ALEP welcomes reform – but with substantial amendments to the draft legislation
On Tuesday 11 December the Leasehold and Freehold Bill passed its Second Reading in the House of Commons, just 33 days after it was announced in the King’s Speech and 14 days since it was published.
The Bill is the second part of a legislative package to reform leasehold law. It follows the Leasehold Reform (Ground Rent) Act 2022, which put an end to ground rents for most new residential leasehold properties in England and Wales and follows a Government-commissioned review of leasehold law by the Law Commission which was completed in 2017.
At its Second Reading, the Bill was broadly welcomed with cross-party support, despite criticism that it does not go far enough.
The Association of Leasehold Enfranchisement Practitioners (ALEP) represents a wide range of leasehold enfranchisement practitioners, including both lawyers and surveyors, and has supported the Government over several years as it edged towards leasehold reform.
Its members are generally supportive of reform: at ALEP’s annual conference in October, 77.37% of attendees agreed that the leasehold system is in need of reform (while 21.17% stated that is was not, and 1.46% had no opinion). This compares to just 19% supporting the Labour party’s aspiration to ban leasehold within its first 100 days in Government.
However, it is widely recognised that leasehold reform is an extremely complex area of law and not one which should be rushed towards Royal Assent in the final months of the current Government.
Commenting on the draft Bill, Mark Chick, director of ALEP said, “As the Leasehold and Freehold Bill approaches its Second Reading, ALEP members will be waiting with baited breath.
“The Bill is complete game-changer for landlord and tenant law. Not only is it a game changer in terms of shifting the costs, burdens and responsibilities between the two parties, but the Bill also makes sweeping changes to valuation.”
Flaws in the draft Bill have already been identified, specifically concerning its ability to deliver on its objective of banning leasehold houses, and other commentators have raised questions in relation to the valuation mechanism.
Mark Chick continues, “We recognise and appreciate that it is the Government’s stated aim to make the leasehold process cheaper and easier but leasehold enfranchisement practitioners question whether the Bill, in its current draft, will do this fully and effectively.”
Another interesting aspect of the proposed new legislation is the question of who pays the legal and valuation costs. Currently, those looking to purchase have to pay the legal costs of the landlord when buying out their interest. ALEP’s members were asked, “Do you think that landlords should be responsible for their own legal costs [in the case of leaseholder-led enfranchisement]?, to which a clear majority (73.81%) responded ‘no’.
On this topic, Mark Chick said, “Should, as we understand the Government is proposing, freeholders be required to pay the legal costs if leaseholders choose to enfranchise, this will be the only instance of a compulsory acquisition whereby the party whose interests are being purchased does not have their costs paid –compare for instance with the compulsory purchase legislation , for example, where the costs are paid by the acquiring party.”
ALEP Valuer Committee Member Mark Wilson (managing director of myleasehold) raises another concern about the Bill’s proposal to increase to 25% the non-residential threshold for mixed-use property: “I have concerns that the proposed expansion of the types of buildings that flat owners can acquire could conceivably encompass significant trophy mixed-use estates, such as parades of shops. By significantly reducing the value of these highly prized assets, the new flat owning Freeholders may lack the expertise or financial means to maintain these highly prized properties effectively. Poor management, or under investment, could negatively impact on high rent paying commercial shop tenants, and even extend to affecting the surrounding built environment.
“Under the management of new freeholders who may lack the expertise or financial means to maintain them, these highly prized properties may decline in value. Confusing the management of our built environment as part of a desire to reduce wealth inequality will have consequences, creating a Pandora’s box of unintended consequences. What takes no imagination is situations where professional management is replaced by novices and exploitation of a new regime replacing previous abuses of power.”
ALEP hopes to continue to advise the Government on the necessary amendments to the legislation.
