Law Commission sets out today how it proposes to come up with a better deal for leaseholders and will look at alternatives to this system of residential tenure, that is unique to England and Wales.
Today it set out the terms of reference for its work on enfranchisement and commonhold reform, agreed with government.
The Law Commission’s document can be read here PUBLISHED Residential leasehold terms of reference – 180418
Although Law Commission documents tend to be quite dry and legalistic, this one makes a number of bold statements on issues that will be important to millions of leaseholders.
The document states clearly that the Law Commission will look to ways to reduce the price paid for existing and future leaseholders when enfranchising.
It will look to make enfranchisement easier, quicker and more cost effective.
It will look to define a prescribed methodology for calculating the price. Something that Lord Justice Lewison described as the “Holy Grail” in the recent Mundy v Trustees of the Sloane Stanley Estate.
It makes clear that in reducing the price, the Law Commission will nonetheless look into how landlords should be compensated to reflect their “legitimate property interests”. This is likely to be the most contentious part of the Law Commission’s work: with freeholders’ lobbyists arguing that all their interests are legitimate, while other would say that the prices have grown artificially high.
The Law Commission also intends to look at which other sites currently not entitled to enfranchise might be included.
Importantly the document states that it will prioritise finding solutions for existing leasehold house owners.
The Law Commission sets out that its objective is to find ways to make it a workable alternative to leasehold for both new and existing homes.
A number of key issues for existing leaseholders will be considered, including:
- How to convert to commonhold even when the current freeholder objects and how to convert without getting 100% of leaseholder support. Baroness Gardner of Parkes will be particularly pleased about this point having campaigned for years saying that 100% of leaseholders is simply impossible
- The Law Commission has understood the issues of phased development which will also be reviewed as will shared ownership.
- For commonhold to work it has to work for all parties and the Law Commission makes reference for the need for education and dispute resolution
The Commission ends with a statement that could not be clearer: the “review will complement Government’s own work to remove incentives to use leasehold”.
The terms of reference states: “The Commission and Government are discussing other areas of residential leasehold reform that could be included in the project.” So, more could be on the way.
Missing from the document is any reference to the regulation of managing agents. In the original Law Commission 13th programme report launched on December 13 2017 it sets out that the scope of work on the regulation of managing agents would be decided following an initial Ministry of Housing, Communities and Local Government call for evidence.
It has now been agreed that MHCLG itself will be taking forward the regulation of managing agents project along with the work on introducing a new regulator for the sector.
How long will it take?
The Law Commission work is intended to run for the next two and a half years, but within that period a number of issues will come forward. The Commission sets out existing leasehold houses are a priority and the government has already said it wants to bring forward legislation to ban the sale of new leasehold houses and reduce ground rents on new build flats to as low as zero.
How far have we come in the last 8 years?
In March 2011 Housing Minister Grant Shapps wrote to David Cameron, the prime minister,0 explaining why he felt there was no need for any leasehold reform:
“Overall, I believe that current legislation strikes the right balance between the rights and responsibilities of leaseholders, landlords and managing agents, and that improvements in the sector should be driven by a more proactive approach from the sector – not by greater regulation.”
We now have the independent Law Commission saying it intends to bring forward proposals for major leasehold reform that will provide “a better deal for leaseholders and consumers” and that the government will “remove incentives to use leasehold”.