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Law Commission extends proposed leasehold reforms to flats

The Law Commission has proposed “radical” reforms for leaseholders of houses and flats alongside the launch of a consultation on its proposals, which will close on 20 November.

The reforms expand on July’s announcement, which aimed to deal with the ‘leasehold traps’ in which many homeowners find themselves, providing more detail and including leasehold flats in the regime.

Earlier this month, NAEA Propertymark produced a report that found that the majority of leaseholders regretted buying on those terms, and that the selling of leasehold houses may well be the next big mis-selling scandal.

Current government calculations say that there are around 1.4 million leasehold houses in England. When flats are included, this jumps to 4.2 million.

The Law Commission’s proposals intend to make the enfranchisement process, which describes the right to purchase either a freehold or a lease extension “easier, cheaper and quicker.”

A summary of the proposals is as follows (as written in the Law Commission’s briefing document):

  • Improving and enhancing the rights of leaseholders to buy their freehold or extend their lease
  • Removing the requirement that leaseholders must have owned the lease of their property for two years before making a claim
  • Providing government with options to reduce the price payable by leaseholders to buy their freehold or extend their lease, while providing sufficient compensation for landlords
  • Creating a single simplified procedure for leaseholders to buy their freehold or extend their lease. This would minimise disputes and prevent leaseholders falling into legal traps
  • Providing clarity about the terms on which a freehold is purchased or a lease extended. This will reduce the scope for disputes between leaseholders and landlords
  • Allowing all disputes that do arise to be heard by a single tribunal
  • Streamlining the enfranchisement process by limiting the types of challenges that can be made and creating a common procedure for dealing with the problem of missing landlords
  • Scrapping the requirement that leaseholders must contribute to their landlord’s legal costs, or controlling those costs, for example through a fixed costs regime

For leaseholders of flats, the proposals include the enshrinement of new rights to participate in an earlier collective freehold acquisition.

A further idea is to change the current law from requiring the leaseholders of both flats in a building containing only two dwellings to participate in a claim to acquire a freehold, to allowing a leaseholder of one of the flats to bring a claim to acquire the freehold.

For landlords, the commission argues that the new proposals provide a “simpler and more efficient regime,” and that, while they do largely benefit leaseholders, additional proposals, such as a power to require contributions after the freehold is acquired, and an anticipated reduction in disputes, would ultimately benefit both parties.

Law Commissioner professor Nick Hopkins says: “The current system is complex, slow and expensive and it’s failing homeowners. Many feel that they are having to pay twice to own their home.

“Our proposals would make it easier and cheaper to buy the freehold or extend the lease of their home, ensuring the system works for ordinary homeowners across the country.

“We want to hear views from across the spectrum on how this complicated area of law can be improved.”

Housing Minister Heather Wheeler adds: “The government is committed to banning leaseholds for almost all new build houses and restricting ground rents to a peppercorn.

“It’s also unacceptable for leaseholders who want to buy their freehold or extend their lease to be faced with overly complicated processes and disproportionate costs.

“I welcome the Law Commission’s proposals that have the real potential to help those leaseholders who are having to deal with these outdated practices.”

Welsh government housing and regeneration minister Rebecca Evans says: “There has been widespread criticism of poor practice in the use of leasehold in Wales, and I have been clear that the Welsh government will not support poor practice that has a negative impact on homeowners.

“This work is part of efforts to improve transparency and understanding for people who have leasehold agreements as well as those entering into leasehold transactions in Wales.”

In response to the proposals and consultation, NAEA Propertymark chief executive Mark Hayward comments: “Thousands of homeowners are stuck in leases across the country facing escalating ground rent, charges for making basic alterations and growing more concerned that their homes are unsellable.

“Helping those who feel trapped by their situation is a real challenge and we hope this process will result in a robust solution for all those affected and who are unable to sell their homes.”

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