Law Commissioner Nicholas Hopkins hopes his work prompts complete reform of leasehold

APPG, April 26

The Law Commission is examining lease extension, enfranchisement and commonhold, but it hopes its work will encourage the creation of a single, modern, streamlined law on leasehold.

That was the message of Professor Nicholas Hopkins to the All Party Parliamentary Group on April 26.

“One consistent thing that we heard [in our consultations] was the sheer complexity of leasehold legislation. We hope that the work that we have undertaken now on enfranchisement and commonhold will be the start of a longer-term ambition – once the immediate price priorities have been addressed to improve other aspects of leasehold law.

“Ultimately, we think that there is great value in bringing all of the law concerning residential leasehold together in a streamlined and accessible modern law.

“A single up-to-date piece of legislation would be clearer and easier for people to use. We feel that a vital area of law that has such a fundamental impact on people’s homes and lives deserves that consideration.”

Earlier Professor Hopkins said that the aim of his team was “looking at levelling out the playing field for leaseholders of houses and flats”.

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Professor Hopkins’ full paper to the APPG is given below:

Presentation to Leasehold and Commonhold APPG, 26 April 2018

Prof Nick Hopkins, Law Commissioner for Property, Family and Trusts Law

1. Would like to give update on the Law Commission’s work on leasehold and commonhold reform.

2. I spoke at the APPG meeting in December last year, reporting on our public consultation on the content of our 13th Programme of law reform. We had received a huge postbag, suggesting that we examine residential leasehold.

3. At the December meeting, I gave you a list of the “top 10” issues raised by consultees. I also gave you tantalising information about the content of our 13th Programme of law reform, which was close to being published.

4. Our programme was published shortly after that meeting – many projects are included, from surrogacy to electronic signatures. And the programme includes a large project on residential leasehold and commonhold reform, which we have discussed and agreed with Government under our Protocol – both Westminster and Wales.

5. The priority areas and the subjects for initial consideration are enfranchisement and commonhold, and our terms of reference for these projects were published last week.

6. For the eagle eyed amongst you, you might have seen that our Programme published in December also referred to work on the regulation of managing agents – which was something on which MHCLG had recently issued a call for evidence. Earlier this month, MHCLG published its response to that call for evidence, and decided to take forward work on the regulation of managing agents, alongside the regulation of letting agents, through a Working Group. So the anticipated project on managing agents is no longer part of our work. We are discussing with MHCLG how best we can further support the department’s Leasehold reform agenda.

7. In a moment, I will summarise what is happening in our enfranchisement and commonhold projects.

8. But first, a brief word about how we conduct law reform projects so you know what to expect as we carry forward our work. We work independently from Government and develop proposals for reform through consultation with those directly affected by the law. Our projects include a period of public consultation, but in fact we begin to consult before we start work, and that consultation continues right up to the time that we publish our final report. We will continue to engage with the APPG throughout our work.

9. I mean no disrespect when I say that our consultation papers, and our consultations, are different to government’s. If you’re familiar with our CPs, then you will know that they are informed by discussions with stakeholders and extensive legal analysis, leading to worked-up potential reform solutions which we then put out for public consultation. We will work throughout that consultation to ensure that our proposals are accessible to, and understood by, all those impacted. We then analyse the consultation responses to determine our final recommendations for reform, which are published in a Report. And whatever provisional proposals we put forward, our final proposals can and do change significantly in direct response to the evidence and arguments provided by consultees. Our aim is to ensure that our final recommendations are not only grounded in principle, and reflect the needs of those directly affected by the law, but have been robustly tested and are workable – so not only you, but Parliament when scrutinising legislation based on our recommendations can be confident that it does the job.

10. So turning to the content of the projects.

Enfranchisement

11. First, enfranchisement. Broadly speaking, there are three enfranchisement rights. First, the right for leaseholders to purchase the freehold of their house. Second, the right for leaseholders to participate, with others, in the collective purchase of the freehold of a group of flats. Third, the right to an extended lease of a house or flat.

12. In our Programme consultation, stakeholders complained about the level of complexity and cost of exercising these rights.

13. Government has set some objectives for our project, reflecting its policy priorities. And so the purpose of our project is to provide a better deal for leaseholders as consumers, and to simplify the legislation. In doing so we hope to make the process more accessible and efficient for all parties.

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Lord Dale Campbell-Savours (above) questioned when the Law Commission work would be completed.

“Can I refer to the timetable here. Nicholas Hopkins, of the Law Commission referred to next year. Well, next year is going to be between January and December. And John Hall [civil servant] said there will be legislation.

Nick Hopkins replied that his report would be available earlier than rather later in 2019, but “it won’t be January but neither will it be December”.

Sir Peter Bottomley said – praising Gavin Barwell, current head of staff at Number 10, as “the first effective housing minister”  – that serious legislation is likely to take place in 2021.

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14. To achieve this aim, our project is a root and branch review of all aspects of leaseholders’ enfranchisement rights, which we are dividing into three main topics: Who is entitled to enfranchisement rights? How do you enfranchise? And what does it cost?

15. On the question of who is entitled to enfranchise, we are looking at improving leaseholders’ access to enfranchisement rights and levelling the playing field as between leaseholders of houses and flats.

16. On the question of how you enfranchise – the process involved – Government has asked us to make enfranchisement easier, quicker and more cost effective (by reducing the legal and other associated costs), including by introducing a prescribed methodology for calculating premiums.

17. On the question of what it costs to enfranchise, Government has asked us to set out the options that are available to reduce premiums, bearing in mind the need to pay sufficient compensation to landlords.

18. Our work is an opportunity to streamline and simplify the law, and to make it cheaper for people to enfranchise. It is a project that will really improve the position of millions of leaseholders in England and Wales.

19. What about the timetable? Government has asked us to prioritise measures for the owners of leasehold houses, so we will publish our proposed solutions for them before summer recess. Then, in September, we will conduct a detailed consultation on a new enfranchisement regime in respect of leasehold houses and flats. We will then publish our final report next year. That is a much-accelerated timetable.

20. We know that, for many, reform cannot come quickly enough. But I would like to sound a note of caution. Hasty and rushed legislative reforms are dangerous – and ultimately in no one’s interest. Enfranchisement is hugely complicated – many of the nuances of the issue are set out in the leading text Hague, which I have here. As you can see, is a very weighty tome! The rules are the product of over 50 Acts of Parliament, totalling over 450 pages. And there are numerous stakeholders who need to be consulted. If I can adapt an old adage, Rome wasn’t built in a day, and nor can it be renovated in a day. Meaningful and coherent reform of the whole regime – the quality law which is what the Law Commission is in the business of doing – takes time, because we have to create something that works not only for you, but also for the next generation.

Commonhold

21. The second part of our work is a review of commonhold, which offers an alternative ownership structure for residential flats and overcomes some of the main disadvantages of leasehold ownership. This is mainly as commonhold enables a person to own the freehold of their unit, such as a flat, so their interest is not a time limited, wasting asset. Additionally, the unit owners will not have a landlord, the common areas will be owned and managed by a company made up of the unit owners.

22. This APPG and the Leasehold Knowledge Partnership has worked hard to generate renewed interest in commonhold. As you know through previous meetings, despite its apparent attractiveness, hardly any commonhold schemes have been developed in practice. There are various problems with the legislation preventing its uptake, which need to be resolved.

23. Government wants to re-invigorate commonhold as a workable alternative to leasehold, for both existing and new homes. It has therefore asked us to consider various legal issues within the current commonhold legislation which affect market confidence and workability.

24. We published a call for evidence in February, which closed last week. We asked questions on three themes:
a. What the difficulties in creating or converting to commonhold are
b. What needs to be done to ensure that commonhold works for homeowners
c. What needs to be done to ensure that commonhold words for the wider property sector

25. We also asked the 150 or so existing commonholders in England and Wales to share their views on commonhold.

26. We have had a very positive response to our consultation – we’re received around 140 responses to the call for evidence, and in addition have heard from around 20% of existing commonholders.

27. We will be using that evidence as we analyse the problems with the current law and devise proposals for reform, which we will be publishing for a full consultation later this year.

28. I’ll give you two ideas of the sorts of issues that we are considering.

29. First, take conversion of existing leasehold blocks to commonhold. Currently, it requires the consent of everyone with a significant interest in the land – including all of the leaseholders. Particularly in larger blocks, it can be practically impossible to secure 100% consent – and in the Call for Evidence, we asked for evidence about whether the requirement presented problems.

 

We now have to think about how it can be solved – that is a complicated issue that other countries have not had to face, because we are unique in the extent to which leasehold has become an embedded form of ownership. One option would be to allow non-consenting leaseholders to keep their lease within the commonhold. That means that some of the problems with leasehold will continue. But there is another instance where long leases may have to be integrated into commonhold – shared ownership leases, which play a significant role in enabling people to buy their homes. The other option is to force non-consenting leaseholders to take a commonhold interest, but they might object to that approach, because it is not what they bought into – changing their interest to commonhold is a significant change (however positive it may be considered to be). And there could be significant financial implications.

30. Secondly, we need to work out how commonhold can be made more flexible to operate within large, mixed-use developments. For example, how to ensure that the wishes of home owners cannot be overridden by commercial leaseholders who own shops etc in a development.

31. There are wider issues with commonhold which do not fall within our terms of reference – we are calling them “non-legal” issues for shorthand – which are being considered by Government. They include questions about the incentive structure to use leasehold – so the Government’s plans to ban ground rents would remove one incentive for developers to use leasehold rather than commonhold. But there are also questions about whether, and if so how, commonhold should be incentivised or even compelled. And there are questions about how commonhold can be re-invigorated, for example by education. We asked about these issues in our call for evidence, and we will pass the responses on to Government to take forward.

Conclusion

32. Our project is currently looking at two pressing areas of reform. We look forward to speaking to many of you, and hearing from you in response to our consultations, on those two topics. If you would like further information about our project, see our website – www.lawcom.gov.uk.

33. But, as I set out in the December meeting, numerous other issues were raised by consultees and which I roughly categorised into a “top 10”.

34. And one consistent theme from consultees was the sheer complexity of leasehold legislation.

35. We hope that the work we are undertaking on enfranchisement and commonhold in our 13th programme will be the start of a longer-term ambition, once the immediate priorities have been addressed, to improve other aspects of leasehold law. Ultimately we think there would be great value in bringing all of the law concerning residential leasehold together in a streamlined and accessible modern law. A single, up to date piece of legislation would be clearer and easier for people to use. We think that is vital for an area of law that has such a fundamental impact on people’s homes and lives.