Some leaseholders have the right to pay to buy the freehold or extend the lease of their homes – this is known as “enfranchisement”. At the minute the leaseholder has to apply for a valuation to be provided, and this can be a difficult and expensive process. The Government asked the Law Commission to look at options to make this easier and more affordable.
This has to be balanced with the property interests currently held by freeholders, as a lower purchase price for a leaseholder would mean a lower sale price for the freeholder.
The options for reform
The options for reform are all based around the method in which the premium payable for enfranchisement is calculated. At the minute it is based on a complex calculation, and the three main options presented are, in broad terms, an attempt to simplify the calculation itself.
Each scheme uses a different method to determine the price of enfranchisement and then there are sub-proposals which would allow further reforms to make the process simpler and to reduce uncertainty.
At the time of considering the headline reforms, the Law Commission has put forward an idea of the sub-proposals they could consider, and these include:
1. Prescribing the rates used in calculating the price, to remove a key source of disputes, and make the process simpler, more certain and predictable.
2. Helping leaseholders with onerous ground rents, by capping the level of ground rent used to calculate the premium.
3. The creation of an online calculator for determining the premium to make it easier to find out the cost of enfranchisement and reduce uncertainty around the process.
4. Enabling leaseholders who are collectively enfranchising a block of flats to avoid paying “development value” to the landlord unless and until they undertake further development.
This follows on from recent reviews of leasehold properties generally, in relation to ground rents charged for houses.
The role of the Law Commission is to present its findings to Government for their consideration rather than to make specific recommendations. The reports are expected in Spring 2020 and anyone who is considering enfranchisement should keep an eye out for the report as it is anticipated that whichever route is adopted this would result in lower premiums rather than higher ones, with some options due to be of considerable impact on leasehold interests with less than 80 years remaining.
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The information contained in this article does not constitute financial advice or recommendation and should not be considered as such. Arrow conveyancing does not offer financial advice and is not regulated by the Financial Conduct Authority (FCA), the authors of this article are not financial advisors and are therefore not authorised to offer financial advice.