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The Law Commission's proposed solutions for enfranchisement reform

The Law Commission has released a Consultation Paper to address the current issues surrounding enfranchisement legislation and its proposed solutions for reform. Views are currently being sought on the Commission’s provisional proposals for a new, single enfranchisement regime, the objective of which is to streamline the process of enfranchisement and make it more cost effective to pursue. The focus is on seeking to strike a balance between landlords and tenants, with a view to a more user friendly process, recognising that there is a need to “improve the position of leaseholders as consumers”.

The Proposals

Currently, enfranchisement legislation has different qualification criteria for leaseholders of flats and leaseholders of houses. The Law Commission recommends “one single coherent set of criteria” to be applied to both.

Its proposals are far reaching but include:

  • A potential new right for all leaseholders who did not participate in a previous collective acquisition, to do so at a later date;
  • The simplification of the enfranchisement process and removal of procedural traps that incur costs for the leaseholder unnecessarily; and
  • Simple prescribed forms for commencing an enfranchisement claim.

In an effort to curtail high enfranchisement premiums, the Law Commission proposes:

A standardised approach to provide more certainty for leaseholders, potentially negating the use of experts altogether.

  • The introduction of methods to reduce premiums for leaseholders:
    • Option 1: The introduction of a simple formula for calculating the premium, which has not yet been determined, but would not be based on the market value of the interest to be acquired. For example 10% of the value of the property; or
    • Option 2: An approach that is based on the market value but removes the calculation for marriage value and introduces standardised rates.
  • A perhaps more controversial suggestion is the use of an online calculator which, the Law Commission believes, could “limit or even remove the need for expert assistance”.

In principle, the Law Commission’s recommendation that simplified legislation be introduced to “promote transparency and fairness in the residential leasehold sector” is laudable. However, it could equally be argued that the existing legislation is sufficiently fit for purpose, being supported by a considerable body of case law in this area. Also, a one size fits all procedure could well produce inequitable results. Landlords may be concerned to note in this regard that one of the key objectives of the proposed reforms is to reduce the price payable by leaseholders to enfranchise. As the Law Commission acknowledges, the interests of landlord and tenant are irreconcilable in this area. 

Quite how these competing interests will be balanced remains to be seen but what is certain is that these reforms, if introduced, are likely to have a significant impact on enfranchisement law as we presently know it.    

The Law Commission’s proposed reforms are currently out for consultation until 20 November 2018.

This article was written by Deborah Rider, Partner, Real Estate Dispute Resolution, with assistance from Lauren Fitzpatrick, Associate, Real Estate Dispute Resolution.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.