Thursday 9th January 2020 saw the publication of the anticipated Law Commission report setting out options for reducing the costs leaseholders would have to pay when they are either purchasing the freehold or extending their leases.
Due to the current leasehold process, there is generally a difficulty in finding a fair compromise between the two interested parties – the landlord and the tenant.
The report has suggested three potential routes for reform to help reduce potential premiums payable for lease extensions and freeholds, namely:
Option One:
A calculation based on the leaseholder never being in the market, including at the time the premium is calculated and bases the cost exclusively on the reversion and the term.
Option Two:
A calculation based on the leaseholder not being in the market when the premium is calculated but could seek to sell their property in the future. This option would include ‘hope value’ but exclude marriage value.
Option Three:
A calculation similar to what currently exists – a calculation based on the leaseholder being in the market at the time of premium calculation. The premium would be calculated on the term, reversion and marriage value.
Clearly the proposed reform routes set out in options 1 and 2 would immediately reduce enfranchisement premiums as marriage value would not form part of the overall cost of either the freehold or lease extension premium. However, the Law Commission are suggesting there may be some scope for the third option, using a similar calculation to the existing law, benefitting leaseholders if they are used as a framework to implement other reforms.
Now whilst the proposed reform options seem to be a step in the right direction in striking a fair and reasonable balance between landlord and tenant, the proposed options are still only suggestions as ultimately reform and which route (if any) is a decision for Parliament and Government. The Law Commission in its report has not favoured one option over another. Consequently, is the lack of a definitive conclusion potential to provide yet more uncertainty in an already confused leasehold market?
A full copy of the report can be found here: https://www.lawcom.gov.uk/project/leasehold-enfranchisement/
For more information or to discuss the proposed options for reform, or your lease extension or freehold claim further, please contact ymistry@jpclaw.co.uk or telephone: 0207 644 7294 or contact her on LinkedIn
