The Law Commission has today published its long awaited consultation paper on the proposed reforms to the residential leasehold system. The consultation paper runs to some 546 pages and poses 135 questions. Mark Chick from our Landlord & Tenant has been part of the initial discussions leading up to this consultation and a short note on the background to this development appears below.
Following on from the outcomes of the Government’s Consultation on ‘Tackling Unfair Practices in the Leasehold Market’ the Law Commission was charged with the responsibility of reporting back before the summer recess of Parliament on their proposed solutions to the issue of ‘leasehold houses.’
On 20th July 2018, the Law Commission published the first part of its report.
The Government’s requirement was that the Law Commission sought to improve the lot of leaseholders affected by the “ground rent scandal” as a matter of some urgency and they were asked to deal specifically with the problems arising from leasehold houses on escalating ground rents.
However, at this first stab at the matter the Law Commission slightly “fudged” the issue – and I do not blame them for this, given the complexity and scale of the possible undertaking, by indicating that a far better project for reform would be to harmonise the enfranchisement regime altogether so that there is no distinction between the law applicable to flats and houses.
It is this that is the subject of their much bigger plans for reform in this area that they will arrange to publish today.
This is a much bigger and far more ambitious project that will see (if enacted) a much wider reform of the enfranchisement system and it is this that has been discussed by the Law Commission in private prior to the open element of the consultation which we now see.
What we have now is the next step in the process. Don’t forget that the short snappy document released today (which runs to some 594 pages), is quite like a book on the whole topic. Not necessarily a bad thing, but it has to be borne in mind that this document is in fact as consultation paper (no.238 to be precise).
All interested parties will have two months (until 20th November 2018) to respond to the 135 questions that it poses.
The next step in this process after the consultation closes will be a full report with recommendations for change, this is likely to be published during 2019. (i.e. the recommendations themselves may not be in a format that could be acted on until the end of next year).
This is likely to seem like a frustratingly slow pace of change for many organisations such as the LKP (Leasehold Knowledge Partnership) and the NLC (National Leaseholder Campaign) who are keen to see urgent and radical change in this area. They may well be right that the area is ripe for reform.
The area of enfranchisement has always in my view been better titled ‘leasehold reform’ as it is the long term reform of leasehold that parliament had in mind when it began the journey towards a means of ending residential leasehold as a species of land tenure with the Leasehold Reform Act 1967. There were echoes of this ambition in the 1998 Consultation Paper that led up to the introduction of the 2002 Act which stated that leasehold was a mode of land tenure “totally unsuited to the society of the 20th, let alone the 21st Century.”
I have been involved in the initial discussions with the Law Commission, leading up to the publication of this paper, and from speaking to them it does seem that the report back in the main is not going to be due until the end of next year.
However, optimists will also note that the Parliamentary timetable is also likely to be taken up with significant other matters, not least of which will be Brexit, and accordingly, even if a report is produced during the course of 2019, it remains to be seen how much Parliamentary time could be made available to enact any of the changes.
One of the biggest bits of news, given that its terms of reference require the Law Commission to ‘examine the options to reduce premium whilst ensuring that compensation is still paid to landlords’ are the extent to which the proposals would affect the basis on which freeholds are valued. Some parts of the institutional market have already begun to take account of these possible changes but, because of the uncertainty, it is difficult to make any definitive statements as to what (if any) long term affect they will have on value.
Once the full consultation document is fully digested, I anticipate that there will be numerous parties that will want to make comments on this – as well they should – so that these proposed changes are as well thought out as they can be – I anticipate comments from politically interested groups, professional bodies and practitioner groupings such as ALEP, along with many other commentators.
It is certainly true that 2018/19 is shaping up to be an exciting time in leasehold.
Mark Chick has commented as follows: ‘The Consultation Paper paves the way for a bold and broad sweeping reform of the system relating to leasehold enfranchisement, and can truly be said to be published with a view to ‘reforming leasehold.’ None of the proposed changes are law yet and it is important to note that the next step, after the consultation closes is for the Law Commission to prepare a further report to government setting out its recommendations for change. That report is not likely to come out until sometime during 2019. However, these proposed changes are certainly the most radical reforms that have ever been proposed in relation to residential leasehold in England and this paper is likely to set a benchmark and a starting point on the road to reform.”
To get in contact with the Leasehold Reform team at Bishop & Sewell email firstname.lastname@example.org or telephone 020 7631 4141 and ask to speak to a member of the Leasehold team.