leaseholders to pay landlords an appropriate price but rather to improve the process and reduce premiums payable by leaseholders, while ensuring sufficient compensation is paid to landlords. They must also take care not to cause damage to the leasing market at a time when supply is not meeting demand. Perhaps though, this is easier said than done… We shall find out in 2019 when the Law Commission plans to publish its full and final report paper!

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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