Leasehold Enfranchisement Claims - Why it is difficult to reach an amicable solution

Nicole Muir, a senior member of the Tanfield Chambers property team and ALEP member looks at why it is so difficult to reach an amicable solution with leasehold enfranchisement claims.

As a property barrister I am often asked for informal advice on landlord and tenant disputes. Invariably my reply is; pick up the phone to the other side and try and sort it out amicably. A landlord and tenant relationship can last for many years and it is never a good idea to fall out. But in the context of leasehold enfranchisement, amicable resolutions can be difficult. This is not because parties are more “unfriendly” where a lease extension or collective enfranchisement is requested, but because the current enfranchisement legislation lays down strict procedural requirements which are ignored at the parties’ peril. While, in simple cases, the landlord and tenant can agree the terms of a new lease or freehold purchase without resorting to their statutory rights, this can expose the tenant to significant risks, such as onerous terms in the new extended lease.

Tenants of flats held on a long lease have the right to acquire a new extended lease or to collectively purchase the freehold of their block with fellow lessees under the Leasehold Reform, Housing and Urban Development Act 1993. The Leasehold Reform Act 1967 gives similar rights in relation to houses. Both Acts were enacted for the benefit of tenants and, to make sure that landlords cannot mess tenants around or procrastinate, the Acts set out a strict timetable for the progress of the claim. The 1993 Act, for example, provides that if the landlord fails to serve a counter-notice in response to the tenant’s claim for a new lease within the time period specified in the tenant’s notice, the tenant is entitled to acquire the new lease on the terms initially proposed by the tenant. The price offered by the tenant will almost certainly be less than the true value so the landlord will suffer a loss as a result of his/her complacency.

However, there are also traps for tenants. The Acts do not allow landlords to be strung along either. The 1993 Act, for example, provides that if the tenant fails to comply with his/her obligations to progress a claim in accordance with the statutory timetable, the claim for a new tenancy or for the freehold will be automatically deemed “withdrawn”. The tenant is then not only prohibited from making any further application for a year but will still have to pay the landlord’s costs.

While the purpose behind these statutory deadlines is laudable, they have led to some unfortunate consequences. A claim under the Act can feel like a game of Monopoly with both parties being repeatedly “sent to jail” for failure to comply with a procedural requirement. Missing a deadline is also one of the biggest sources of negligence claims against solicitors who may have delayed taking the necessary steps in the hope of reaching an amicable agreement.

Enfranchisement legislation is notoriously complicated, and few landlords or tenants can operate the procedure without professional assistance, which can be costly. The Law Commission has therefore undertaken a wide-ranging consultation on possible reforms to tackle the inadequacies of the existing law and to make enfranchisement easier, cheaper and quicker. The Consultation Paper produced in September 2018, includes some very sensible proposals for simplifying the current procedure which, if implemented, should allow more scope for amicable settlements in lease extension or enfranchisement claims. The proposals include simplifying the procedure by adopting standard forms of claim notice and counter-notice and reducing the scope for arguments as to the validity of such notices. The Commission also proposes doing away with the draconian sanctions which allow the tenant to obtain an unfair windfall if the landlord fails to respond to the claim and abolishing the rules which deem a claim to have been “withdrawn” if the tenant misses a deadline. The new regime would be more flexible and would give the First Tier Tribunal (Property Chamber) a much wider jurisdiction to deal with the whole gamut of disputes which can arise in these claims. This would include the power to determine the proper premium payable in the case of the landlord’s default and striking out the tenant’s claim if there is inordinate delay. These powers would replace the current procedural traps and ensure that each case is dealt with on its merits.

It remains to be seen whether the Law Commission’s proposals become law, but they have generally been well received. There is no doubt that a more flexible procedure would open the door to more cases being settled amicably and the scope for disagreements being reduced. In the meantime, landlords and tenants should try to reach terms within the statutory deadlines.

Nicola Muir is a senior member of the Tanfield Chambers’ property team and a member of ALEP (the Association for Leasehold Enfranchisement Practitioners).

Reviewed: July 2019