At the start of the year, Robert Jenrick, the Minister for Housing, Communities and Local Government (MHCLG), announced his plans for potential leasehold reforms. These adopted many of the proposals made in the Law Commission’s report on Leasehold Home Ownership that was published in July 2020. Among the headline changes that Jenrick hoped to introduce was the plan to replace 90-year leases with a 990-year option, as well as abolish ground rent.
The first of these moves was made in May 2021, following the Queen’s Speech, when the Leasehold Reform (Ground Rent) Bill was introduced in the House of Lords, focusing on removing ground rent on new leasehold properties. It is the first step of the government’s two-part legislation, with future legislation expected to abolish marriage value and reform the process of enfranchisement valuation used to calculate the cost of extending a lease or buying a freehold.
Shabnam Ali-Khan, an enfranchisement solicitor at Russell Cooke, saw the January announcement pique interest among leaseholders and landlords, but cautions patience until all of the reforms are confirmed.
The potential reforms caused a stir when they were sensationally published in early January. Many sources suggested change was imminent. This led to a flurry of enquiries to us and no doubt many other professionals about them: Has the law changed? Should I wait till it does before I embark on a lease extension? Should I withdraw from my current lease extension process and wait for the new law to come into force? And the biggest question of all: will it be cheaper for me to extend my lease when the new proposals come in?
Our general view is we do not know when and exactly what will come into force and if your lease is nearing 80 years or below it is probably best to get on with a lease extension now. However, we always stress the importance of obtaining valuation advice.
The three key changes as part of the current wave of leasehold reforms are the removal of ground rent for new leases, the scrapping of the 90-year lease extension being replaced with a 990-year option instead and the famous removal of marriage value. Although essentially the marriage value will all be payable to the leaseholder (that is if this controversial proposal comes into force).
These are all due to be heard at Parliamentary sessions next year so there is some time before anything comes into force. It has certainly brought leasehold to the forefront and sparked a lot more interest from leaseholders as well as landlords. It has prompted more leaseholders to consider lease extensions and try to learn more about their rights.
In terms of the work we do as solicitors we will still be needed to assist with the process but it does help to keep up to date with developments on the leasehold reforms, as well as the potential proposals to revive Commonhold with the introduction of a Commonhold Council.
Valuers have been more concerned by elements of the proposed reforms. Henrietta Hammonds, Partner at Beckett and Kay Chartered Surveyors, reports that plans for an online calculator to evaluate enfranchisement costs has many in the sector worrying about how it may impact their practice.
MHCLG’s announcement on 7 January 2021 sent many specialist leasehold reform valuers into a spin. If the government’s plans come to fruition, they fear losing their livelihoods unless they are able to diversify their business. This is such a specialist area of valuation that it can take many years to get to grips with the existing legislation, and many more to be considered an “expert”.
If the reforms do end up being as sweeping as Jenrick’s statement indicated, the role of the valuer in a lease extension or collective enfranchisement claim will be reduced to only an argument about the freehold vacant possession value of the subject property. The proposed abolition of marriage value renders arguments about leasehold relativity nugatory; the cap on compensation for ground rent means capitalisation rate will no longer be contentious (and, in fact, may be prescribed); in fact, the online calculator removes any valuation judgment whatsoever.
I think it is common ground that the process is complicated and drawn out. It is of benefit to landlords, tenants, and their professional advisers (and their professional indemnity insurers!) if it is simplified. However, I can’t help but wonder if such generalised and blanket reforms might actually leave more unanswered questions and therefore create more litigation. After all, I do not think those who drafted the present legislation imagined that we would still be arguing about the definition of a house all these years later.
How will the online calculator cope in a situation where there are multiple intermediate landlords? If the tenants agree to a restriction on development value, is this a restrictive covenant that will then be capable of modification or discharge under existing (separate) legislation? I think valuers need not panic yet – I’m sure plenty of interesting valuation arguments will arise, whatever form the new legislation takes.
ALEP exists to ensure that barristers, managing agents, project managers, solicitors and valuers involved in leasehold enfranchisement adhere to an agreed level of conduct and service.
ALEP members can help you with extending your lease, buying your freehold, right to manage and disputes.
