Leasehold enfranchisement — major reforms announced

On 7 January 2021, the Ministry of Housing, Communities & Local Government announced major reforms to the law of enfranchisement following the Law Commission’s report published in January 2020.

This will mark the biggest change in this area of law since the Leasehold Reform Housing and Urban Development Act 1993 and arguably, as the Ministry itself states, the biggest reform to English property law for 40 years.

Radical law reform

According to the most recent Government statistics, there are approximately 4.5 million leaseholders in England and Wales. It is estimated that two-thirds of these are flats with the remainder being houses. London and the North West of England have the highest proportion of leasehold dwellings at 34% and 31% respectively.   

The reform will radically transform the law governing lease extensions, freehold acquisitions and collective enfranchisement which, when considering the number of leasehold premises, will impact a great number of landlords and leaseholders.

At present, and providing certain qualifying criteria are met, a tenant can extend a residential lease of a flat by an additional 90 years on top of the remaining term. A lease of a house can be extended by 50 years. Under the reforms announced today, leaseholders will be given the right to extend their lease by a maximum term of 990 years at zero ground rent.

It was also announced that the Government will abolish “marriage value” which currently applies when a lease of 80 years or less is extended.

These are major developments.

The reform is also going to change the current legislation governing collective enfranchisement, the process by which tenants come together to acquire the freehold of their apartment building. Although details of the reform in this area are not yet clear, the Government has announced that it is going to establish a Commonhold Council which will be comprised of a partnership between leasehold groups, industry and government.

Summary of proposals

At a glance, the announcement proposes:

1. A right for a tenant to extend a lease by a maximum term of 990 years at zero ground rent
2. The formation of a Commonhold Council which will be comprised of a partnership of leasehold groups, industry and government
3. The creation of a cap on ground rent payable when a leaseholder chooses to either extend their lease or become the freeholder
4. The creation of an online calculator for leaseholds to find out how much it will cost to acquire the freehold or extend the lease of their property
5. The abolishment of marriage value
6. Laying a framework for the calculation of premiums payable
7. Restricting ground rents to zero for new leases of retirement leasehold properties
8. The ability for leaseholders to agree to a restriction on future development of their property

Timing

It is expected that the legislation will be brought forward to the upcoming session of Parliament to set future ground rents to zero. Other recommendations by the Law Commission are expected to be brought in in due course.

Until new legislation is in force, however, it will be business as usual and whilst time will tell how these reforms will work in practice, one thing is certain: both landlords and leaseholders will now be keeping a keen eye out for any further announcements in this area.