What do the Law Commission's proposed reforms to Leasehold Enfranchisement mean for leaseholders?

Leaseholders and first time buyers are set in due time to benefit from the proposed reforms to Leasehold Enfranchisement which were published on the 21st July 2020 by the Law Commission.

Those purchasing property will often hear from others that they should opt for a freehold property and not a leasehold. The advice is given on the understanding that as a leaseholder you will have to pay service charges and ground rent to the freeholder who is responsible for the common parts of the property and for undertaking works to the structure and exterior of the property. The reality, however is that first time homeowners may not be able to afford a freehold house and/or the property that they desire is not offered on a freehold basis and so they have no option but to opt for a leasehold flat.

What is leasehold enfranchisement?

Owners of leasehold property may not be aware but subject to qualifying criteria they can apply to extend the length of the lease remaining on their lease.This should be done before the length of the lease falls below 80 years as it is harder to sell a property with a short lease term as lenders will not be willing to provide a mortgage to the proposed purchaser.

Unfortunately the leasehold enfranchisement process is complex and expensive as the leaseholder will not only have to pay for the actual extension which entails a valuer working out the value of the new lease term but in addition the leaseholder will have to pay their own legal fees and the freeholder's legal fees.

In addition to the right to leasehold enfranchisement, leaseholders of flats also have the option to purchase the freehold of the building with the other leaseholders by way of a process known as Collective Enfranchisement. The process is again very expensive and will require at least 50% of the qualifying residents in the building joining together to purchase the freehold. The residents will then form a company to manage the freehold of the building. The benefit of this is that the residents can grants themselves 999 year leases.

What are the proposed reforms to the current leasehold enfranchisement legislation ?

The proposed reforms seek to make it easier for a leaseholder to extend the lease or purchase the freehold.

The key recommendations includes:

- Permitting more leaseholders to purchase the freehold of the property or extend their lease by removing the two year eligibility criteria.

- Simplifying the legal procedure for making an enfranchisement claim.

- Providing a new right to leaseholders of both houses and flats to a lease extension for a term of 990 years, with no ongoing ground rent under the extended lease.

-Providing that all enfranchisement disputes and issues should be decided by the Tribunal;

- Eliminating or controlling leaseholders’ liability to pay their landlord’s costs, in place of the current requirement for leaseholders to pay their landlord’s uncapped costs, which can equal or exceed the enfranchisement price.

What do the reforms mean for existing leaseholders and first time buyers

The proposals whilst welcomed are still a long way from becoming law as they have to be considered and approved by the Government. Homeowners are advised to keep an eye on the progress of the proposed recommendations but to bear in mind that if they have a lease which is approaching the 80 year mark they should take steps now to extend the lease before it falls below the 80 year mark.

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