A number of aspects of the leasehold ‘landscape’ have been subjected to government scrutiny in recent years and the Law Commission (LC) has now presented three options to reduce the ‘price’ (or premium) which leaseholders must pay to buy or extend their lease.
In considering the potential for wider reform the LC’s emphasis has been on achieving “transparency and fairness” as well as updating and improving the procedure. Presently and somewhat confusingly to lay clients different statutory procedures apply to flats and houses with certain options only available as collective rather than individual rights. In continuing its review of these areas the LC must grapple with the competing interests of leaseholders, who desire an overall reduction in the ‘price’ for these rights, and landlords who want to be adequately compensated for their legitimate interests.
In its attempt to reduce premiums the LC has come up with three (alternative) key schemes, each of which uses a different method to determine the premium level.
By doing so the LC seeks to address and balance the effect which “marriage value” and “hope value” can have in significantly inflating premiums under current arrangements.
Additionally the LC makes several recommendations which could feature as part of any final package of reforms:
- Single regime and procedure to apply to flats and houses, reducing complexity and cost;
- An on-line premium calculator to promote a greater degree of transparency/ certainty;
- Reducing current minimum period of ownership requirement for lease extensions;
- Limiting/ abolishing leaseholders obligation to pay their landlord’s costs of the process;
- Disputes referred exclusively to the First Tier (Residential Property) Tribunal - current jurisdictional arrangementsare divided between County Court and Tribunal;
- A “cap” on the value of ground rents used in the premium calculation – there have beenexamples of landlords negotiating increased ground rents (often under “doubling” clauses) in order to inflate future premium calculations.
The LC is expected to firm up on these recommendations with a report in the Spring. Striking the balance between competing interests remains a concern with no certainty as to the scope or timing of any final changes. The likelihood remains that these will represent reasonable but not necessarily substantial moves in favour of leaseholders. At the very least we must hope that the procedure will be simplified and unified with a consequent reduction in cost.
For the time being leaseholders with only slightly more than 80 years left on their current lease should enquire now about extending; the impact of marriage value is significant once the lease term reduces below this level but this can be avoided with awareness and prompt action.
For further advice on this matter contact David Mallinson.
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