The Law Commission is turning to leaseholders – again! – to push for favourable options to reform the enfranchisement process following the publication of its options to government last week.
Professor Nicholas Hopkins, who heads the leasehold reform programme, published his report on how to price the payments involved in extending leases or buying freeholds.
The remainder of the report is to be published in March.
On January 9 2020 Professor Hopkins addressed the All-Party Parliamentary Group group meeting organised by LKP to say of his report:
“On its own it cant solve all the problems but it is a significant step and importantly it is a report that vindicates the concerns that this APPG has been raising for many years.
“To our knowledge this is the first report to be formally laid in Parliament that acknowledges the arguments that leaseholders have been making that the current law has the odds stacked against them and seeks solutions.”
Leaseholders have the right to enfranchise.
To exercise these rights you have to pay a sum of money and that is the subject of this report.
Professor Hopkins emphasised that the Law Commission has set down options for paying the compensation to freeholders. It has not made recommendations. “That is a political question for government and Parliament,” he said.
But the options had to be “viable”.
“Enfranchisement ultimately involves the leaseholder buying something that is currently owned by the landlord.
“Under UK human rights law landlords are entitled to payment for what has been bought from them.
“Now we understand that what I have just said is a source of considerable anger and frustration to leaseholders who see the law as putting the rights of freeholders above their own rights. We get that.
“But it is irrefutably the position under the current law and we cannot ignore it. And it is not in leaseholders’ interest for us to ignore it.
“Ultimately if reform is made that does not comply with UK human rights law it will be struck down and we will be back to square one.”
In the questions that followed, Sebastian O’Kelly, chief executive of the leasehold Knowledged Partnership, deprecated the concerns for the human rights of anonymous offshore speculators in ground rents who have been universally deaf to ministers appeals to pay to remove combustible cladding.
Developers, who may still own their freeholds, have responded, but not a single investor had done so.
Joanne Darbyshire, LKP trustee and co-founder of the National Leasehold Campaign, understood the point Professor Hopkins was making but said it “sucks”.
“Leaseholders are again been urged to contact government three years after the ground rent scandal was revealed and they want to see action,” she said.
The Law Commission was advised on UK human rights law by Catherine Callaghan QC.
Professor Hopkins continued: “The problem is the leasehold system in itself. it leaves the landlord with a financially valuable asset. We can’t solve that problem through enfranchisement. The solution to that problem is in replacing leasehold with commonhold because then there is no landlord.”
The best option set out by the Law Commission removes calculations of marriage value, which in leases of 80 years or less is a significant cost.
Removing marriage value in a worked example by the Law Commission produced a saving from £16,000 to £9,000.
Another aspect of the reform is to prescribe the rates paid for enfranchisement, ending “uncertainty, argument and litigation”.
“This uncertainty can be paralysing for leaseholders. You may not know whether the price will be £5,000 or £15,000,” said Professor Hopkins.
“In addition you have to pay for advice and representation to sort that out.”
“So we say that those rates could be prescribed. In that way they are set in stone and there is no scope for argument and no scope for inequality of arms between leaseholders and landlords to effect the outcome of an individual case and no scope for tactical gaming.
“Leaseholders would know what the price was going to be at the outset and would not have to pay professionals to advise and negotiate on their behalf.”
These rates could be set at or below market value at a rate favourable to leaseholders.
Another proposal – if it becomes law – would help leaseholders with onerous ground rents above 0.1% of the value of their leases or aggressively doubling.
“The government could cap the ground rent so that when you enfranchise it is no more than 0.1% of the freehold value of the property that it is taken into account.”
(For some reason – unexplored on this occasion – this cap does not infringe ground rent speculators’ human rights.)
“That would significantly reduce the costs of enfranchisement for leaseholders with onerous ground rents and take away uncertainty those leaseholders face about what those enfranchisement rights will be.”
Professor Hopkins dismissed calls for simple formulas such as 10x annual ground rent – a proposal made by Justin Madders, the Labour MP for Ellesmere Port and Neston and joint patron of LKP and co-chair of the APPG.
“Used across the board it is simply not compatible with human rights law, so we have not put it forward as an option for reform.
“We have set out options so it is now for the government to decide which of those options it wishes to pursue. You have a role to play in that in making clear to government what your views are on those options.”
How to contact the government via the MHCLG will be made clear shortly.