Leasehold home ownership: buying your freehold or extending your lease [2020] EWLC 392 (June 2020)

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Law

Commission

Reforming the law

Leasehold home ownership: buying your freehold or extending your lease

Law

Commission

Reforming the law

(Law Com No 392)

Leasehold home ownership: buying your freehold or extending your lease

Presented to Parliament pursuant to section 3(2) of the Law Commissions Act 1965

Ordered by the House of Commons to be printed on 20 July 2020

HC 584

© Crown copyright 2020

This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-govemment-licence/version/3.

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ISBN 978-1-5286-2061-1

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The Law Commission

The Law Commission was set up by the Law Commissions Act 1965 for the purpose of promoting the reform of the law.

The Law Commissioners are:

The Right Honourable Lord Justice Green, Chairman

Professor Sarah Green

Professor Nick Hopkins

Professor Penney Lewis

Nicholas Paines QC

The Chief Executive of the Law Commission is Phil Golding.

The Law Commission is located at 1st Floor, Tower, 52 Queen Anne's Gate, London SW1H 9AG.

The terms of this Report were agreed on 26 June 2020.

The text of this Report is available on the Law Commission's website at

http://www.lawcom.gov.uk.

All websites footnoted in this Report were last visited on 10 July 2020.


Table of contents

GLOSSARY

Introduction

Home ownership after reform: a summary

PART I: INTRODUCTION

The current law

Problems with the current law

Our project

The Consultation Paper and consultation process

This Report and our recommendations for reform

Issues beyond the scope of our project

The impact of reform

The law in Wales

Structure of this Report

Next steps

Publications accompanying this Report

Acknowledgements

The team working on the Report

Introduction

Problems with the current law

A uniform lease extension right for all

The length of a lease extension and redevelopment break rights

A range of lease extension rights?

Premises to be included in a lease extension

Terms of a lease extension

Mortgages

Property rights benefiting the lease

Property rights burdening the lease

Conclusion

Introduction

Premises to be acquired

Terms of acquisition

Freehold ownership

General principles

Pre-existing property rights burdening or benefiting the freehold

Pre-existing personal obligations binding the landlord

New property rights created during the individual freehold acquisition process

New personal obligations created during the individual freehold acquisition process

Third-party interests: landlords’ mortgages and rentcharges

Introduction

Problems with the current law

The nominee purchaser

Multi-building collective freehold acquisition claims

Premises to be acquired on a collective freehold acquisition

Leasebacks

Other terms of the transfer

Mortgages and rentcharges

Management issues following a collective freehold acquisition

A restriction on successive collective freehold acquisition claims

The right to participate

Conclusion

ENFRANCHISEMENT RIGHTS?

Introduction

Problems with the current law

The unified scheme of qualifying criteria

Qualifying for a lease extension

Consequential abolition of certain qualifying criteria

Lease extensions: an additional option for leaseholders

Qualifying for an individual freehold acquisition

Collective freehold acquisitions

Restricting commercial investor rights

Conclusion

RULES

Introduction

Shared ownership leases

The National Trust

The Crown

Community-led housing

Lease-based financial products

Other exceptions and qualifications

Other exemptions requested by consultees

Conclusion

PART IV: HOW SHOULD ENFRANCHISEMENT RIGHTS BE EXERCISED?

Introduction

Problems with the current law

An outline of our recommended procedural regime

A single procedure for all enfranchisement claims

A single set of prescribed forms

Information Notices

Inviting other leaseholders to participate in a claim

Claim Notices

498

Signing enfranchisement notices

Who should be served with a claim notice?

Serving copies of a Claim Notice on others

The two methods of starting an enfranchisement claim

Sending a Claim Notice to the landlord (the Service Routes)

Applying to the Tribunal for permission to proceed (the No Service Route)

Pre-service checks

Introduction

Responding to a claim: landlord’s Response Notice

Challenges to the validity of notices

Relevant timings

Conduct of the response to the claim

What should happen if a landlord fails to serve a Response Notice?

Setting aside a determination

Ensuring that a claim is progressed

Introduction

Effect of serving a claim notice

Assignment of the benefit of a claim notice

Protecting claims on the sale of the landlord’s interest in the property 611

Landlord’s interest subject to a mortgage

Providing mortgagees with a copy of a new extended lease

Merger as part of a freehold acquisition

Third-party consent and restrictions on the landlord’s title

Further registration requirements

Introduction

Problems with the current law

A single venue for determining disputes

An alternative procedure for valuation-only disputes

A continuing role for alternative dispute resolution

Introduction

Problems with the current law

Should leaseholders contribute to their landlord’s non-litigation costs?

Calculating any contribution to be made

Claims that do not reach completion

A landlord’s security for non-litigation costs

Preventing vexatious claims: Enfranchisement Restraint Orders

Litigation costs: costs-shifting powers

Litigation costs: unreasonable conduct

A landlord’s contractual entitlement to costs

PART V: INTERMEDIATE LEASES AND OTHER LEASEHOLD

INTERESTS

INTERESTS

Introduction

Intermediate leases and other leasehold interests

Problems with the current law

Protecting an intermediate landlord in an enfranchisement claim

What should happen to an intermediate lease on enfranchisement?

Acquiring intermediate leases created in a previous collective freehold acquisition

Where the intermediate landlord is also the leaseholder of the residential unit

Head lessees who are also qualifying leaseholders

Leases of common parts

Sub-leases granted out of extended leases

Valuation

“Minor Superior Tenancies” and “Minor Intermediate Leasehold Interests” 748

Commuting the head rent

PART VI: VOLUNTARY TRANSACTIONS AND CONTRACTING OUT

Introduction

The current law

Problems with the current law

Lease extensions outside the statutory scheme

Individual transfers outside the statutory scheme

Collective transfers outside the statutory scheme

Contracting out

PART VII: SUMMARY OF OUR RECOMMENDATIONS

Glossary

Terms and definitions in Italics are new terms of art introduced by our reformed regime.

“the 1967 Act”: Leasehold Reform Act 1967.

“the 1993 Act”: Leasehold Reform, Housing and Urban Development Act 1993.

“the 2002 Act”: Commonhold and Leasehold Reform Act 2002.

“Articles of association”: a company’s articles of association are the rules governing how that company operates.

“Building”: the basic meaning of a building is a built or erected structure with a significant degree of permanence, which can be said to change the physical character of the land. In some places, we also use this term in a more restrictive sense. See paragraphs 6.187 to 6.215.

“Business lease”: a lease containing premises which are occupied by the leaseholder for the purposes of a business carried on by the leaseholder (under the current law), or a lease that is excluded because its terms do not permit residential use of the premises, or because the premises are being used solely for business purposes (under our recommended regime, on which see paragraphs 6.48 to 6.68).

“Capitalisation rate”: the rate of return that buyers, at the valuation date, are seeking in relation to the particular interest in that type of property, of that investment quality, in that location. It is derived from market evidence.

“Claim Notice”: a Claim Notice is a document that may be served on the “competent landlord” by the leaseholder(s) in order to begin an enfranchisement claim (under our recommended regime). See paragraphs 8.109 to 8.117.

“Collective enfranchisement”: a claim (under the current law) by multiple leaseholders of flats in a building (or part of a building) to acquire the freehold of the building (or part of the building) through a “nominee purchaser”.

“Collective freehold acquisition”: a claim (under our recommended regime) by multiple leaseholders of residential units in a building or part of a building, or in multiple buildings and/or parts of buildings, to buy the freehold of the building, part of the building, or buildings and/or parts of buildings, through a “nominee purchaser”.

Commonhold Consultation Paper (“Commonhold CP”)”: the Commonhold project is one of the Law Commission’s three residential leasehold projects. It is a review of the existing law of commonhold. In September 2018 we published a consultation paper: Reinvigorating commonhold: the alternative to leasehold ownership (2018) Law Com No 241. In this paper we made provisional proposals for reform and invited consultees to share their views on these proposals. These responses form the basis of the Commonhold Report.

Commonhold Report”: alongside this Report we are publishing a report making recommendations for reform to the law of commonhold: Reinvigorating Commonhold: an alternative to leasehold home ownership (2020) Law Com No 394.

“Company limited by guarantee”: a company limited by guarantee is a type of private company. Its members do not hold shares in the company, but rather undertake liability for the company’s debts to the extent of a guarantee (which is usually for a nominal amount of money). They are liable for this sum only in the event that the company becomes insolvent.

“Company limited by shares”: a company limited by shares is a type of private company. Its members hold shares, and a member’s liability for the company’s debts is limited to any unpaid part of the nominal value of his or her shares.

“Competent landlord”: under the current law, the competent landlord is the landlord who holds a sufficiently long interest in a flat (whether the freehold or a long intermediate lease) that he or she can grant the leaseholder of that flat a lease extension under the 1993 Act. If there are multiple landlords who meet that definition, the competent landlord will be the one whose interest is closest in the chain of interests to that of the leaseholder. Under our recommended regime, the competent landlord is the first superior landlord whose interest in the building is sufficient to be able to grant or transfer the interest claimed by the leaseholder.

“Counter-notice”: a document that may be served by a landlord who has received a notice of claim (under the current law).

“Conveyance”: see “transfer”.

“Curtilage”: the curtilage of a property is land that has a reasonably close association with that property, such that the two can be considered together to be part of an integral whole. Precisely what land will be within the curtilage of a particular property is a factual question that will differ from case to case, depending on the physical characteristics and of the premises, as well as the ownership, functions and uses of the land.

“Decapitalisation”: the process of deriving an annual income which is equivalent to a given capital sum.

“Deferment rate”: the annual discount applied, on a compound basis, to an anticipated future receipt (assessed at current prices) to arrive at its market value at an earlier date. It is used to ascertain the present value of an asset that consists, and consists only, of the right to vacant possession of a particular residential property at the end of the lease to which the freehold is subject.

“Diminution in value”: the difference in value between the landlord’s interest in a flat before and after the grant of a lease extension under the 1993 Act.

“ECHR”: the ECHR is the European Convention on Human Rights.

“Enfranchisement claim”: we use “enfranchisement claim” as a generic term to refer to:

(under the current law):

(under our recommended enfranchisement regime):

It should be noted that “enfranchisement” also has a more limited technical meaning, where it is used to refer only to freehold acquisitions. However, we use “enfranchisement” as a generic term to refer to both freehold acquisition claims and lease extension claims.

“Enfranchisement Consultation Paper (“CP”)”: in September 2018 we published a consultation paper: Leasehold home ownership: buying your freehold or extending your lease (2018) Law Com No 238. In the CP we made provisional proposals for reform and asked questions of consultees. This Report follows from those responses.

“Flat”: a flat (under the current law) is a separate set of premises (whether or not on the same floor) which forms part of a building, which is constructed or adapted for use for the purposes of a dwelling, and either the whole or a material part of which lies above or below another part of the building.

“Freehold ownership”: freehold ownership is property ownership that lasts forever, and which generally gives fairly extensive control of the property.

“Freehold vacant possession value (FHVP)”: the amount that a property is worth held freehold and not subject to any leasehold interests.

“Freeholder”: the freeholder is the owner of the freehold interest in any property. The freeholder is at the top of any chain of leases of a given property.

“Ground rent”: a regular payment which must be made by a leaseholder to his or her landlord.

“Head lease”: see “intermediate lease”.

“Home purchase plan”: a financial arrangement offered by a bank or other financial institution whereby an individual is permitted to purchase their home in a manner which conforms with religious norms governing the prohibition of interest payments.

“Hope value”: an amount of money payable as part of the premium in a collective enfranchisement claim in respect of non-participating flats, to reflect the fact that the leases of those flats may be extended (at a premium) in the future.

“House”: a house (under the current law) is a building designed or adapted for living in (whether the building is structurally detached or not), so long as it can reasonably be called a house.

“Individual freehold acquisition”: a claim (under our recommended regime) by a single leaseholder to acquire the freehold of the building in which their residential unit is (or units are) located. See Chapter 4.

“Information Notice”: a notice served by a leaseholder on his or her immediate landlord and/or any other landlord seeking information about the ownership of his or her building (under our recommended regime). See paragraphs 8.75 to 8.89.

“Intermediate landlord/leaseholder”: a person who holds an “intermediate lease”. He or she holds a leasehold interest, and in turn is a landlord under another lease of all or part of the same property. We use “intermediate leaseholder” where we discuss the rights and obligations that arise by virtue of the person being a leaseholder, and “intermediate landlord” where we discuss the rights and obligations that arise by virtue of the person being a landlord. See Chapter 13 for discussion of intermediate leases.

“Intermediate lease”: a lease that is superior to another lease (in other words, a lease under which the leaseholder is also the landlord under another lease). Put another way, it is a lease that has an interest above and below it. For example, where a freehold house is subject to a 999-year lease to X, which in turn is subject to a 125-year lease to Y, which itself is subject to a 99-year lease to Z, then the 999-year lease and the 125-year lease are both “intermediate leases”. The 125-year lease is also a “sub-lease” (as is the 99-year lease). An intermediate lease is also known as a “head lease” or a “superior lease”. See Chapter 13 for discussion of intermediate leases.

“Interest”: a leasehold or freehold estate is an interest in land; for brevity, we refer to a leaseholder’s or a landlord’s “interest”.

“Joint landlord”: where the landlord’s interest is held by more than one person, they are referred to as “joint landlords”.

“Landlord”: we use “landlord” as a general term for a person who holds an interest in property out of which a lease has been granted. A landlord may be either the freeholder of the property, or hold a leasehold interest in the property himself or herself.

“Lease”: a lease is the legal device (usually a written document) that grants a person a leasehold interest in a property and sets out the rights and responsibilities of the leaseholder and landlord. A leasehold interest is a form of property ownership (see “leasehold ownership”). We generally use the term “lease” instead of “tenancy” because it is typically used to refer to long leases (which therefore qualify for enfranchisement rights), whereas “tenancy” is generally used to refer to short leases (such as where a home is rented on, say, a one-year “assured shorthold tenancy”). However, the current enfranchisement legislation uses the word “tenancy” and we adopt that language in places when referring directly to that legislation.

“Lease extension”: a lease extension is the grant of a new, longer lease of a flat or a house (under the current law) or of a residential unit (under our recommended regime).

“Leasehold ownership”: leasehold ownership of property is time-limited ownership (for example, ownership of a 99-year lease), and control of the property is shared with, and limited by, the landlord.

“Leaseholder”: a “leaseholder” is a person who holds a leasehold interest in property, granted by a person (the landlord) with the freehold interest or a more extensive leasehold interest in that property. We generally use the term “leaseholder” instead of “tenant” for the same reason that we use “lease” instead of “tenancy” - that is, because it is typically used to denote those who own a property on a long lease (and therefore qualify for enfranchisement rights), whereas “tenant” is generally used to refer to those who rent a property on a short lease (such as a one-year “assured shorthold tenancy”). However, the current enfranchisement legislation uses the word “tenant” and, in some instances, we adopt that language when referring to the legislation - for example, when referring to a “qualifying tenant” under the 1993 Act.

“Long lease”: subject to a number of qualifications, a long lease (under both the current law and our recommended regime) is a lease that is granted for a term exceeding 21 years.

“Making Land Work”: in 2011 we published a report: Making Land Work: Easements, Covenants and Profits a Prendre (2011) Law Com No 327. Making Land Work makes a number of recommendations to reform the law relating to specific rights and obligations relevant to land.

“Marriage value”: marriage value is the additional value an interest in land gains when the landlord’s and the leaseholder’s separate interests are “married” into single ownership.

“Modern ground rent”: the rent determined under section 15 of the 1967 Act, payable during the additional term of a lease extension of a house (under the current law). It is calculated by valuing the “site”, and then decapitalising that value.

“Mortgagor/Mortgagee”: the mortgagor is the borrower - the owner of the property who mortgages it in return for a loan. In the context of this Report, the mortgagor is usually the landlord or the leaseholder. The mortgagee is the lender - usually a bank or a building society that lends money secured by the mortgage.

“Nominee purchaser”: a nominee purchaser is a person, either natural or corporate, who (under the current law) conducts a collective enfranchisement claim on behalf of the participating leaseholders and acquires the relevant premises on their behalf. We retain this term to describe the person performing the same function in respect of a collective freehold acquisition claim under our recommended regime.

“Non-participating leaseholder”: a non-participating leaseholder is a leaseholder who qualifies for participation in a collective enfranchisement claim (under the current law) or a collective freehold acquisition claim (under our recommended regime) but does not participate.

“Notice of claim”: a document that may be served by a leaseholder in order to begin an enfranchisement claim (under the current law). In the 1967 Act these documents are referred to as a “notice of tenant’s claim”. In the 1993 Act these documents are referred to as a “tenant’s notice” in relation to claims for a new lease, and an “initial notice” in respect of collective enfranchisement claims.

“Participating leaseholder”: a participating leaseholder is a leaseholder who qualifies for participation in a collective enfranchisement claim (under the current law) or a collective freehold acquisition claim (under our recommended regime), and chooses to participate.

“Peppercorn rent”: many long leases specify an annual ground rent of a peppercorn. Strictly, the landlord in these cases could require the leaseholder to provide him or her with a peppercorn annually, but invariably this is not demanded. A peppercorn rent is used in circumstances where it is deemed appropriate for there to be no substantive rent payable. The inclusion of a nominal rent is intended to satisfy the English contract law requirement of “consideration” - meaning that an exchange must occur in order for a binding contract to be formed. Under the current law, any lease extension of a lease of a flat under the 1993 Act must be granted at a peppercorn rent.

“Premium”: the premium is the sum a leaseholder or nominee purchaser must pay to the landlord(s) in order to obtain a lease extension or to acquire the freehold of property. The premium is also referred to as the “price”.

“Prime Central London”: Savills Residential Research produce a Prime London Index which is designed to reflect the price movements of prime property in London. The Index is divided into five areas: Central, North West, North & East, South West and West. The Prime “Central” London Index includes Notting Hill, Kensington, Chelsea, Knightsbridge, Marylebone, Mayfair, Westminster and Pimlico. While the term Prime Central London (“PCL”) is not necessarily used with precision, it generally refers to these areas.

“Relativity”: the value of the current lease of a dwelling divided by the freehold value of the same dwelling with vacant possession (FHVP), expressed as a percentage.

“Residential unit”: a residential unit is (under our recommendations) a unit which has been constructed or adapted for use for the purposes of a dwelling (even where there might also be some non-residential use). See Chapter 6.

“Response Notice”: a document served by a competent landlord in response to a Claim Notice (under our recommended regime).

“Reversioner”: the reversioner is the landlord, whether in a 1967 Act enfranchisement claim relating to a house, or in a 1993 Act collective enfranchisement claim, who is responsible for the conduct of the claim on behalf of any other landlords.

“Right to participate”: the right to participate was a right that we proposed for leaseholders who did not participate at the time of a collective freehold acquisition to purchase, subsequently, a share of the freehold interest held by those who did participate.

“RTM Consultation Paper (“RTM CP”)”: the Right to Manage project is one of the Law Commission’s three residential leasehold projects. It concerns the right of leaseholders to take over control of the management functions of their buildings. We published a consultation paper on our provisional proposals for this area of law in January 2019: Leasehold home ownership: exercising the right to manage (2018) Law Com No 243. The responses to that CP formed the basis of the Right to Manage Report.

“RTM Report”: alongside this Report we have also published a report making recommendations for reform to the right to manage regime: Leasehold home ownership: exercising the right to manage (2020) Law Com No 393.

“Shared ownership lease”: a shared ownership lease is a lease under which the leaseholder purchases a “share” of a house or flat (usually between 25% and 75%) and pays a normal rent on the remainder of the property. The lease generally permits the leaseholder to acquire additional shares in the property over time, usually up to 100%. See paragraphs 7.6 to 7.93.

“Split freehold” and “split reversion”: a leaseholder’s lease may be granted by more than one landlord (because the lease is granted from multiple leasehold or freehold titles owned by different people) or a landlord’s title may be subsequently divided between more than one person. Under these circumstances, the landlord’s interest is referred to as a “split freehold” (where the landlord is also a freeholder) or a “split reversion” (where the landlord holds his or her interest under a lease). The term “split freehold” may also be used where the freehold claimed by the nominee purchaser is split between the reversion to the building or buildings and other property which the leaseholders (exclusively or non-exclusively) are entitled to use.

“Sub-lease”: a lease that is inferior to another lease (in other words, a lease under which the landlord is also the leaseholder under another lease). Put another way, it is a lease that has a leasehold interest above it. For example, where a freehold house is subject to a 999-year lease to X, which in turn is subject to a 125-year lease to Y, which itself is subject to a 99-year lease to Z, then the 125-year lease and the 99-year lease are both “sub-leases”. The 125-year lease is also an “intermediate lease” (as is the 999-year lease). A sub-lease is also known as an “under lease” or an “inferior lease”. See Chapter 13 for discussion of sub-leases.

“Sub-lessee”: a person who holds a “sub-lease”. He or she holds a leasehold interest, and his or her immediate landlord is also a leaseholder.

“Tenancy”: see “lease”.

“Tenant”: see “leaseholder”.

“Transfer”: we use the term “transfer” to describe the process, or document, by which the freehold title to land is transferred from one owner to another. We also use the term “conveyance”.

“the Tribunal”: the First-tier Tribunal (Property Chamber) in England, and the Leasehold Valuation Tribunal in Wales.

“Unit”: a unit is (under our recommendations) a separate, independent set of premises (whether or not on the same floor), which must form all or part of a building. A unit can either be a residential unit or a non-residential unit. See Chapter 6.

“Valuation Report”: we published the Valuation Report - Leasehold home ownership: buying your freehold or extending your lease, Report on options to reduce the price payable (2020) Law Com No 387 - in January 2020. The report dealt with the question of how the premiums leaseholders must pay to exercise enfranchisement rights should be calculated. We set out options for reducing premiums and simplifying the way in which premiums are calculated. However, we did not make recommendations as to how premiums should be calculated.

“Vesting order”: an order under which the court completes an enfranchisement claim in place of the landlord.

“White knight”: a third party who contributes to the premium payable on a collective enfranchisement (under the current Law) or collective freehold acquisition (under our recommended regime) in respect of the non-participating leaseholders’ share of that premium.

Leasehold home ownership: buying your freehold or extending your lease

To the Right Honourable Robert Buckland QC MP, Lord Chancellor and Secretary of State for Justice

INTRODUCTION

Enfranchisement is the right for people who own property on a long lease (“leaseholders”) buy the freehold or extend their lease.

The right to manage (“RTM”) is a right for leaseholders to take over the management of their building without buying the freehold.

Commonhold allows for the freehold ownership of flats, offering an alternative way of owning property which avoids the shortcomings of leasehold ownership.

HOME OWNERSHIP AFTER REFORM: A SUMMARY

Fit-for-purpose home ownership



laying the foundations for homes to be able to be owned as freehold

addressing problems for leaseholders in the present

PART A: HOW HOME OWNERSHIP CURRENTLY WORKS AND ITS PROBLEMS

Freehold and leasehold ownership

The inherent features of leasehold “provided the impetus for the development of commonhold, and remain at the heart of many criticisms of leasehold. They do not simply suggest the need for tighter regulation of developers and landlords in the interests of their leaseholders. Instead, they call into question the ability of the landlord-tenant relationship to deliver home-ownership, and provide an imperative for a radical increase in the control held by individuals over their homes. This change, which is reflected in the Law Commission’s three residential leasehold and commonhold projects, arguably marks a renewed focus on the home as a vital element in people’s financial and personal autonomy”.11

Leasehold as a valuable asset for landlords

Why are homes owned on a leasehold basis?

Flats

Houses

A source of income

Leasehold and feudalism

What is wrong with leasehold home ownership?

“too often leaseholders, particularly in new-build properties, have been treated by developers, freeholders and managing agents, not as homeowners or customers, but as a source of steady profit. The balance of power in existing leases, legislation and public policy is too heavily weighted against leaseholders, and this must change”.14 Housing, Communities and Local Government Select Committee

Criticisms based on leasehold ownership being inherently unfair

Criticisms of ways in which the leasehold market operates

been levied by landlords;

“For most consumers, buying a house or flat will be their largest purchase and investment. Because it is a relatively infrequent purchase consumers are unlikely to accumulate significant knowledge of the process or of the salient characteristics of different forms of property ownership. Further, while the value of the purchase may make the consumer cautious, the sheer magnitude of the purchase price will typically make other amounts of money involved seem insignificant by comparison”. Competition and Markets Authority18

“For landlords, property is fundamentally about money: both the capital value in the freehold and the income that is generated from ground rent payments, commissions, enfranchisement premiums and other fees. That is not to say that the profit generated cannot be used for good ends, and landlords come in many guises. ... But the fact remains that the primary value of property to many landlords is financial. And whether a particular landlord has observed better or worse practices does not alter the fact that, systematically, leaseholders still lack autonomy and control over their homes.

For homeowners, the home is also about money, but in a very different sense. It is about having a financial stake in the property in which we live; a stake we are increasingly being asked to draw upon to support us financially into retirement, as well as to support the next generation. But the more a person’s home is used as a financial asset to benefit their landlord, the less it is an investment for the individual. The more a leaseholder’s money is providing an investment for their landlord, the less their money is providing an investment for their own future, their family and their next generation.

For homeowners, however, the home is about more than money. Britain has famously been described as a nation of homeowners. Fulfilling the dream of home-ownership has long been many people’s ambition. Much of this ambition can be attributed to the non-financial, “x-factor” values that home-ownership encompasses, and which have become embedded in an ideology of home ownership. Our home is the focal point of our private and family lives; it is integral to our identity, reflecting who we are and the community we belong to. Bad law and bad practice that affect people’s experience in their home therefore have a particular impact on them. The current programme of law reform marks an opportunity to reform the law so that it can better deliver both the financial and non-financial benefits of home ownership”.20

Freehold ownership of flats: commonhold

Why has commonhold failed?

Stewardship and culture change23

PART B: LAW COMMISSION AND GOVERNMENT RECOMMENDATIONS FOR REFORM

The impact of COVID-19

Law Commission recommendations for leasehold and commonhold reform

Our starting point in these projects is the fact that leasehold ownership exists. Our recommendations are aimed at improving the law governing leasehold ownership.

you can use commonhold”. Professor Nick Hopkins, evidence to the Housing Select Committee28

Our starting point in this project is that it is not necessary for leasehold to be used as the mechanism for delivering home ownership. Rather, commonhold can be used instead, and we would go as far as to say that it should be used in preference to leasehold, because it overcomes the inherent limitations of leasehold ownership set out above. But commonhold can only replace leasehold if it is workable in practice.

“The right to manage and enfranchisement ... mitigate the systemic difficulties with leasehold. But commonhold alone removes those difficulties, delivering freehold ownership of individual flats or units, and collective freehold ownership and management of the common parts”.29

Our Terms of Reference

Improving leasehold: reform of leasehold enfranchisement

Improving leasehold: reform of the right to manage

The alternative to leasehold: reinvigorating commonhold

Government proposals for leasehold and commonhold reform

Ministry of Housing, Communities and Local Government

we also want to look at ways to reinvigorate commonhold. ... This will help ensure that the market puts consumers’ needs ahead of those of developers or investors. We will also look at what more we can and should do to support commonhold to get off the ground working across the sector, including with mortgage lenders.57

Welsh Government

PART C: THE BIG PICTURE - HOW THE VARIOUS REFORM PROPOSALS FIT TOGETHER

Introduction

“The work of the Law Commission and of the Government brings onto the horizon an unprecedented level of reform of residential leasehold and commonhold. Lying at the heart of the work is an acknowledgement that leasehold home ownership has failed to deliver the benefits associated with being an owner, and that the systemic problems with leasehold mean that the tenure is ill-equipped to do so”.65

Overall aim: fit-for-purpose home ownership

Owners of future homes

We urge the Government to ensure that commonhold becomes the primary model of ownership of flats in England and Wales, as it is in many other countries. ... there is no reason why the majority of residential buildings could not be held in commonhold; free from ground rents, lease extensions, and with greater control for residents over service charges and major works. We are unconvinced that professional freeholders provide a significantly higher level of service than that which could be provided by leaseholders themselves”. Housing, Communities and Local Government Committee67

Leaseholders of existing homes

Ensuring freehold ownership itself is fit-for-purpose

leases: see paragraph 1.63(13); and

Fit-for-purpose home-ownership

Leasehold and commonhold reform

Paving the way for the future: laying the foundations for homes to be able to be owned as freehold


Addressing problems for leaseholders in the present: essential reform of leasehold


Objectives




Reinvigorating (or requiring) commonhold for flats


4.3 million leaseholders of existing homes


Ensuring freehold is fit for purpose


Leasehold owners of future homes


Requiring freehold for future houses


Create a workable legal structure for commonhold

Address non-legal issues - e.g. consumer and professional awareness, availability of mortgage finance

Removing incentives to use leasehold -restricting ground rents to zero.

Decide whether and how to incentivise or compel the use of commonhold

Leasehold house ban

  • Regulating managing agents

  • Considering regulating freehold service charges and permission fees

  • (long term) ongoing review of the issues facing freehold home owners, including the workability and success of commonhold (mirroring the practice in other countries with commonholdequivalent ownership)



Enabling the conversion of existing leasehold properties to freehold/commonhold



Making the right to manage easier, quicker and cheaper

Regulating managing agents

Considering regulating leasehold service charges, permission fees and legal costs



Key: Law Commission reforms Government reforms Potential further reforms

WHAT ARE ENFRANCHISEMENT RIGHTS?

THE CURRENT LAW

Houses: the Leasehold Reform Act 1967

ground rent”.82

“excluded tenancy”).

Flats: the Leasehold Reform, Housing and Urban Development Act 1993

“collective enfranchisement”. In general, the building must meet several conditions to qualify for the right, notably that:

PROBLEMS WITH THE CURRENT LAW

Inherent unfairness of leasehold tenure

An inconsistent regime

Complexity and uncertainty

Costly procedure

Undesirable incentive structures

OUR PROJECT

Terms of Reference

THE CONSULTATION PAPER AND CONSULTATION PROCESS

The Consultation Paper

Consultation events

The consultation responses

The analysis of responses

Inequality of arms

The Valuation Report

THIS REPORT AND OUR RECOMMENDATIONS FOR REFORM

Key recommendations and benefits

Our recommendation will ensure that leaseholders of both flats and houses have access to the same fair and efficient lease extension right. It will provide them with a cost-effective means of extending the terms of their leases to ensure that they have the security that is necessary for them to enjoy, mortgage and sell their homes.

Our recommendations will ensure that, in the vast majority of cases, leaseholders who buy their freeholds or extend their leases will be in a better position than they were under their original leases. No leaseholders will be in a worse position. Our recommendations will also facilitate the inclusion of terms to help to protect the proper and legitimate management of estates.

enfranchisement rights and make it easier for a leaseholder to merge his or her leasehold title with the freehold after an individual freehold acquisition.

Our recommended reforms to the collective freehold acquisition regime will make it easier and more cost-effective for leaseholders to buy the freehold of their building - as well as the freeholds of multiple buildings which they might wish to own and manage together, such as blocks of flats on the same estate. Our recommendations will also ensure that suitable ownership structures are put in place for the management of buildings following the completion of collective freehold acquisition claims.

The rationalisation and liberalisation of the criteria to qualify for enfranchisement rights will make them available to a greater number of leaseholders, will make the law simpler to understand and apply, and will reduce the incidence of disputes. It will also lower the costs of seeking professional advice for leaseholders and landlords alike.

Our recommendations will save both leaseholders and landlords time and money by making the regime easier to navigate, significantly reducing the need to make separate applications to the court and Tribunal and providing an alternative route for straightforward valuation disputes that do not require a full Tribunal hearing.

Notable changes from the proposals in the Consultation Paper

“estate” might be defined as any buildings the leaseholders of which contribute to a common service charge. The principle of “estate enfranchisement” was widely supported by consultees. However, on reflection, we agree with views expressed by consultees that there are insurmountable challenges that arise from attempting to define an “estate”. Instead, we recommend that the leaseholders of any two or more buildings which each meet the qualifying and participation criteria for a collective freehold acquisition claim should be able to carry out a “multi-building” collective freehold acquisition claim, even if there is no “link” between those buildings. This more flexible approach will enable all or part of an “estate” to undertake a collective freehold acquisition. We explain in full this departure from the provisional proposal made in the Consultation Paper in Chapter 5.105

ISSUES BEYOND THE SCOPE OF OUR PROJECT

It is important to remember that being a freehold owner does not necessarily mean being free of any obligations to other property owners. Many freehold properties are subject to restrictions on how the property may be used or developed, with good reason. But our recommendations would ensure that, where a leaseholder uses enfranchisement rights to purchase his or her freehold, the landlord cannot at that point make the property subject to any new onerous terms which go beyond obligations to which leaseholders were subject prior to acquiring the freehold. Moreover, our recommendations would ensure that, during the freehold acquisition process, landlords cannot impose obligations on leaseholders which are designed solely to retain an ongoing income stream, even if leaseholders were under such obligations in their leases.

[Our] hope that our enfranchisement, commonhold and right to manage projects will be the first step in realising a longer-term ambition for a comprehensive programme of leasehold reform, addressing other concerns raised with us by consultees in response to our Thirteenth Programme consultation, and culminating in a streamlining and consolidation project.114

THE IMPACT OF REFORM

THE LAW IN WALES

STRUCTURE OF THIS REPORT

Chapter 1 comprises an overview of our three residential leasehold and commonhold projects, how they interrelate and how these projects fit into Government’s own leasehold reform work. This chapter also sets out our post-reform vision for home ownership.

This Chapter 2 introduces our project, our consultation process and this Report.

Chapter 3 sets out our recommendations for the creation of a uniform right for leaseholders of both houses and flats to be granted a new, longer lease of their house or flat - what we call a “lease extension”.

Chapter 4 sets out our recommendations for an updated, streamlined right for a leaseholder of a house to purchase the freehold of their property (the right of “individual freehold acquisition”).

Chapter 5 sets out our recommendations for a reformed right for leaseholders of flats to join together to purchase the freehold of their building (the right of “collective freehold acquisition”), or multiple buildings (a “multi-building” collective freehold acquisition”).

Chapter 6 sets out our recommendations to reform the law governing a leaseholder’s eligibility to exercise enfranchisement rights: a “unified” scheme of qualifying criteria, based around the new concept of a “residential unit”.

Chapter 7 concerns the exceptions and qualifications to the above scheme of qualifying criteria for enfranchisement rights. We make recommendations for the reform of several of these exceptions, and recommend abolishing several others that we consider are either no longer useful or desirable.

Chapter 8 sets out our recommendations for the creation of a single procedure that can be used to exercise any enfranchisement right and contains detailed recommendations for how leaseholders should make enfranchisement claims.

Chapter 9 sets our recommendations about how landlords should respond to enfranchisement claims, the validity of notices under our new regime, and how a claim should be progressed.

Chapter 10 concerns various issues that arise after a claim has been commenced and when it comes to be completed, including the effect of serving a claim notice, protecting the claim on assignment of the relevant lease(s) or sale of the landlord’s interest, the position of mortgagees, and registration issues.

Chapter 11 sets out our recommendations in respect of enfranchisement disputes, including the consolidation of almost all enfranchisement disputes and issues in the Tribunal, and the establishment of an alternative route for the determination of straightforward valuation disputes that do not merit a full Tribunal hearing.

Chapter 12 sets out a range of recommendations in respect of non-litigation costs and litigation costs.

Chapter 13 makes a number of recommendations in respect of the treatment of intermediate leases in enfranchisement claims, including the basis on which those interests should be valued. We also make recommendations as to the treatment of other leasehold interests in premises that are subject to a collective freehold acquisition claim.

Chapter 14 concerns agreements for lease extensions and freehold acquisitions made on terms that are inconsistent with what is permitted by our recommended statutory scheme. While the regulation of such agreements falls outside our Terms of Reference, we set out our conclusions on the steps Government should consider taking to regulate the ability of leaseholders and landlords to enter into agreements that are “not on statutory terms”. We also make recommendations as to the ability of the parties to exclude a leaseholder’s enfranchisement rights under our new regime.

Chapter 15 gathers together all of the recommendations we make in this Report.

NEXT STEPS

PUBLICATIONS ACCOMPANYING THIS REPORT

ACKNOWLEDGEMENTS

THE TEAM WORKING ON THE REPORT

Part II: What should the enfranchisement rights be?

INTRODUCTION

We think these recommendations will make the right to a lease extension a truly valuable right for leaseholders and help both leaseholders and landlords to be clear as to their entitlements when bringing or responding to a lease extension claim.

PROBLEMS WITH THE CURRENT LAW

Key features of the 1967 Act and 1993 Act lease extension rights

Premises to be included in a lease extension

Terms of a lease extension

Mortgages

Property rights benefiting/burdening the lease

A UNIFORM LEASE EXTENSION RIGHT FOR ALL

Consultees’ views

Consultees who agreed with our proposal

leases should be extended as many times as required. Having the right to extend it only once is absolutely ridiculous.

Consultees who disagreed with our proposal

flats yes, because they have paid the “full” market price. Houses no as they have paid a much-reduced price compared to flats.

Discussion and recommendations for reform

Recommendation 1.

THE LENGTH OF A LEASE EXTENSION AND REDEVELOPMENT BREAK RIGHTS

Redevelopment break rights help to ensure that where this is the case, the landlord can bring the long lease (or leases) to an end so that the building can be demolished or reconstructed, while also ensuring that the leaseholder receives appropriate compensation for the loss of his or her home.

Consultees’ views on lease extension length

If the new lease is any shorter than 999 years, it simply invites the making of further claims. If the object of this exercise is to assist lessees, then surely they must be granted 999-year leases. My first inclination was to suggest that the lessee should be able to choose the length of the new term, but on reflection, I think the “don’t create the opportunity for further claims” argument prevails.

Several consultees also referred to the fact that 999-year leases are now commonly granted on new developments.

Consultees’ views on redevelopment break rights

The landlord should be entitled to terminate the lease for the purposes of redevelopment at the original contractual termination date of the lease and at 90-year intervals. This is to ensure that consistency is maintained. There is a concern in the property industry that there are a great number of blocks of flats particularly within the London area that will need extensive structural works within the next 25 to 50 years and in some cases complete demolition and rebuilding. It is vital that if work like this is to be carried out that freeholders can obtain vacant possession of blocks of flats at the same time which means that there is a real need for there to be consistency in terms of break dates in leases.

Discussion and recommendations for reform

Recommendation 2.

A RANGE OF LEASE EXTENSION RIGHTS?

Consultees’ views

Arguments in favour of a single right with no element of choice

Please keep things easy. Leaseholders do not wish for a complicated system whereby decisions they make may penalise them at a later time.

Arguments for and against an additional right to extend the lease without changing the ground rent

I believe that ground rents in long leases are wrong in principle. That is also Government policy, to ban new ground rents. Therefore, there should be no right for lessees to keep paying ground rent under new leases.

Another point to consider is the ongoing tightening of mortgage lending against leasehold properties. A leaseholder could extend at the existing ground rent only to find that their property cannot be remortgaged or sold where ground rent is high as a percentage of property value. Reducing the ground rent to a nominal value ensures this cannot happen.

Arguments for and against an additional right to extinguish the ground rent without extending the lease

If Government is to cap or eliminate ground rents on new leases (which we think they will do), then there is even more reason for new legislation from the Law

Commission to enable all leaseholders in our building to buy out their ground rent (onerous or not). They can then avoid property devaluation. Property devaluation of existing leasehold stock carries the risk of major impacts to the economy more generally.

Having the choice of buying a new-build flat with a peppercorn ground rent (zero financial value), or even having a £10 per annum clause, will mean older leases like ours - with meaningful ground rent terms - would become deeply unattractive and may even lead to banks refusing to remortgage against them.

Arguments in favour of maximum choice

There are reasonably compelling arguments in favour of offering this choice to consumers, particularly the option to extinguish the ground rent without extending the lease. This could be an attractive option for those leaseholders who have a lease for a term of sufficient length not to be concerned to extend it but are subject to a ground rent which they would wish to buy out. Similarly, there may be those leaseholders with a shorter term who are content to pay for the extension but are equally happy to continue to pay the rent under the existing lease for the residue of the existing term.

Richard Stacey, a surveyor, pointed out that “there is no standard lease in England and Wales”, so flexibility would be beneficial.

Other points made by consultees

Discussion and recommendations for reform

Should there be a right to extend the lease without changing the ground rent?

Should there be a right to extinguish ground rent only?

Conclusion

Recommendation 3.

PREMISES TO BE INCLUDED IN A LEASE EXTENSION

Consultees’ views

The consequence of this proposal is that once a leaseholder has established a right to a new lease of a residential unit, that right is effectively extended to all the land included in the lease, regardless of its nature and extent and whether it has any connection with the residential units. If, for example a leaseholder has a lease of a building comprising offices with a top floor flat, then this proposal suggests that, having established a right to a new lease of the flat, the leaseholder can include within that lease all the offices. That cannot be right.

Grosvenor Estate Belgravia has a lease of Belgravia (the so-called “escalator lease”, see the Klaasmeyer case). If the proposal were adopted, then if a flat or house fell into the possession of Grosvenor Estate Belgravia, it could claim a new lease of that flat or house - and all of Belgravia too! The same issue would arise in the case of any head-lease.

The idea that there would be no long stop date or deadline for a proposal to be made within a lease extension process, nor any consequences of a late proposal would lead to a lot of uncertainty between the parties. It may also lead to tactical late proposals.

it is suggested that provision should be for any proposal to be included in a Landlord’s Response notice unless otherwise agreed by the parties. It should also be made clear that any such proposal cannot be introduced once all the terms including price are agreed or determined. It would be unnecessarily complex and confusing to have a small addition treated as part of the statutory lease extension process after that was concluded. The parties can of course just complete a deed of variation as a standalone subsequent addition.

... it might be desirable to negotiate with the leaseholder to retake some part of the premises for the better management of the property as a whole such as a balcony or equipment maintenance. Provided this can be fairly negotiated between the parties it should be of benefit to both the leaseholder and the landlord.

a landlord should have the ability to choose from a prescribed list of reasons for why parts of the premises let under a leaseholder’s existing lease should be excluded or amended from a lease extension, such as for parts of the premises that fall outside the flat. This is to ensure that future development is not hindered by demising common areas or rooftop spaces to tenants when such areas could benefit the estate for development purposes.

Discussion and recommendations for reform

The premises included in the lease

Under our provisional proposal as set out in the Consultation Paper, however, the lease extension would likely cover all the surrounding land.174

the curtilage of a building is the land closely associated with it, and that in determining whether a structure is within the “curtilage” of a building, the factors to be considered include:

Requesting the inclusion of additional premises

Requesting the exclusion of additional premises

Recommendation 4.

TERMS OF A LEASE EXTENSION

The general approach to the terms of a lease extension

Consultees’ views

Consultees who agreed with our proposal

Prescribed and permitted clauses and covenants are not clearly stated in either Act and often in practice these provisions are stretched and manipulated, especially by landlords, to include provisions that were not intended by the mechanics of the Act; leaving the leaseholder with the option to either accept the unfavourable provisions or covenants or to incur further expense to argue the same at a costly First Tier Tribunal.

Consultees who disagreed with our proposal

Royal Institution of Chartered Surveyors (“the RICS”) or the Law Society, while several commercial freeholders suggested that the new lease following a lease extension should simply match the terms of the existing lease (aside from the prescribed changes regarding term and rent). Consensus Business Group said that this approach would “ensure simplicity, reduce cost, expedite the process and ensure uniformity of lease terms across blocks of flats or developments”. Several consultees noted that changes to the leases could be negotiated independently aside from a lease extension or that terms could be updated by making use of other statutory mechanisms to alter leases.

My own lease is complex, antiquated and unreasonable. I would not wish to extend the lease on the same terms. I would want to extend on modernised (but fair) terms.

Overall, it was apparent that, in many consultees’ opinions, an approach which restricts the parties to selecting standard terms from a prescribed list - described by the PBA as “unnecessarily rigid and unrealistic” - would not be an adequate replacement for the above provisions of the current law. As noted above, consultees thought that standard terms would not be sufficient to cater for the myriad different changes which different circumstances might demand, and which it would be possible for parties to insist on under the current law.

In our experience, the vast majority of cases proceed without issue and being able to agree sensible changes, where there are issues with a lease, can often result in a cost saving for parties.

The current regime allows a degree of flexibility to modernise leases in view of changes in law and in the building and allows for defects and omissions in leases to be remedied. Any new regime should retain this flexibility, which is beneficial to landlords, leaseholders, purchasers and mortgagees.

Consultees’ views as to the contents of a list of prescribed terms

original grant.

Discussion

A standard or model form lease extension

Consultees’ views

Where possible (which is most situations unless the lease is particularly old or there have been a number of variations to the original lease), we usually proceed using a short form lease by reference to the current lease but annexing the current lease so that it is clear to all what the terms of the new lease are. This makes the process of reaching agreement far quicker, simpler and more transparent than where entirely new leases are drafted for a lease extension. Requiring leases (save for in certain situations) to be drafted in this short form would also prevent much of the gaming or tactics some landlords or their solicitors currently employ and would also result in lower legal costs for all parties.

Discussion

rights under the lease. Such arguments could lead to delays and costs on both sides. While we considered that a standard form lease would aid any checks that are made by HM Land Registry and interested third parties prior to or following registration, on reflection we think that the existing HM Land Registry prescribed clauses already assist with this process.209 Any requirement for HM Land Registry to identify and prevent registration of leases which are not in the standard form could lead to difficulties in identifying deviations from the standard form and, in the worst case, to a leaseholder paying for a lease extension that proves to be invalid.210

The terms of “Aggio” lease extensions

Consultees’ views

The former generally includes the whole of the building on FRI terms whilst the latter generally comprises only part of a building, excludes structural elements and places management obligations on the landlord who then recovers the costs incurred through a service charge. There would therefore need to be different model forms for houses and flats although there would no longer be a definition of either.

appropriate for a standard or model lease to be adopted for Aggio style leases. Any new lease will need to be consistent with the terms of other leases in the building, particularly with respect to recovery of service charge and provision of services to enable ease of management and proper recovery of the landlord’s costs of carrying out its obligations.

the leaseholder might just have two flats in the current lease, the whole building or just the residential section of a mixed-use building; the lease may or may not include common parts that the leaseholder controls during the residue of the current lease, but which revert to his landlord after the current lease expires. The difficulty of prescribing a form of lease that is likely to be suitable for individual lease extensions in these varying situations is evident.

in Aggio cases the parties should be left to agree the form of lease with the FTT determining any unresolved issues. This is likely to happen only with the first such lease in the building. It is not worth having legislation to cover this relatively rare event.

Discussion

Common parts leases

Recommendations for reform

Recommendation 5.

MORTGAGES

Consultees’ views

Moreover, several consultees who did provide reasons for opposing our proposal misunderstood its nature or its scope.

Mortgages burdening the lease

There is frequently considerable delay in obtaining a Deed of Substituted Security from a mortgage lender which puts a leaseholder at risk of missing deadlines and time frames dictated by the legislation. It can also add significantly to the cost. If an existing mortgage lender is prepared to grant a mortgage over, say, a 65-year term, why would they object to the term being increased by a further 90 years?

We agree. We think that the automatic transfer of mortgages makes the enfranchisement process significantly quicker and cheaper for leaseholders.

Mortgages burdening the landlord’s estate

Mortgagees can take so long and require so many hurdles to be met before consent is given that the required four months for completion of the new lease following the agreement of terms acquisition cannot be met. The leaseholder then has to incur unnecessary costs making a court application.

Leaseholders should be aware that, although the point does not appear to have been tested in court, it might be possible for a mortgagee then to challenge the grant of the lease extension to the leaseholder as a transaction at an undervalue.

Recommendations for reform

Recommendation 6.

PROPERTY RIGHTS BENEFITING THE LEASE

We also believe that all of the rights granted by an existing lease over land that is not included within the premises granted to the leaseholder by that lease should be continued by the terms of the lease extension where it is possible to do so.239

Summary of consultees’ views

I agree with the basic premise of the suggestion, but I have a concern that there may be an issue with property rights / easements that are shared with other properties. A particular issue that I have seen in practice (aside from split reversions) is where the rights available over adjoining land that is not in the same freehold ownership are in themselves time limited, perhaps because the title is leasehold. Clearly, with an extension the adjacent owner (who is not the reversioner) cannot be compelled to grant rights in excess of the extent of their own title. Is the suggestion that limited rights (such as an access to a garden etc.) would be binding upon superior landlords who are not a party to the original lease and who do not have any other direct relationship with the competent landlord or the flat owner? On balance therefore my answer is “no”.

We agree ... with the suggestion at paragraph 4.48 that all rights under the existing lease should be continued in the new extended lease, save that this needs to be subject to a caveat that the grant of such rights should only continue where it is possible to do so (and, as above, excluding Aggio-type claims). If circumstances have changed since the date of the grant of the existing lease, such that the rights cannot now be granted by the landlord, the legislation should accommodate that.

Examples of property rights benefiting freeholds and leases

Property rights benefiting a freehold

Property rights benefiting a lease

Plot B               Plot A              Plot C

A leaseholder’s entitlement to extend appurtenant rights benefiting the existing lease

Property rights granted outside the lease

Property rights affecting a third party’s land

Ltd v 7-11 Princes Gate Limited and Princes Gate Partnership LLP in relation to the right to a lease extension under the 1993 Act.247

Enfranchisement legislation aims to mitigate the disadvantages of only having a 50-year lease by granting a right to a lease extension. But the disadvantages are not fully mitigated if there is no entitlement to extend appurtenant rights against third parties.

Should the extension of property rights be automatic?

Property rights granted in the lease
Property rights granted outside the lease

But this list is not meant to be exhaustive. And we do not mean to suggest that appurtenant rights should not be extended merely because one of these factors is in play. In particular, the mere fact that the right was granted for a limited period of time should not be determinative, as it will be essential to ensure that the grant of appurtenant rights for a limited period of time is not used to frustrate the exercise of enfranchisement rights.

Special-purpose rights and time-limited rights benefiting the freehold

Choosing not to extend an appurtenant right

Transfer of the benefit of interests from the existing lease to the new extended lease

Recommendations for reform

Recommendation 7.

However, our recommendation does not apply to “special-purpose rights”. The Tribunal may determine disputes about whether a right is a special-purpose right.

which the leaseholder is entitled to use under the terms of the existing lease.

Our recommendation does not apply to “special-purpose rights”.

PROPERTY RIGHTS BURDENING THE LEASE

Transferring the burden of interests from the existing lease to the new extended lease

Freehold and lease both subject to a third-party property right

A landlord’s freehold is subject to a restrictive covenant benefiting a neighbour, which is protected by a notice registered against the landlord’s title. The landlord then lets his or her property on a long lease. Once granted, the lease is also subject to the restrictive covenant.

If the lease is extended, the existing lease is surrendered and a new lease is granted. If the notice is still registered when the new lease is granted, the new lease will be subject to the restrictive covenant. This outcome is unproblematic.

Freehold but not lease subject to a third-party property right

A landlord’s freehold is subject to a long lease. It is possible that after the grant of the lease, the landlord may agree with a neighbour to impose a restrictive covenant over the freehold. The covenant would be binding on the freehold reversion but not on the lease; for this reason, such interests are unlikely to be granted, unless the lease is expected to end imminently.

Alternatively, suppose the landlord agreed the restrictive covenant before the grant of the lease, but the neighbour failed to protect it by registering a notice. The leaseholder was not bound by the unregistered restrictive covenant. But the neighbour could register a notice against the freehold after the grant of the lease to ensure that the freehold and any subsequent leases will continue to be bound by it.

The leaseholder claims a lease extension. As a statutory lease extension operates by way of surrender and regrant, the leaseholder’s new extended lease is granted after the creation of the restrictive covenant. If the restrictive covenant is now protected by registration, it will be binding on the new lease, even though it was not binding on the original lease.

Moreover, the leaseholder would be bound by the interest immediately, not merely at the point that the existing lease would have ended.

Lease but not freehold subject to a third-party property right

A leaseholder enters into a restrictive covenant for the benefit of a neighbour’s property. The agreement does not involve the landlord. The restrictive covenant does not affect the freehold. When the term of the lease expires and the landlord recovers possession of the property, the landlord will not be bound by the restrictive covenant.

The leaseholder claims a lease extension, which involves a surrender and regrant. The surrender of the lease is a consensual agreement between the landlord and the leaseholder to bring the lease to an end early. But the surrender cannot prejudice the proprietary interests of a third party in the lease (under the legal principle that a person cannot be adversely affected by an agreement or arrangement to which he or she is not a party260). After the surrender, the landlord’s title will then be bound by the restrictive covenant for the remaining period of the original lease. The new extended lease will also be bound by the restrictive covenant, provided it is protected by a notice in the register.

Extending property rights burdening a lease

Recommendation 8.

Estate contracts and options

the landlord and all other persons shall be discharged from the further performance, so far as relates to the disposal in any manner of the landlord's interest in the house and premises or any part thereof, of any contract previously entered into and not providing for the eventuality of such a notice.

Section 5(7) goes on to provide that, where a leaseholder has claimed a lease extension, a contract with a third party for the acquisition of the landlord’s property will only be discharged if the property is to be acquired with vacant possession.

any agreement relating to a lease (whether contained in the instrument creating the lease or not and whether made before the creation of the lease or not) shall be void in so far as it ... purports to exclude or modify any right to acquire a new lease under Chapter II ... .

An agreement giving a third party an option to purchase the freehold with vacant possession would effectively exclude the leaseholder’s right to acquire a new lease. However, it is doubtful whether section 93(1) would apply to an option agreement concluded before the grant of the existing lease was contemplated.265 We discuss the interpretation of sections 23 and 93 in more detail in Chapter 4.266

Given we are recommending the creation of a new, unified scheme for lease extensions and freehold acquisitions that will apply both to houses and to flats,267 we intend to introduce a single rule to deal with estate contracts.

Recommendation 9.

CONCLUSION

INTRODUCTION

PREMISES TO BE ACQUIRED

Consultees’ views

When a leaseholder purchases their freehold they should quite rightly have the expectation that they have purchased the whole of their property leasehold with no additional areas exempt. Under current legislation, freeholders can obtain parts of the property which can result in parts of the property being issued with additional leases. There have been examples where gardens and even certain rooms or attic space have remained on a lease with no real option of the leaseholder ever fully owning their property or having full rights to these parts of their property.

As in the case of lease extension claims, premises let under the leaseholder’s lease should only be included if they have some connection to the building of which the freehold is being acquired.281

If you have a row of maisonettes with a shared roof that is not demised to the leaseholder, the right to that airspace belongs to the freeholder. The freeholder may well wish to add an additional floor of new accommodation above the whole row of maisonettes. To take away the roof area from the freeholder and his rights above it would be both unfair confiscation of his property and also against the government’s and the Mayor of London's stated goals of adding density within urban areas.

should rest with the freeholder rather than the leaseholder. At the time of enfranchisement any such gain may not yet have crystallised as there is unlikely to be any planning permission in place and so not properly reflected in the premium paid.

The landlord should have the right to exclude such parts as the alternative of taking a leaseback of those parts is not appropriate given the management and maintenance responsibilities of the larger parts and the landlord's obligations to the other tenants within the estate and/or building regarding those communal parts and the limitations of the enforcement of positive covenants in a freehold transfer.15

Discussion and recommendations for reform

The premises included in the lease

along with the premises which can genuinely to said to be associated with the house: in other words, the garden. The extensive surrounding grounds and woodland should not be included in the individual freehold acquisition, just as they should not be included in the lease extension.

Acquiring the whole building

Requesting the inclusion or exclusion of additional premises

Recommendation 10.

he or she should nevertheless be entitled to acquire the freehold of the whole of that building or self-contained part of the building (as well as to acquire the reversion to any leases granted in respect of those other parts).

TERMS OF ACQUISITION

Our approach in the Consultation Paper

FREEHOLD OWNERSHIP

“Fleecehold” obligations

Estates

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/632108/T ackling_unfair_practices_in_the_leasehold_market.pdf.

Alternatively, the communal areas and facilities may be owned by the residents of the estate or a third party via an estate management company (which, again, manages the areas itself or via a managing agent). Or some other arrangement may be used. Whichever arrangement is used, however, it is usually the residents of the estate who ultimately pay for the upkeep of the common areas and facilities.

Personal obligations

Appurtenant rights

Positive covenants

This arrangement ensures that the owner of the benefited land (the estate roads) always has a direct contractual obligation which it can enforce against each successive owner of the burdened land. The obligation to ensure that any buyer of the burdened land enters into the necessary direct covenants is usually protected by a restriction on the register of title. The restriction will prevent a disposition of the burdened land without the consent of the owner of the benefited land or, alternatively, without a certificate being provided to HM Land Registry confirming that the requirement to provide the direct covenants from any buyer of the burdened land has been met.

GENERAL PRINCIPLES

PRE-EXISTING PROPERTY RIGHTS BURDENING OR BENEFITING THE FREEHOLD

The current law

“incumbrances” is that it “includes rentcharges and ... personal liabilities attaching in respect of the ownership of land or an interest in land though not charged on that land or interest”.308 This partial definition is supplemented by section 8(3) which says that “incumbrances” do not include—

burdens originating in tenure, and burdens in respect of the upkeep or regulation for the benefit of any locality of any land, building, structure, works, ways or watercourse.

interest directly or indirectly derived out of the tenancy, and any incumbrance on the tenancy or any such interest (whether or not the same matter is an incumbrance also on any interest reversionary on the tenancy)”.309 A “tenant’s incumbrance” may therefore be an incumbrance that affects the lease (at the time that the leaseholder makes an individual freehold acquisition claim) or an incumbrance that affects both the lease and the landlord’s title. An incumbrance that only affects the landlord’s title without also affecting the lease is not a tenant’s incumbrance.

Equitable interests

Estate contracts

Positive covenants

Consultees’ views

affected the freehold when it was owned by the landlord, or (b) on terms reflecting the rights and obligations in the lease?

Any leaseholder buying the freehold must comply with the matters affecting the freehold that are registered in the property and charges registers of the freehold title (and should provide an indemnity to that effect). Conversely, the leaseholder will not want to lose any rights (e.g. over shared or common parts) contained in the lease. Accordingly, the terms of the freehold acquisition must contain a mix of the rights and obligations in both the current freehold title and the existing lease.

The default position should be for the leaseholder to have what the freeholder has, so the freehold subject to the rights and obligations on which the freehold is currently held. If for some reason this is not possible then the leaseholder could acquire the freehold acquisition claim subject to the rights and obligations of the current lease subject to the removal of clauses that are onerous and unfair to leaseholders (e.g. permission fees).

Discussion and recommendations for reform

Property rights benefiting the freehold

A owns the freehold to Plot Y and the next-door property, Plot Z.

A grants a lease for 125 years of Plot Y to B. In the lease, A grants B a right of way over Plot Z.

Subsequently, A sells the freehold to Plot Z to C. A reserves a right of way over Plot Z for the benefit of his or her retained land (the freehold to Plot Y).

B later brings an individual freehold acquisition claim. B acquires the freehold title to Plot Y with the benefit of the right of way over Plot Z (preserving the position B enjoyed under its lease).332

Property rights burdening the freehold

Third-party property right not registered

A is the registered proprietor of a freehold. A enters into a restrictive covenant for the benefit of a neighbouring property owned by B. B fails to protect the covenant by registering a notice against A’s title.

A grants a lease for 125 years to C. C is registered as the proprietor of the new leasehold estate. Due to section 29(1) Land Registration Act 2002, B’s covenant is postponed to C’s estate, so C takes free of it (it does not bind C’s lease).

B cannot enforce the covenant against C and so cannot control the use of the property for as long as C’s lease continues. But A’s freehold estate is still bound by B’s restrictive covenant. If C’s lease were to end, B would be able to enforce their covenant against A.

Under our recommendation, if C acquires the freehold from A via an individual freehold acquisition, the freehold acquired by C will take priority over B’s covenant (just as C’s lease took priority over B’s covenant). B will not be able to enforce the covenant against C.

Third-party property right post-dating the grant of the lease

A is the registered proprietor of a freehold. A grants a lease for 125 years to C. C is duly registered as proprietor of the leasehold estate.

Subsequently, A grants an easement (a right of way) over the freehold to B, which is registered on B’s title and registered against A’s title.

Because C’s lease predates B’s right of way, and was properly registered, it takes priority over B’s right of way. B cannot enforce the easement against C for so long as the lease continues. But A’s freehold estate is still bound by B’s easement. If C’s lease were to end, B would be able to enforce the easement against A.

Under our recommendation, if C acquires the freehold via an individual freehold acquisition, the freehold acquired by C will take priority over B’s easement (just as C’s lease took priority over B’s easement). B will not be able to enforce the right of way against C.

A owns the freehold of Plot Y and of the neighbouring plot, Plot Z.

A grants a lease for 125 years of Plot Y to B. In the lease A reserves a right of way over Plot Y, for the benefit of Plot Z.

Subsequently, A sells the freehold of Plot Z to C. As part of the sale, A grants C a right of way over Plot Y, for the benefit of the freehold title to Plot Z.

B later acquires Plot Y via an individual freehold acquisition claim.

Special rules for mortgages, trusts and estate contracts

Mortgages

Beneficial interests under trusts

No disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court.

If the beneficiaries can show that, under the terms of the trust, the landlord may not dispose of the freehold without the beneficiaries’ consent, the registrar may also enter a Form N restriction, preventing a disposition of the property being registered unless the landlord or the leaseholder provides the registrar with the beneficiaries’ written consent to the disposition.

Estate contracts

Valuable consideration

Recommendations for reform

Recommendation 11.

as if (in relation to settled land) the freehold were transferred pursuant to the powers conferred by the Settled Land Act 1925.

PRE-EXISTING PERSONAL OBLIGATIONS BINDING THE LANDLORD

Conversely, however, the relevant obligations may play an important role in governing the relationship between neighbouring landowners or in supporting the proper management of housing estates. Consequently, it may not be acceptable simply to provide that all obligation-imposing agreements are to be of no effect; we need to look for a more nuanced solution.

Consultees’ views

the rights and obligations should follow those set out in the leaseholder's existing lease where it forms part of a wider estate and be carried across as [an] estate rentcharge or chain of positive covenants to ensure the continued observance and enforceability of mutual estate regulations/covenants and service charge payments.

Similar concerns were raised by Howard de Walden Estates Ltd and Cadogan (both landlords), Boodle Hatfield LLP, Bruce Maunder-Taylor (a surveyor), and several others.

Agreements that prevent the transfer of the freehold

The 1967 and 1993 Acts and contractual limitations on a landlord’s powers of disposition

Except as provided by this section, any agreement relating to a tenancy (whether contained in the instrument creating the tenancy or not and whether made before the creation of the tenancy or not) shall be void in so far as it purports to exclude or modify any right to acquire the freehold or an extended lease or right to compensation under this Part of this Act, or provides for the termination or surrender of the tenancy in the event of a tenant acquiring or claiming any such right or for the imposition of any penalty or disability on the tenant in that event.

Section 93(1) of the 1993 Act contains an almost identical provision regarding the right of collective enfranchisement and lease extensions of flats under that Act.

This does not mean that the court will be required to have regard to events subsequent to the relevant agreement in order to determine whether "it purports to exclude or modify any right to acquire the freehold". Mr. Price, by examples, well illustrated the difficulties of any such approach or of reading the word "void" as merely meaning "voidable". The legislature cannot, we think, have contemplated that the relevant part of the agreement should be valid in some circumstances and void in others. The relevant part of it, if it is void at all, must be void ab initio; one must look at the position as at the time when the agreement was made. In our judgment, the phrase “purports to exclude or modify any right to acquire the freehold” means “would, but for its avoidance by the subsection, exclude or modify any right to acquire the freehold”.361

Introducing a new general rule

Agreements requiring that new personal obligations be imposed on the leaseholder

Problems applying the 1967 Act to chains of contacts

The goals of our reforms

Our recommendation

Recommendation 12.

The provisions of agreements suspended on the service of a Claim Notice should be discharged on the completion of the claim.

Some contracts falling outside our recommended exception

NEW PROPERTY RIGHTS CREATED DURING THE INDIVIDUAL FREEHOLD ACQUISITION PROCESS

The current law

The creation of new property rights benefiting the freehold

section 62 of the Law of Property Act 1925, or the all-estate clause implied under section 63”, unless the leaseholder consents.372

disposal of water, sewage, smoke or fumes, or to the use or maintenance of pipes or other installations for such passage, drainage or disposal; and

severance of the house and premises or any part thereof from other property then comprised in the same tenancy”.375

The creation of new property rights burdening the freehold

for the benefit of other property as are capable of existing in law and are necessary to secure to the person interested in the other property as nearly as may be the same rights as at the relevant time were available against the tenant under or by virtue of the tenancy or any agreement collateral thereto, or under or by virtue of any grant, reservation or agreement made [the severance of the house and premises or any part thereof from other property then comprised in the same tenancy].

Technically, the landlord does not need to own the “other property” in order for him or her to be obliged to create applicable easements that benefit it. But the 1967 Act does not contain any mechanism that would force a landlord to grant rights for the benefit of third-party land if he or she chooses not to comply with the duty under section 10(2)(ii).

Note again that the land that may be benefited by restrictive covenants falling under paragraph (1) does not need to be owned by the landlord. Broadly speaking, section 10(4) provides that the leaseholder will acquire the freehold subject to restrictive covenants that correspond to restrictions imposed by the lease. However, the section provides that the landlord may require the leaseholder to enter into restrictive covenants that only the landlord will be able to enforce only if they “materially enhance the value” of the property they benefit.

General provisions

Our approach in the Consultation Paper

Consultees’ views

Cases where the landlord does not retain any land

Cases where the landlord does retain land and the lease contains relevant terms

Positive covenants

we agree that in some cases, the existing freeholder will have legitimate reasons for attaching conditions to the enfranchisement. This will apply where, for instance, the lease relates to a property within a larger development to which the freeholder provides services. In this situation it should be possible for the enfranchisement to be made subject to a rentcharge or similar mechanism so that the new owner can continue to contribute to the cost of services from which his or her property benefits.

this will unnecessarily complicate subsequent conveyancing. All unpaid sums should be cleared at the point of completion of the acquisition and if items are uncertain at that point they should be dealt with by way of retention. Fettering the tenant's new freehold title is completely unworkable - it will cause priority problems for lenders as well.

this is of course possible under an Estate Management Scheme. It is a difficult one to answer because the landlord needs to have a remedy to seek payment from recalcitrant freeholders but equally it is obvious that such a system could be open to abuse from certain landlords adopting an oppressive approach.

this goes beyond the rights that a landowner who is managing an estate with houses would have if they had originally sold houses on a freehold basis with covenants to pay estate service charges. If there are unpaid charges, the estate owner already has the right to bring a legal action and, if a judgment debt is unpaid, to obtain a charging order. The proposal to allow a charge is also contrary to the Government’s proposals to extend the rights of freeholders who pay service charges to bring them into line with the rights afforded to tenants of houses and flats. The landlord of a block of flats does not have the right to obtain a charge over a flat. We do not see why the right should be granted on the enfranchisement of a house.

Cases where the landlord does retain land and relevant terms are not contained in existing lease

Discussion and recommendations for reform

Property rights not personal obligations

Defining which appurtenant rights can be created

The general rule

Covenants

A owns the freehold of a terrace of houses, all of which are let on long leases. All the leases contain covenants owed by the leaseholders, preventing external alterations being made to the front of the houses. These leasehold covenants have been routinely enforced by the landlord since the houses were built, in order to ensure that the houses continue to have a uniform appearance. This has protected the value of the whole estate - not just the value of the landlord’s freehold title, but also the value of the leaseholders’ long leases.

B, the leaseholder of the one of the houses, brings a freehold acquisition claim. It should be possible for the landlord to insist on the restriction on making external alterations being created as a freehold property right, binding on B’s newly acquired freehold title, and benefiting the landlord’s retained land. Otherwise, if B acquires its freehold free of such a restriction, B will be able to make any alterations B wishes to the external appearance of his or her house (subject to planning laws), potentially devaluing not just the landlord’s retained freehold title, but also the remaining leaseholders’ long leases.

Easements

A owns the freehold of Plot X and next-door plot, Plot Y.

Plots X and Y share a driveway. Half of the driveway is in Plot X, and half is in Plot Y.

A grants B a long lease of Plot Y. In the lease, A reserves a right of way over the shared driveway in Plot Y. A also grants B a right of way over the shared driveway in Plot X.

A also grants C a long lease of Plot X. In the lease A reserves a right of way over the shared driveway in Plot X. A also grants C a right of way over the shared driveway in Plot Y.

B brings an individual freehold acquisition claim of Plot Y. B must be entitled to require A to grant a permanent right of way over the shared driveway in Plot X for the benefit of the freehold title to Plot Y.

Likewise, A must be entitled to reserve a permanent right of way over the shared driveway in Plot Y, for the benefit of the freehold title to Plot X. This preserves the value of Plot Y for A, but also ensures that when C later brings a freehold acquisition claim of Plot X, C will acquire the freehold of Plot X with the benefit of a pre-existing freehold right of way over the shared driveway in Plot Y.

Obligations under the lease owed to or owed by third parties

Recommendation 13.

The appurtenant property rights that may be created on an individual freehold acquisition should include land obligations, introduced through implementation of our recommendations in Making Land Work. Our recommendations do not apply to “special-purpose rights”.

Property rights benefiting the lease and granted separately from the lease

Property rights burdening the lease and granted separately from the lease

Recommendation 14.

which the leaseholder is entitled to use under the terms of the existing lease.

Our recommendations do not apply to “special-purpose rights”.

Additional proposals in the Consultation Paper

NEW PERSONAL OBLIGATIONS CREATED DURING THE INDIVIDUAL FREEHOLD ACQUISITION PROCESS

Consultees’ views

the question also suggests that it would only be a lessee who would have an opportunity to elect for additional terms to be included in the freehold transfer. It would be inequitable to introduce such a right, and to not afford the same right to a landlord.

Discussion and recommendations for reform

Recommendation 15.

THIRD-PARTY INTERESTS: LANDLORDS’ MORTGAGES AND RENTCHARGES

then, provided the leaseholder complies with requirements concerning the payment of the purchase price, the mortgage over the freehold will automatically be discharged on an individual freehold acquisition.416 The payment requirements are that the leaseholder must pay the purchase price (or a sufficient portion of it) towards the redemption of the mortgage or, alternatively, into court.417 It does not matter if the purchase price as determined under the Act would otherwise be insufficient to discharge the mortgage. The mortgagee does not need to be a party to the conveyance of the freehold and has no power to object. If the purchase price is not paid in line with the requirements of the 1967 Act, the mortgage will not be discharged. It will continue to secure the mortgage debt, but only up to the value of any portion of the statutory purchase price that was not paid in line with the requirements.

Mortgages: consultees’ views and recommendations for reform

able to mortgage the freehold interest at all423 or because they misunderstood our proposal and thought we were suggesting that leaseholders should be obliged to pay the whole of the amount outstanding on the landlord’s mortgage.

Payments to the freeholder

Obtaining information from the mortgagee

Breach of the terms of the mortgage

Mortgages burdening multiple properties

Negative equity

Conclusion

Recommendation 16.

Rentcharges: consultees’ views and recommendations for reform

INTRODUCTION

PROBLEMS WITH THE CURRENT LAW

THE NOMINEE PURCHASER

We also proposed that the company used should take the form of a company limited by guarantee.432

Consultees’ views

Requirement to use a company nominee purchaser

The nominee purchaser should always be a limited company. This allows for easy transfer of ownership of a share of the company when a leaseholder sells their interest. I have seen structures or un-incorporated partnerships owning the freehold, which makes transfers of a share of the freehold excruciating and expensive on the sale of a flat. If you add in the executors of one of the previous flat owners, it can hold up the process forever.

We accept that there is a strong case to permit an exception to the above requirement in the case of claims concerning a small building but only where the risk of making the right to participate more difficult can be eliminated. We consider the four conditions set out in the question eliminate this risk as they will ensure there are no remaining leaseholders (or potential leaseholders) who may later try to exercise the right to participate”.

The type of company to be used

I disagree strongly... One only has to look at the ill-fated ‘RTE Company’ from the 2002 Act to see an example of why a more ‘bespoke’ model will not be suited to the complexity or flexibility of many enfranchisements. In addition, if an objective is to reduce costs for leaseholders, then in my view this will not achieve it as more bespoke drafting will be required. A shares model has a much better chance of being used without much adaption and with better flexibility for matters such as non-voting shares, redeemable preference shares and other means of dealing with the equity of investment.

Leaseholders want ownership. Conceptually, owning shares in the freeholdowning company bestows real ownership. Being a member of a company limited by guarantee doesn't cut it in the same way”.

Relaxation of company law requirements

Homeowners are not necessarily business people and many have neither interest nor sufficient knowledge of company law to know what is involved let alone carry out its requirements. It also implies a commercial interest which is confusing and intimidating to lay people.

The Society considers it prudent to relax some requirements of company law in relation to nominee companies. They would probably be unduly onerous and be more likely to be overlooked. In particular, a nominee company should not be struck off the register for failure to file returns with the Registrar of Companies, and the Registrar should be requested to produce practice guides specifically directed to members of enfranchisement companies. It is more important that service charge accounts are produced in accordance with the RICS Service Charge Residential Management Code, and perhaps that the Company law provisions for resolving deadlock between members might be retained.

If they can't handle a minimal amount of company administration, they can't manage a building.

Prescription of articles

Should articles be prescribed?

So far as possible, the articles should be prescribed. The ability to amend the articles should be limited... which will provide a level of consistency across all residential schemes. It should not be possible except by 100% agreement to change the articles as we are dealing with people's homes which is also a major investment.

We think this is very dangerous. It is always going to be difficult to prescribe a set of articles which can be applicable in a wide range of different buildings, in particular in relation to different classes of share if different obligations and/or service charge requirements arise”.

It will help people seeking to enfranchise if examples of articles of association are readily available. If these are broad enough it is unlikely that groups seeking to enfranchise will need to depart from them.

In relation to what matters should articles be prescribed?

All leaseholders have a right to be a member except in specific circumstances. [The articles] should specify how membership could be refused or rescinded [and] all members to have one vote irrespective of individual investment.

Profits should be reinvested not distributed to members. The nominee purchaser should be unable to sell premises and distribute profits to members, except in very specific circumstances.

Restriction on future dealings with the freehold title

company or the leaseholders.

Discussion and recommendations for reform

The form of the nominee purchaser

Recommendation 17.

Relaxation of company law requirements

Prescription of articles

We will refer the consultation responses which we received in response to this question to Government for consideration when drawing up the detail of model articles dealing with each of the above matters.

Recommendation 18.

Restriction on future dealings with the freehold title

MULTI-BUILDING COLLECTIVE FREEHOLD ACQUISITION CLAIMS

Consultees’ views

The concept of estate enfranchisement

The concept of being able to enfranchise “an estate” is unfair on the freeholder and unnecessary. The objective of enfranchisement is to provide continuity to leaseholders. The objective of the freeholder is to manage “the estate” to benefit all. The two objectives are entirely different.

Where some residents on an estate have purchased a part of their freehold in the past, and the remaining residents club together to buy the full estate, there would need to be some protection for those existing freehold owners. People buy their freehold because they want to feel as though they own their home - that right should be respected and not watered down by any estate purchase.

Workability

If the only criterion is to be multiple buildings contributing to a service charge, that potentially means an entire estate where the buildings contribute a service charge under an Estate Management Scheme would be potentially enfranchiseable. This would have devastating consequences for some of the London Estates.

Discussion and recommendations for reform

A new right: multi-building collective freehold acquisition

Recommendation 19.

The operation of multi-building collective freehold acquisition claims

PREMISES TO BE ACQUIRED ON A COLLECTIVE FREEHOLD ACQUISITION

Consultees’ views

The building (including common parts) and other land which is let with the flats

It is ludicrous to exclude common parts or any other land let with the flats within the building. All this does is to cause conflict with the entity retaining such common parts or other land or serves as a way that the entity can hold the purchasers to ransom.

We broadly agree... provided that any existing rights to develop common areas and/or rooftop space are taken into account. we suggest that the freeholder be able to propose to retain some of the common parts, including airspace, for development purposes. It may be that if this reduces the enfranchisement premium, the leaseholders would be happy for this to happen.

Church & Co Chartered Accountants wrote:

On many sites, whilst preserving the leaseholders existing rights to a carparking space, the area above such areas is ripe for incremental development. To transfer these areas freehold to the leaseholders will stop such development. Both the labour mayor of London and the conservative government have policies in place that request additional density of housing within the existing built environment. To change enfranchisement in this way would catastrophically affect their policy.

There should be the option for landlords of larger estates to apply to retain communal areas under their own management where they retain a long-term interest in the estate. Otherwise such landlords' good estate management, such as investing in staff and good records required for effective estate management, will be damaged and eventually disincentivised.

Similarly, Stephen Desmond thought that “consideration should be given to what rights (if any) the transferring freeholder would be entitled to reserve, but only in the event that the transferor does retain adjoining land and, perhaps, where the rights are equivalent to those enjoyed under the leases for the benefit of such ‘retained’ land”.

A difficulty concerning our proposal about “other land let with the flats”

Land over which the leaseholders exercise exclusive rights

This would give us control of our own car park and our own gardens - currently rented out for profit by our freeholder. Please do this, give us some teeth.

Collective Freehold Ltd and Jennifer Ellis (a surveyor) told us that landlords sometimes use the ability to retain land as a “ransom” in the claim: in other words, a landlord may agree to transfer land which they are not strictly obliged to transfer, if the leaseholders will pay a substantially enhanced premium.

Other comments made by consultees

One issue we have discovered is that enfranchising leaseholders can only acquire the freehold of garden land they have rights over. This creates the absurd situation where we must first deny the right of the leaseholders to acquire the freehold of a rear garden used solely by a secure tenant and then we voluntarily offer the freehold of the garden so that it can form part of the leaseback! If we do not then the freehold of the rear garden land will be left with Camden, and, if only accessible via the tenant’s flat, will be land locked.

Discussion and recommendations for reform

The building (including common parts)

Other premises let with the residential units in the building

may be acquired are limited to those which fall within the “curtilage” of the relevant building. We think that our new enfranchisement scheme should be clear about what premises are sufficiently closely related to the relevant building to be included in a collective freehold acquisition claim. We think that the concept of “curtilage” is needed in order to achieve this. However, as we explain in Chapters 3 and 4, we intend to explore with Parliamentary Counsel whether the language of the current law can be updated or improved.492 Given the support of consultees for expanding the extent of the premises that may be acquired by leaseholders, we will also explore whether a clearer concept might be used that is more generous to leaseholders. But our recommended scheme may already loosen the current law sufficiently, given our recommendation set out below about land used exclusively by residents within a building.

Land over which the owners or occupiers of the residential units have rights

Protection for landlords

Recommendation 20.

LEASEBACKS

Consultees’ views

Consultees who agreed with our proposal

If the landlord does not wish to retain they can sell the units on the open market at a time of their choosing.

Consultees who disagreed with our proposal

If a freeholder is going to be compulsorily forced to part with its property interest then it should have the option of being able to walk away entirely from that interest and not essentially help leaseholders fund their purchase by taking leasebacks. A few consultees expressed the view that there would be a very limited market for leasebacks to be sold, if the former landlord does not wish to retain the interest.

Discussion and recommendations for reform

Recommendation 21.

OTHER TERMS OF THE TRANSFER

MORTGAGES AND RENTCHARGES

Consultees’ views

Landlords’ mortgages

Recommendations for reform

Recommendation 22.

Rentcharges

MANAGEMENT ISSUES FOLLOWING A COLLECTIVE FREEHOLD ACQUISITION

A RESTRICTION ON SUCCESSIVE COLLECTIVE FREEHOLD ACQUISITION CLAIMS

Consultees’ views

A prohibition on successive claims

Successive collective claims are commonly made as a relatively simple way to correct a mistake made first time around, such as a failure to identify an intermediate lease which needs to be acquired, or a failure to include all the land, or losing part of the claim by failing to register the notice against one of a number of interests, and that interest is sold. Banning such claims simply creates a trap or bind which is not there at the moment, when the new Act should be removing traps.

Together with a couple of other consultees, Mr Rainey QC suggested that an alternative means of addressing the ping-pong problem would be to increase the participation requirement for a collective freehold acquisition claim from 50% of the number of residential units in the building to 51%, or perhaps 50% plus one more unit.519 Then, the leaseholders who did not participate in an initial claim would not able to bring a subsequent claim. At most, they would represent 49% of the residential units in the building.

The duration of the prohibition

Discussion and recommendations for reform

Recommendation 23.

THE RIGHT TO PARTICIPATE

In either case, it will only be possible for these leaseholders to acquire a share in the freehold at a later date by reaching some kind of agreement to that effect with those who did participate in the claim, or by persuading a new group of leaseholders to bring a fresh collective enfranchisement claim. There is no right for a leaseholder to insist on “joining” the collective enfranchisement claim (that is, by being added to the legal structure which owns the freehold) at a later date. In other words, it is possible for some leaseholders in a building effectively to be unable to take advantage of their own enfranchisement rights, whether at all or at a time of their choosing, because others in their building have already done so.524

Consultees’ views

Support for the right to participate

Artificially restricting participation to a sub-group of leaseholders would, over time, lead to a growing conflict between members and non-members, raising all sorts of long-term issues...

Arguments against the right to participate

A buy-in right wilL.mean that savvy lessees will not commit; they will want to let the others take the risk, and devote time and effort.

Damian Greenish observed that this kind of unfairness is likely to increase conflict between leaseholders rather than to reduce it.

Retrospectivity

It might be unfair to leaseholders who brought a collective claim under one piece of legislation and in the knowledge they were permitted to exclude certain leaseholders to have the law retrospectively force them to accept membership from all leaseholders.

Other issues associated with the right to participate

other constitutional document) to prevent any new participant being treated differently from original participants (for example, being awarded a different class of shares with different voting rights).

We see no reason why a landlord who has taken the leaseback should not be entitled to participate. That would be grossly unfair, and particularly so in the case of a compulsory leaseback.

A handful of consultees felt that the right to participate should only be available to owner-occupiers, and one consultee suggested imposing a 12-month ownership requirement before the right could be exercised. Other consultees suggested various time limitations on the availability of the right, such as making it available only at certain regular intervals, only after two or three years have elapsed since the original claim, or only within 10 years of the original claim.

Should the original participants be rewarded for their efforts in having established the scheme? If original participants have sold their flats in the meantime; would the new participants be required to pay their compensation direct to the original participant or to the current owner of the relevant original participant’s flat who might then receive a windfall? What difficulty would there be in tracing the original participants if they have moved?

...on any acquisition, the Land Registry be obliged to note the purchase price, the associated costs and the participating flats, so that any subsequent purchaser can easily access the information required to calculate the compensation that they should pay to the original participants.

Others thought that the right to participate could be advertised to leaseholders by way of a statement on service charge demands or by a separate invitation to participate on completion of the collective freehold acquisition claim. One consultee, Millbrooke Court Residents Association, suggested that a leaseholder should be required to take a share of the freehold when they apply for a lease extension.

Discussion

CONCLUSION

Part III: Who should be entitled to exercise enfranchisement rights?

INTRODUCTION

PROBLEMS WITH THE CURRENT LAW

THE UNIFIED SCHEME OF QUALIFYING CRITERIA

A summary of the unified scheme

Does X have a long lease of premises which include at least one residential unit?550

addition to those let under X’s lease.

thirds of the total number of residential units in the building.

QUALIFYING FOR A LEASE EXTENSION

Does X have a long lease of premises which include at least one residential unit?

Residential units

Consultees’ views

houses tend to be for the most part owner-occupied, whereas within our own portfolios 60% of flats are buy-to-let investments. Blocks of flats have many and varied interests within them and are therefore managed in different ways and for different reasons to houses.558

Discussion and recommendations for reform

Recommendation 24.

Business leases

Consultees’ views

enfranchisement rights should only apply to residential property as the 67 Act was enacted to preserve the right for people to live in their home. It has moved on from that but the principle remains the same.

businesses should have the right to buy their freehold so they are not exploited by the same loopholes as residential leaseholders.

Several other consultees did not agree with our aim to include mixed-use properties within the enfranchisement regime.576

What if the user permits any use with landlord consent? What about existing leases, which have been offices say for 100 years, and have no planning consent for any other use, but the lease does not expressly prohibit residential use?578

Discussion and recommendations for reform

This has led us to conclude that the best mechanism for excluding business leases from enfranchisement rights is as follows.584

Recommendation 25.

Long lease

Consultees’ views

it is fair that under this length a leaseholder could not have had a realistic expectation that they would be able to remain in the property beyond the period granted by their lease. They are unlikely to have paid any substantial premium to purchase the lease and are usually renting at a monthly rent.

Discussion and recommendations for reform

Recommendation 26.

Specific inclusions within and exceptions to the definition of a “long lease”

Concurrent and consecutive long leases

Consultees’ views

is currently abused as a method of excluding Act rights - you grant an intermediate lease of part of the unit, and then two leases (which together demise the whole unit) to the occupational tenant - one from the freeholder, one from the intermediate lessee. The “same landlord” test is failed and the tenant has no rights.603

really equitable for the leaseholder to go back, on some occasions to previous centuries, to look for improvements which might be discounted? Would it not be better to restrict relevant improvements (if they are retained) to those carried out during the term of the current lease, or at least put a time limit on how far back you can go; the term of the current lease or, say, 21 years whichever is the shorter?

leads to ridiculous arguments in 1967 Act cases about whether an extension completed in (say 1820) should be disregarded - indeed sometimes whether the construction of the existing house should be disregarded. Why go back generations looking for improvements carried out by unconnected predecessors? The disregard for tenant’s improvements should be limited to the current lease, and the chain provision omitted (as it was omitted from the 1993 Act).

the leases are considered together as a single long lease only when the second lease has commenced and that this should remain the case.605

Discussion and recommendations for reform

Recommendation 27.

should be able to treat those separate long leases as a single long lease for the purposes of enfranchisement.

CONSEQUENTIAL ABOLITION OF CERTAIN QUALIFYING CRITERIA

Removal of financial limits and the low rent test

Consultees’ views

rateable values are a considerable headache to obtain as statutory bodies have either disposed of or are not prepared to give the necessary information.

the protection afforded to leaseholders in low value properties should be retained... [and] if qualifying criteria based on financial limits are to be removed it is difficult to envisage how this protection will be applied.613

residential blocks, including care homes and student accommodation blocks are often let on long leases and could inadvertently qualify, so these type of “investment or commercial lettings” should not permit enfranchisement rights. Enfranchisements should therefore be restricted to privately owned residential units, or units that are effectively owner-occupied or let by owners on short leases.

Discussion and recommendations for reform

Recommendation 28.

Removal of the two-year ownership requirement

Consultees’ views

Those in the business of leasehold already know how to get round this, but the average 'home-owning' leaseholder does not and has no access to the legal expertise necessary.625

As a result, the two-year ownership requirement can “jeopardise or discriminate against the interests of those leaseholders who are unaware that the limitation can be easily sidestepped”.626

Discussion and recommendations for reform

Recommendation 29.

LEASE EXTENSIONS: AN ADDITIONAL OPTION FOR LEASEHOLDERS

Recommendation 30.

QUALIFYING FOR AN INDIVIDUAL FREEHOLD ACQUISITION

The scheme of individual freehold acquisitions

Consultees’ views on the scheme overall

the review by the Law Commission of current legislation and its complexities demonstrates the need for simplification. The provisional proposals clarify the position in each case while retaining the structure of the existing law. The legislation will need to address how a designation applies to one unit that has dual use, for example - a live/work unit.

This point was also made by an anonymous leaseholder, who agreed with our proposed scheme on the basis that live/work units should be “specifically included in the definition of a ‘residential unit’ with a clear message [that] the allocation of work space to living space is excluded”.

This appears... to allow enfranchisement where there may be residential premises subject to short leases. If those premises are held by sub-lease from the long leaseholder of the whole then enfranchisement may be acceptable but if they are held from any other landlord it is not clear why the long leaseholder should be entitled to acquire the freehold over the head of an unconnected short-term tenant.

Consultees’ views on the 25% non-residential limit in individual freehold acquisitions

Consultation Paper, we asked consultees specifically about the non-residential limit in a three-part question, in which we provisionally proposed that:

We consider the first two parts of the question first, before turning to the actual numerical limit which we suggested adopting (25%).

A non-residential percentage limit in principle
The actual percentage: 25%

While the designation of a maximum limit is an arbitrary exercise, 25% seems to allow sufficient non-residential use without dominating the residential character of the premises overall. As it is the current limit that applies to collective freehold acquisition claims, there appears to be no call for a different limit in this context. Whatever limit is imposed, there will always be cases of marginal excess that are considered by the victims as unfair, but that should not be a reason for making exceptions.

whilst in principle a percentage limit gives consistency between individual and collective enfranchisement claims, we think that some allowance will need to be given in relation to existing leaseholders of such properties.

The “allowance” suggested by those consultees was a sunset-type provision, which would allow existing leaseholders to acquire the freehold for a limited period even if the 25% limit were exceeded.

... the 25% rule is open to abuse and IS being used to ensure that leaseholders cannot enfranchise. I would like to see the 25% rule increased to 50%.

Why 25%? Blocks have been built with only 74% residential purely to prevent enfranchisement or even right to manage. Clearly there is an advantage to a landlord in preventing enfranchisement. A more reasonable figure would be 50%.

twenty five percent is simply an arbitrary figure and if the Commission wish to bring in legislation to allow more claims to be made then this figure should be increased to say fifty percent.

Discussion and recommendations for reform

Recommendation 31.

Flats above shops

Consultees’ views

... for tenants of existing leases, there should be a preserved period during which they can continue to acquire the freehold title even if the non-residential element is more than 25% of the building. This should be time limited to, say, a maximum of ten years from the date that the new legislation takes effect.652

the management of the building in the hands of the flat owners who are more likely to benefit from having control of the building being in full time occupation.

Leasehold Solutions (surveyors), LKP and the National Leasehold Campaign all advocated for a 50% limit, while Pearn Ltd suggested 40%.

Discussion and recommendations for reform

Recommendation 32.

The definition of a building

a built or erected structure with a significant degree of permanence, which can be said to change the physical character of the land.

By way of example, we envisaged that an ordinary, vertically-divided terraced house would meet the definition of a self-contained part of a building. However, an L-shaped house, of which a significant part (say, 20%) lies above the nextdoor house’s ground floor garage, would not meet this definition.

Consultees’ views

Views on the definition of a building

reduces the task of assessment to two tests which, while they each involve a subjective element, should produce little difficulty in reaching an appropriate conclusion. The general nature of the tests largely removes the problems associated with the current tests.

there are attractions to these stripped back definitions and they are likely to have longevity on their side. However, as construction methods and styles change those will also probably generate further calls on the courts to consider how the definitions apply.

While the PBA did not seem to suggest that those further calls on the courts rendered our proposed changes undesirable, another consultee, Hamlins LLP (solicitors), did, arguing that:

introducing new legal definitions risks increased litigation and costs which is against the Commission’s terms of reference. We query whether this would be better than retaining the current and fairly well-understood definitions of house and flat.

that ‘overlapping houses’ which currently qualify for freehold acquisition because the overlap is non-material will lose their rights. It is also the case that small overlaps disqualify large blocks in collectives. The Commission should consider extending the 1967 Act non-material overlap provisions rather than removing them - it would give the Tribunal a power to allow some deviation, and an objective basis upon which to exercise that power.

Views regarding a new Tribunal discretion

we need to include a 'common sense' option and there is a myriad of examples which would sit outside of any rigid legislation.

Other consultees argued that the discretion would help for borderline cases, to avoid hardship caused by rules on overhang and underhang. For example, Christopher Jessel wrote that:

this relates partly to the issue of whether part of a structure is over or under another structure. Pending reform of positive covenants of support and protection and repair this could still be possible where the overlap is marginal. As buildings can vary it will be impossible to define this in the Bill and it would be better to give the Tribunal a discretion.

Discussion and recommendations for reform

Recommendation 33.

Individual freehold acquisition rights of head lessees of blocks of flats

Consultees’ views

The ability of a head lessee of a block of flats to acquire the freehold of that block does run contrary to the policy of the 1993 Act, which is aimed at empowering the owners of individual flats. However, under the existing enfranchisement regime there is a workaround available for investor tenants to exercise rights should they so wish. We therefore do not consider that the proposed reforms will create a significantly different position in comparison to the existing position.667

It is more difficult, expensive and time consuming than might be thought for a head lessee to “do an Aggio” and then acquire the freehold as a second stage.668 Modern head leases in the PRS sector often prohibit the creation of long sub-leases. Nevertheless, it can be done and is done, so the ability for head lessees to enfranchise if there are no sub-leases probably does not amount to much of a change.

of interest to use the opportunity of current leasehold reform to create restrictions on the ability of head lessees, particularly when they are commercial owners, to collectively enfranchise and force freehold acquisition.670

On a related note, Mark Chick, a solicitor, argued that if head lessees are to have this form of individual freehold acquisition right, then “there is good ground for considering either no major reform to the basis of valuation or a twin track approach that differentiates between owner-occupiers and investors as this will otherwise present a significant windfall to any block owner under a long lease where there all of the flats are held ‘in hand’ under the terms of the head lease”.

Discussion

COLLECTIVE FREEHOLD ACQUISITIONS

Potential participation requirements

Two-thirds of residential units to be held on long leases

Consultees’ views
Discussion and recommendations for reform

Recommendation 34.

Two or more residential units

Consultees’ views

reasons for their views, although CILEx expressly concurred with our view that it is a “logical requisite for ‘collective’ enfranchisement to involve ‘collective’ participation and by extension maintain the two-or-more requirement”. CILEx also argued that “the current position does not appear to be problematic” and therefore cautioned against making a change: a similar point to that made by Orme Associates Property Advisers, which argued that “there are no problems currently in this regard with a minimum of two flats”.

... if the other lease is a business lease which the freeholder is forced to accept back as a head lease why should this exclusion exist? If it remains then the leaseholder is held prisoner by the freeholder.

Discussion and recommendations for reform

Therefore, we consider that these two scenarios should be treated the same. In other words, in neither case should the potential participation requirements for a collective freehold acquisition be met.

Recommendation 35.

Actual participation requirement

The required level of participation

Consultees’ views

for a lower limit to be set would probably be regarded as oppressive to the majority of leaseholders and there seems to be no pressing reason for departing from the threshold limit in the 1993 Act.

any more than 50% would be onerous and put enfranchisement out of reach to many. Any less than 50% exposes the majority to the risk of minority control leading to no better situation than with an "onerous" landlord.

underlying rationale for this limitation in the context of the 1993 Act is justified in that it prevents a minority group of leaseholders from exercising power over the freehold, it has been suggested that the above proposals for non-participating leaseholders to retain their right to a collective enfranchisement would lessen the need for this restriction.

Discussion and recommendations for reform

Recommendation 36.

Two-unit buildings with two long leaseholders

Consultees’ views

In maisonettes, it's most important that the leaseholder who wants to purchase their freehold is not prevented from doing so if the other leaseholder does not want to purchase their own freehold also.

Another confidential consultee argued similarly, based on the principle that all leaseholders should have a right to participate in their own freehold. The Residential Landlords Association was also:

supportive of the proposal to remove the requirement of both leaseholders participating in a collective agreement. This would be particularly advantageous for maisonette properties, empty properties or non-participatory properties.

if one leaseholder wishes to be free from the grasp of their freeholder and the other is uncontactable or unwilling, they should be allowed to buy the freehold as long as we have a right of inclusion.

Berkeley Group Holdings PLC also agreed with our proposal, but argued that “this should be subject to a mandatory requirement to invite participation in the collective freehold acquisition, coupled with a future right at any time to participate. This will ensure transparency and fairness”.

this requirement should be retained; otherwise it is no longer a collective claim. If one leaseholder wishes to claim and the other does not (and may not wish for his neighbour to acquire the freehold) why should the first leaseholder’s desire to acquire the freehold trump the second leaseholder’s desire for the status quo?

The Law Society, among other consultees, made a similar point, writing that this proposal to allow “one leaseholder to acquire the freehold might very well pour salt on the wounds of the other”.

Discussion and recommendations for reform

Recommendation 37.

Two-unit buildings with a freeholder-retained unit

Consultees’ views

what is the difference in principle between the example given and a single leaseholder of a flat in a three-flat block?

why should the non-freehold owning part[y] be able to compel a sale to them?

Furthermore, Tapestart Limited, a landlord, argued that the price paid by the leaseholder initially would have reflected the fact that, while a lease extension would have been possible, a collective enfranchisement would not.

Discussion

Further requirements and exceptions

The 25% non-residential limit in collective freehold acquisitions

Consultees’ views

unfair just to cut off residential lessees from similar rights merely because the developer took enough time and trouble to develop more than 25% commercial space, or an unscrupulous landlord (with or without planning permission) granted a business tenancy of one or more flats to tip the balance. Whether he was right or wrong to do so is not the point. The point is that the litigation battle has to be engaged in which the wealthy freeholder operating on tax deductible expenses always has a big advantage.711

... this would ensure that in any mixed development where residential leaseholders are in the majority, they retain the same rights as solely residential developments. This has the effect of being less arbitrary (majority rule).

Discussion and recommendations for reform

Recommendation 38.

Further exclusions: resident landlords and operational railway tracks

Consultees’ views

only dealt with one resident landlord exception, there would have been no prejudice to him had he allowed the enfranchisement which was only started because he was such an incompetent manager of the service charge account. I really do not understand the justification for this exception, after all, the alternative is a s 24 Order, then 2 years later take a compulsory acquisition claim.

Discussion and recommendations for reform

Recommendation 39.

Recommendation 40.

Leaseholders of multiple residential units in a building

Consultees’ views

whilst there may be sense in preventing circumstances which could result in one leasehold owner monopolising the freehold once acquired, we do not consider this concern overrides the current proposal which facilitates a collective claim, albeit it could allow a commercial head lessee investor to enfranchise.738

The rule provides an extra check-and-balance against commercial investors participating in a collective freehold claim. Its inclusion causes no difficulties for a "true" homeowner and its retention, therefore, is not to their detriment and can only reinforce the policy to restrict or limit rights for commercial investors.739

the restriction should be applied to a proportion of the flats so that an investor could not dominate. For example, it might be a percentage (rather than a fixed number) of the qualifying tenants in single or connected ownership. Secondly, the definition of what constitutes connected parties could be considerably tightened. For example, the reference to “person” in subsection 5(5) could be extended to include family members and trustees for them and the reference to “associated company” in subsection 5(6) could also be improved by looking at other (and tighter) statutory definitions.

Discussion and recommendations for reform

Recommendation 41.

RESTRICTING COMMERCIAL INVESTOR RIGHTS

current law which could affect owner-occupying leaseholders and, given the wide category of “commercial investors” (including, for example, pension funds and charitable trusts), could have a significant impact on the property market or on the wider economy.

Consultees’ views

Views on whether to restrict the rights of commercial investors

the nature of the Charity’s portfolio means that any diminution in enfranchisement receipts will be a direct windfall for investors against a corresponding loss for the Charity’s beneficiaries.

this removes rights from those who presently have them and may have the unintended consequence of limiting the receipts of existing leaseholders (who cannot themselves afford to extend) when they sell, because the demand for such interests will exclude demand from investors.

someone choosing to purchase and live in a leasehold house/flat may be doing it in order to make a capital gain from a commercial prospective. Other people may find themselves with an empty flat/house because of personal circumstances, and rent it out so as to help cover the property's running/finance costs.

Another consultee, James Masterman, also made a similar point.

Not all non-owner-occupiers are "commercial investors". UK nationals working and living abroad for example, often wish to maintain a property in the UK to return to. Such individuals letting whilst absent abroad, should not be excluded from the new enfranchisement rights.

helping owner-occupier leaseholders from buying out the freehold landlord will make the collective freehold acquisition regime completely pointless.

Views on how to restrict the rights of commercial investors

Before the reintroduction of the residence test is considered it would be important to consider in detail the available evidence about why the residence test was brought in in the originally, why it was abolished and what the impact of that has been.

the commercial long leaseholder who had previously let on short residential tenancies could presumably avoid this restriction by simply terminating the short tenancy shortly before the claim for enfranchisement.743

has the power to exercise a controlling influence over the management or policies of a tenant whether through ownership of securities, by contract, or otherwise so that it can direct the tenant to exercise the right to enfranchise; and that third party either granted the lease to the tenant or the tenant’s predecessor in title or has similar powers in relation to 25% or more of the qualifying tenants of the building.744

Discussion

CONCLUSION

INTRODUCTION

To ensure that shared ownership leaseholders have the right to extend the lease of their house or flat, but not the right to acquire the freehold of their house or participate in a collective enfranchisement of their block of flats prior to having “staircased” their lease to 100%.

We therefore make a number of recommendations to assist with the implementation of this policy decision by Government.

SHARED OWNERSHIP LEASES

Introduction

How does shared ownership really work?

Shared ownership is often described as “part-buy, part-rent”. It is marketed as enabling a purchaser to buy a “share” of a house or flat (usually between 25% and 75%), while paying rent on the remainder of the property. Because the purchaser only needs to secure a mortgage for the share of the property he or she is purchasing, the deposit required will be much lower than that which would be required to purchase the same property in full. Over time, the purchaser can buy additional shares in the property - a process known as “staircasing”. Each time a purchaser buys an additional share, the rent payable on the remainder of the property will decrease accordingly. In most cases, it is possible to staircase to 100%.747

However, this is not an accurate description of how shared ownership actually works. In fact, the very term “shared ownership” is something of a misnomer.748

In most respects, a shared ownership lease is just like any other lease: the provider of the shared ownership property will be the landlord, and the purchaser will become the leaseholder. The provider is always above the purchaser in the chain of property interests - they hold either the freehold interest or a superior leasehold interest in the property. Thereafter, the lease will operate on a day-to-day basis like any other lease, with the shared ownership leaseholder having the same obligations (including the obligation to pay service charges) as any other leaseholder.

The key difference between an ordinary lease and a shared ownership lease is simply that the shared ownership lease will contain various provisions reflecting the fact that the price paid on the grant or purchase of the lease represented only a percentage of the full market value of the property. In particular:

This kind of outcome would not generally be faced by an ordinary leaseholder who fails to pay his or her rent or service charges,753 and is inconsistent with the ordinary person’s understanding of home ownership. Essentially, it is apparent that the “share” which a shared ownership leaseholder acquires when he or she buys the property does not actually give the leaseholder any real equity in the property. All that he or she acquires, in reality, is a tenancy, plus the right to the relevant percentage of the equity in the event the property is sold - a right which will not survive a possession order being made. To put it another way, a shared ownership leaseholder has paid a premium, in effect, for the right to staircase to 100% in accordance with the terms of the lease, at which point he or she will own the property in the same way as any other freeholder (in the case of a house) or leaseholder (in the case of a flat).

Bearing these points in mind, it will be obvious that the language of “buying shares” in a shared ownership property, and the idea of being (say) a 25% “owner”, does not necessarily reflect the reality. It would be better to recognise the shared ownership lease for what it is: a device which effectively enables aspiring homeowners to purchase a property in portions over time, if they would be unable to raise the usual purchase price in one go. The rent payable on the “unacquired share” can be viewed as the cost of accessing this “payment plan”

However, that view ignores the current reality that, in fact, the vast majority of shared ownership leaseholders will never staircase to 100%. For these leaseholders, shared ownership still provides greater security of tenure for them and their families than the private rental sector - provided they continue to pay the rent required by the lease.754 We also recognise that the language of “acquired/unacquired shares” and percentage ownership, while inaccurate, does operate as a useful shorthand for describing the relative positions of a shared ownership leaseholder and his or her landlord. Having acknowledged its shortcomings, we therefore make use of this terminology in this Report.

Shared ownership leases and enfranchisement

To ensure that shared ownership leaseholders have the right to extend the lease of their house or flat, but not the right to acquire the freehold of their house or participate in a collective enfranchisement of their block of flats prior to having “staircased” their lease to 100%.

Lease extension rights for shared ownership leaseholders

Our provisional proposal

Consultees’ views
Discussion and recommendations for reform

Recommendation 42.

The valuation basis for shared ownership lease extensions

Consultees’ views

When a lessee comes to staircase (purchase further equity) they pay for the additional share based on the higher (extended lease) value. Furthermore, the cost of extending the lease is not seen as an eligible improvement but considered lease maintenance. For the above reasons it seems fairer for the lessee to pay for the lease extension in line with the percentage they own.

Discussion and recommendations for reform

Ordinary lease extension claim

A lease has 100 years unexpired and is subject to a ground rent of £50 per annum. Following a 990-year lease extension, the lease will have a term of 1090 years and a peppercorn ground rent.

The premium for that lease extension could be calculated as follows:769

Total: £2,800.

Shared ownership lease extension claim

A shared ownership lease has 100 years unexpired and is subject to a ground rent of £50 per annum. The leaseholder currently has a 25% share in the property, and therefore also pays a monthly rent on the 75% unacquired share.

Following a 990-year lease extension, the lease will have a term of 1090 years and a peppercorn ground rent. The leaseholder will still have a 25% share in the property, and the leaseholder will still pay a monthly rent on the 75% unacquired share. That obligation to pay a monthly rent on the 75% unacquired share will continue for the full duration of the 1090-year lease (unless the leaseholder increases his or her share in the property, in which case the monthly rent will be reduced accordingly, or staircases all the way to 100% ownership, in which case it will be eliminated entirely).

Adopting the same basis for calculating lease extension premiums as above, the premium payable for that lease extension would be calculated as follows:

Total: £1,300.

Recommendation 43.

The position when shared ownership providers are lessees

Consultees’ views

Our view is that registered providers (as organisations with a social purpose whose objectives are to provide affordable homes with security of tenure), regardless of whether they are the sole leaseholders or are intermediate lessees, should have rights to extend leases for individual units and common parts.

Discussion

Shared ownership leases and collective enfranchisement

Consultees’ views

Discussion and recommendations for reform

Recommendation 44.

Excluding shared ownership leases from freehold acquisition rights

a lease of a dwelling-house -

Consultees’ views

Discussion and recommendations for reform

Criterion 1 - staircasing provisions
Criterion 2 - payment arrangements
Criterion 3 - effect of staircasing to 100%
Further possible criteria: the “fundamental clauses” of the shared ownership model leases
Our recommendation

Recommendation 45.

reference, directly or indirectly, to the value of the residential unit.

THE NATIONAL TRUST

Introduction

Consultees’ views

Option 1 - exempting the National Trust from enfranchisement rights altogether

It is not fair to say that the grant of a long lease is contrary to the purpose of the Trust; namely, preserving land and buildings permanently for the benefit of the nation... . The grant of a long lease has always played a role in the long-term management of estates and in the maintenance of long-term ownership and stewardship. . The National Trust should be wholly exempted.

It is unfortunate that some (and we suspect that this is a comparatively small number) National Trust tenants discover after their purchase that they have purchased a wasting asset. However, strictly speaking the blame for this should be directed at their conveyancer, not the National Trust.

Option 2 - giving National Trust leaseholders the same rights as regular leaseholders

Option 3 - giving National Trust leaseholders more limited enfranchisement rights than other leaseholders

The National Trust’s consultation response

Discussion and recommendations for reform

The need for a compromise position

nation, forever.804 A number of consultees observed that only by retaining ultimate ownership of land will the Trust be able effectively to control its use and development and therefore to fulfil the Trust’s purpose. In any event, a right for National Trust leaseholders to acquire the freeholds of their properties would clearly conflict with the existing legal status of that land as inalienable, as sanctioned by Parliament.

Devising a compromise: consensus amongst consultees

Our recommendation: refining the National Trust’s proposal

Recommendation 46.

Appurtenant rights over inalienable National Trust land

THE CROWN

Introduction

A number of geographical areas within the Isles of Scilly and the wider Duchy of Cornwall estate are specifically stated to fall within the fourth category above - namely the “Off Islands” (St Agnes, Bryher, St Martins and Tresco), the Garrison on St Mary's, the village of Newton St Loe and parts of central Dartmoor.

Consultees’ views

The Crown Estate

The Duchy of Cornwall

The Duchy of Lancaster

Government departments

Direct engagement with the Crown

In particular, we were keen to establish whether the Crown would be prepared to give an undertaking to apply any new enfranchisement legislation by analogy where possible, bearing in mind our likely recommendations in respect of the substance of the enfranchisement rights, qualifying criteria, procedure, and valuation. We were also interested to hear the Crown’s view on the fourth category of excepted areas (“a long historic or particular association with the Crown”), given the concerns expressed by consultees - and by leaseholders of the Duchy of Cornwall especially - in relation to this category.

The Crown Estate

The Duchy of Cornwall

The Duchy of Lancaster

Discussion and recommendations for reform

Recommendation 47.

Escheat

COMMUNITY-LED HOUSING

Introduction

Consultees’ views

Whether there should be an exemption

In the case of Community Land Trusts, leasehold enfranchisement undermines their statutory purpose. For example, it may require a CLT to sell an affordable home to its owner, which would not be in keeping with its purpose to manage the affordable home for the social, economic and environmental interests of its local community.

In the case of cohousing communities, leasehold enfranchisement undermines their stated purpose, which we would like to see put on a statutory footing. For example, a resident of the community may seek enfranchisement, which would remove an obligation on them to fulfil the community’s objectives with that home, potentially including the payment of a ground rent to sustain the community.

Without such an exemption, Community Land Trusts and cohousing communities can only fully protect their homes from enfranchisement by seeking a Community Right to Build Order. However, as the Consultation Paper notes this process can be lengthy and costly. The rationale for exempting homes built under a Community Right to Build Order should apply equally to those owned by a Community Land Trust or cohousing community.

The scope of an exemption

CLH used for those purposes should be the same or at least complementary to that used for the purposes of any exemption from enfranchisement rights.

How an exemption should work

We have previously suggested that exemptions could follow from the Community Land Trust or cohousing community issuing a notice to the effect. It could be reflected in the lease. We do not have a fixed view on how this should work, so long as the process is simple and efficient.

We would not want any legislation or regulations to fetter the rights of Community Land Trusts or cohousing communities to exercise the exemption. For example, by providing that they can only be exempt in designated areas, or under certain conditions. It should be for the local community to determine the applicability of the exemption, following their objects and local circumstances.

We believe that this could be done by way of a clause in the lease which would document the decision to make the exemption. Perhaps there could be an exchange of notices along the lines of those prescribed in section 38A of the Landlord and Tenant Act 1954? This is a procedure that is familiar to the property industry and so should be a relatively straightforward process to implement. It would have the benefit of ensuring that tenants are specifically alerted to the decision to opt out of enfranchisement.

Discussion and recommendations for reform

An exemption from freehold acquisition rights

We consider that these characteristics - affordability, community benefit and democratic control - are valuable ones which should be fostered within our challenging housing market, and this requires an exemption from freehold acquisition rights. Since leasehold ownership is one of the primary means used to deliver CLH developments, the integrity of those developments and the attributes referred to above would stand to be undermined if its residents were able to exercise freehold acquisition rights, whether individually or collectively. For much the same reasons, Government has announced that CLH developments will also be exempt from the forthcoming ban on the grant of new leases of houses, and the ban on ground rents in new leases.836

A definition of community-led housing

The operation of the exemption

Recommendation 48.

LEASE-BASED FINANCIAL PRODUCTS

Home purchase plans

Ijara wa iqtina

Diminishing Musharakah

Discussion

Other lease-based financial products

Lifetime leases

Home reversion plans

Discussion

OTHER EXCEPTIONS AND QUALIFICATIONS

Heritage property transferred for public benefit

The current law

Decisions by HM Treasury and HM Revenue & Customs whether to designate particular property will be based on advice received from bodies such as Natural England and English Heritage.

Policy background

Discussion and recommendations for reform

This condition refers to the various financial criteria which houses and leases were required to satisfy in order to qualify for enfranchisement rights under the 1967 Act (as originally enacted).850 The purpose of this condition was to ensure that the introduction of section 32A in 1993 did not take enfranchisement rights away from any leaseholder who already had such rights - in other words, to ensure that the effect of section 32A would be prospective only.

Recommendation 49.

Sections 28, 29 and 30 of the 1967 Act

There are no equivalent provisions in the 1993 Act.

Recommendation 50.

Charity freeholders and housing association head lessees

covenant providing for compulsory repurchase by a former university freeholder should the property be needed for the university’s educational purposes in the future.

Charitable housing trusts

exemptions apply to leases that form part of the accommodation provided by the trust as part of its charitable purposes, where the trust is the leaseholder’s immediate landlord.855 856 857

Recommendation 51.

Cathedral precincts and ecclesiastical landlords

Exemption for properties within cathedral precincts

Church Commissioners’ sanction

Designated rural areas

The current law

Excluded tenancies will not qualify for freehold acquisition unless they satisfy the low rent test.

Consultees’ views

Discussion

OTHER EXEMPTIONS REQUESTED BY CONSULTEES

Charities

A wider charity exemption for charity freeholders could be justified on the basis that that they are distinct from commercial freeholders in having a public interest / public benefit purpose rather than a private interest. That applies whether the property is held for operational reasons or as an investment: while the charity is operating as a landlord, it is not profiting in the true sense from leaseholders as all proceeds are reinvested towards its charitable purposes, which, under charity law, must meet the public benefit requirement and be in the public interest.

Retirement housing

Social housing

Once enfranchisements have taken place we have many examples of where we have had to threaten tenants with eviction or pay compensation to our new landlords because of tenant’s behaviour or denying access. In addition, the new unit service charge levied on Camden can be larger than when the building was under Camden management. This can be due to the new freeholders not benefiting from the economies of scale Camden was able to enjoy in procuring services, or just managing agents trying to get away with what they can. Tenants themselves are not happy with the new position they find themselves in and can feel threatened. A tenant can also no longer easily arrange a repair for the flat or building.

The result is that Camden views leaseback units as disproportionately expensive to manage. Therefore, over time, Camden is looking into decanting leaseback units and selling them on. It follows that that every enfranchisement with a leaseback will at some point in the future mean the unit is lost. This was clearly not the original intention of the mandatory leaseback protection but it is the reality in practice.

Camden described the enfranchisement of buildings containing social housing tenants as “a form of social cleansing” and called for an exemption for local authorities in respect of buildings containing secure tenants.

CONCLUSION

Part IV: How should enfranchisement rights be exercised?

INTRODUCTION

PROBLEMS WITH THE CURRENT LAW

Notices and service

An Information Notice is a notice which may be served by leaseholder(s) who are unsure about the identity or addresses of those holding superior interests in the building: see paras 8.75 to 8.89 below.

The procedure for claiming a lease extension, or the freehold, of a house is set out in the 1967 Act (and subsequent regulations), while the procedures for claiming a lease extension of a flat, or making a collective claim in relation to the freehold of a building, of are contained in the 1993 Act (and subsequent regulations). These procedures are described in detail in the CP, Ch 10.

Leaseholder example: disputes about service of notices

“All 6 leaseholders commenced the process one and a half years ago and the landlord has been very difficult.

We engaged (and continue to engage) an experienced leasehold enfranchisement solicitor to manage the process for us and he served notices as required by legislation. (One notice sent to the landlord in Guernsey and the second sent to his address for service (his solicitors) in England).

The landlord's solicitors responded 2 months later to say the notice had been served defectively because it had not been served at the landlord's address (given in the service charge demands) in the British Virgin Islands.

Our solicitor had to seek counsel's opinion and counsel recommended serving a second notice in the BVI. Now that the time period for the 2nd notice has expired the landlord's solicitors have claimed the original notice is valid - which gives us limited time to apply to a Tribunal”.

“Joint landlord”, “split freehold” and “split reversion” are both defined in the Glossary. We use the term “split landlord” or “split reversioner” to refer to a landlord who holds his or her interest under a split freehold or split reversion (as applicable).

There may be parties to the lease other than the landlord or leaseholder - for example, a management company or a guarantor. We refer to any party to the lease which is not the landlord or the leaseholder as a any intermediate landlords must also be located and given copies of the notice of claim.872 873 These requirements can cause delay in starting a claim, and increase costs for leaseholders.

Time limits

Leaseholder example: disputes about valuation and costs

“In 2017 I tried to extend the lease on my flat firstly by voluntary negotiation but that was not successful so I reverted to the [statutory process under the 1993 Act].

I followed the process and subsequent negotiations but due to the fact that the landlord was asking for twice the market value to extend the lease for 90 years (£20,000 when the value was £10,000) I ended up going to the First-tier Tribunal. As a result of the decision it was agreed that the value at that time was £9,000 and the matter proceeded to the next stage.

When it came to the conveyancing, I instructed a solicitor who then proceeded to deal with the matter. However, the freeholder’s solicitor then presented a legal bill for £4,000 which I disputed and ended up going back to the Tribunal who in turn ruled that reasonable costs should be £1,200 which was about right.

I then proceeded to the next stage but due to poor legal advice from my solicitor 6 months had elapsed and the freeholder refused to proceed saying that we were out of time. This resulted in me having to accept that this was the case and not proceed any further.

As it stands it has cost me in excess of £5,000 to try and extend my lease using the current legislation only to have to start the process again with more costs and more under-handed legal tactics”.

Other problems

AN OUTLINE OF OUR RECOMMENDED PROCEDURAL REGIME

Note: This diagram deals only with the situation where there is a single landlord, or a single landlord and a single intermediate landlord. It does not cover more complex situations where the leaseholder might need to serve notice on another person, or the landlord might need to serve on a person other than a single intermediate landlord.

Making and responding to a claim

Completing a claim

grant of a lease extension not less than 21 days before completion, and to notify their leaseholders that they have done so. Leaseholders should be required to pay the premium for the lease extension into court if they do not receive the relevant notification, or if the mortgagees request them to do so.

A SINGLE PROCEDURE FOR ALL ENFRANCHISEMENT CLAIMS

Consultees’ views

this is likely to oversimplify the system. A lot of specific information is required for each type of claim and it would be difficult to achieve this.

Some consultees noted that each enfranchisement right was fundamentally different. Others sought to draw a distinction between collective freehold acquisitions and other types of claim. A couple of consultees believed that “simpler” cases, such as individual freehold acquisition claims made in respect of new-build homes, should be dealt with in a separate process.

Discussion and recommendations for reform

The benefits of adopting a single procedure

The practicality of adopting a single procedure

Recommendation 52.

A SINGLE SET OF PRESCRIBED FORMS

Consultees’ views

if there are to be several enfranchisement rights, our view is that it may make sense for there to be separate types of prescribed form to refer to each of the rights... To do otherwise may lead to the required form being unduly long and "off-putting".

Others argued that a separate form should be produced for collective freehold acquisition claims, or for multi-building collective freehold acquisition claims.891

A single prescribed form for all enfranchisement claims may in practice lead to the wrong sections being completed. However, an inexperienced claimant could equally fail to select the correct dedicated form.

Discussion and recommendations for reform

The benefits of a single set of prescribed forms

The risks created by requiring or permitting the use of prescribed forms

The risks created by adopting a single set of forms

Assessing the risk of confusion: Claim Notices
Assessing the risk of confusion: Response Notices

The balance of risks: must a prescribed form be used?

The balance of risks: a single set of prescribed forms

Recommendation 53.

INFORMATION NOTICES

Consultees’ views

it is only fair that the sanction of liability for wasted costs should apply where the recipient of the notice fails to respond to it.

A couple of consultees noted, however, that an Information Notice should contain a clear warning of the potential consequences were the recipient to fail to respond.

it would be a charter for unscrupulous tenants to claim to have sent an Information Notice, whilst not having ever done so or having carelessly sent it to an incorrect address, simply to be able to claim their costs for serving the notice.

Discussion and recommendations for reform

Information Notice, or he or she can demonstrate a reasonable excuse for failing to comply within that period; and

Recommendation 54.

INVITING OTHER LEASEHOLDERS TO PARTICIPATE IN A CLAIM

2002 Act contained amendments to the 1993 Act which aimed to maximise participation in a collective enfranchisement claim. Those provisions would require all qualifying tenants to be served with an “invitation notice” informing them about a proposed claim and inviting them to participate in the claim before a notice of claim could be given to the landlord. However, the provisions were the subject of substantial criticism and have never been brought into force.911 In the Consultation Paper, we explained how our proposed new right to participate would help to ensure that eligible leaseholders have an opportunity to participate in a collective freehold acquisition claim. We therefore proposed that leaseholders seeking to bring a collective freehold acquisition claim would not be required to serve notices on other leaseholders inviting the latter’s participation in the proposed claim.912 We have considered that proposal in light of consultees’ responses and our conclusion regarding the right to participate.

Consultees’ views

Discussion and recommendations for reform

Recommendation 55.

CLAIM NOTICES

Details to be included in a Claim Notice

In the case of a collective freehold acquisition:

Consultees’ views

Discussion and recommendations for reform

anticipate that this section of the Claim Notice would contain a claim for an extension of all property rights (on a lease extension claim) or grant of all permanent property rights (on an individual or collective freehold acquisition claim) the recipient is able to grant, and would allow the leaseholder to set out any appurtenant rights benefiting the lease which will not be extended or granted for the benefit of the freehold title (as appropriate).921 This conclusion does not affect our recommendations regarding the validity of Claim Notices.922 We do not think that the leaseholder will need to select the relevant variations and/or specify the relevant appurtenant rights in order for the Claim Notice to be valid.923

Recommendation 56.

SIGNING ENFRANCHISEMENT NOTICES

Should enfranchisement notices be signed?

Signatures and the validity of an enfranchisement notice

Statements of truth

Consultees’ views

Should enfranchisement notices be signed?

we do not consider that a signature should be obligatory as this would reduce the scope for arguments by the landlord as to the validity of the signature and by extension the validity of the notice.

Others considered that landlords should simply request to see the leaseholder’s authorisation for signature of the Claim Notice if in any doubt. Many consultees expressed satisfaction with the current position. For example, Hamlins LLP, solicitors, stated that:

we do not see any issues with the current procedure which allows solicitors to sign on behalf of their clients or for the parties to sign the notice direct.

Signatures and validity of notices

those who have signed incorrectly [should not be considered] to be participating, unless it is later clarified to the contrary. This will have an effect on valuation and so would need to be expressly provided for in the legislation.

Statements of truth

opens the door to potential litigation by the landlord as to the accuracy of the statement regarding the nature and extent of any checks that have allegedly been carried out.

Another consultee, the Property Litigation Association, was concerned that our proposal gives rise to the need for advice about the possible implications of making a false statement, and the potential for satellite disputes between the parties. In contrast, a couple of consultees queried the benefit of requiring such a statement at all, as it would not prove to be reliable evidence that the checks had in fact been carried out.

Discussion and recommendations for reform

Should enfranchisement notices be signed?

Signatures and validity of notices

Statements of truth

Recommendation 57.

WHO SHOULD BE SERVED WITH A CLAIM NOTICE?

Consultees’ views

landlords should not be able to reject a claim just because all of the joint freeholders couldn't be tracked down by the [leaseholder].

However, other consultees thought that the current requirement to serve all joint landlords was appropriate and should remain, to remove the possibility that some joint landlords would not be made aware of the claim.

I do not agree that the competent landlord should necessarily be the freeholder in freehold claims. If there is a 999-year head lease, the value lies with the head lessee. If they are not the competent landlord, and they don’t get served, then what? What if the freeholder is a dormant, single asset company - with no assets to pay damages when the tenants get the property for nothing? In my view, a very long lessee should be the competent landlord. Under the 1967 Act, a 30-year reversion suffices. This should be replicated across the board.

Discussion and recommendations for reform

Identifying the competent landlord

Joint landlords, and split freeholds or other reversions

Owners of other land

Recommendation 58.

In the case of (3) and (4)(a) above, the Tribunal should have power to give directions relating to late service of the Claim Notice, and future participation of the unserved split reversioner or owner of other land (as the case may be) in the claim.

SERVING COPIES OF A CLAIM NOTICE ON OTHERS

Consultees’ views

The burden of serving copies

Consequences of failing to serve copies

Discussion and recommendations for reform

The burden of serving copies

The costs of serving copies

The consequences of failing to serve copies

Recommendation 59.

THE TWO METHODS OF STARTING AN ENFRANCHISEMENT CLAIM

SENDING A CLAIM NOTICE TO THE LANDLORD (THE SERVICE ROUTES)

Addresses for service989

Group A

Group B

We also proposed that, where the Claim Notice is served on a Group B address, the leaseholder should (in the case of registered land) also serve the notice at each of the addresses shown for the landlord as registered proprietor of the property at HM Land Registry.

Consultees’ views

Discussion and recommendations for reform

Is there a more straightforward model?

Evidence of service

Time of service

Service by email

Group B addresses and addresses held at HM Land Registry

Use of the Service Routes and service of a Response Notice

A revision to Groups A and B

balance the benefits of deemed service against the risk that a landlord would be genuinely unaware that a claim had been made ...

Under the scheme proposed in the Consultation Paper, the address provided at (1) is a Group A address, while the address provided in the demand set out at (2) is a Group B address. The result is that a leaseholder bringing a claim in April 2020 would be expected to use the address given to it on 1 January 2019, and not the address provided on 1 March 2020.

Recommendation 60.

but, in each case, only where the address has been provided within the 12 months preceding the service of the Claim Notice.

but, in each case, only where the address has been provided more than 12 months preceding the service of the Claim Notice;

APPLYING TO THE TRIBUNAL FOR PERMISSION TO PROCEED (THE NO SERVICE ROUTE)

Consultees’ views

if landlords cannot be found it’s their own problem. Why should it be down to the leaseholder to have to go to the trouble of going to the tribunal? It is not fair.

And Heather Keates was concerned that if an application to the Tribunal was required, leaseholders were likely to have to pay for additional legal assistance.

Discussion and recommendations for reform

Recommendation 61.

PRE-SERVICE CHECKS

Consultees’ views

this is all too much to expect of an average person with no legal background. We should be able to conduct everything much more easily than this.

Some consultees thought that the problem of identifying and locating a competent landlord should be resolved by requiring the landlord to provide and maintain an address for service.1016 Others simply stated that if a landlord could not be found it should be an issue for landlords, rather than leaseholders.

Discussion and recommendations for reform

The role of the Tribunal

... a check will need to be made that the Service Routes were not available to the leaseholder.1017

On hearing such an application, the Tribunal will make an order allowing the leaseholders to proceed with their claim if satisfied that the criteria for making such an order . are satisfied.1018

Group B address.1020 A leaseholder who has completed the pre-service checks should be able to have a high degree of confidence that the Tribunal will be satisfied in these circumstances.1021

Example: pre-service checks

Eighteen months ago, a landlord who is an individual (the “Landlord”), provided an address for service of notices (“Address 1”) to the tenant. Address 1 is in Birmingham.

Our regime requires HM Land Registry records to be examined in all cases. Those records show that the Landlord acquired the freehold 10 years ago, but show his or her address for service of HM Land Registry notices as being in Liverpool (“Address 2”).

Address 1 is a Group B address. (It is possible that, with more information about the Landlord’s current whereabouts, Address 1 could actually be a current address, but, in this example, the leaseholder does not have that information.)

Service Route B requires service of the Claim Notice at both Address 1 and Address 2, but also that certain pre-service checks are undertaken, including a search of probate records. In this case, the probate records reveal that two individuals with the same name as the Landlord have died since the date the leaseholder was given Address 1. The records identify that probate was granted by the probate registries in London and Liverpool.

The leaseholder considers the probate records and concludes that neither is relevant and that the Landlord is likely to be alive.

The leaseholder serves the Claim Form on both Address 1 and Address 2. No Response Notice is received.

Should any pre-service checks be required?

that a Group A or B address has been used to serve the competent landlord.

The specified checks

The checks are important for the purposes of satisfying the Tribunal where no Response Notice has been received. However, they are also of significant value to the leaseholder. Their proper completion will help to avoid problems arising later.

Identifying deemed service addresses
Is the known landlord still the correct person to be served?
Pre-conditions to the No Service Route

Deemed service address checks - the correct checks?

Death and insolvency - the correct checks?

Death of an individual landlord
Insolvency
Dissolution of a company landlord
Should leaseholders holding a Group A address also carry out specified checks?

justifies requiring those checks to be carried out.

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The location of the competent landlord

Split reversions

Recommendation 62.

Recommendation 63.

address for the landlord within Group A or Group B,

the leaseholder should be entitled to apply to the Tribunal under the No Service Route for an order allowing him or her to proceed with the claim;

Recommendation 64.

Recommendation 65.

Recommendation 66.

8.338 For the avoidance of doubt, we do not recommend that a failure to carry out the specified checks should affect the validity of the leaseholder’s enfranchisement claim.

INTRODUCTION

RESPONDING TO A CLAIM: LANDLORD’S RESPONSE NOTICE

Details to be included in (or enclosed with) a Response Notice

A Response Notice should state:

A Response Notice should enclose:

Consultees’ views

Information to be provided within the Response Notice

Response Notice should record any request made in respect of security for costs.1057 Our attention was also drawn to the need, if valuation were to depend on whether the leaseholder occupied the premises as his or her own home, for a declaration to that effect to be included within the Claim Notice, and an acceptance or rejection of the same to be included in the Response Notice.1058

Proof of title

Draft documents

A requirement to provide a draft contract, lease or transfer at this early stage of the claim would be onerous, particularly on complex estates subject to partial enfranchisement. The time pressure that this front loading would create is likely to lead to problems with the eventual terms of the transfer which would not be in the interest of any party.

Other consultees were concerned that landlords would need to incur the cost of instructing lawyers to draft documents before there was any certainty that terms would be agreed. Most of those consultees thought that leaseholders should be liable for those costs once they have been incurred.

Discussion and recommendations for reform

Admitting or denying an enfranchisement right

Additional elements proposed by consultees

Address for service on landlord

Proof of landlord’s title

Attaching draft documents

Recommendation 67.

premises and (if relevant) include the landlord’s response to any request by leaseholders that the landlord take a leaseback;

CHALLENGES TO THE VALIDITY OF NOTICES

Proposed Grounds for Challenging Validity of Claim and Response Notices

A Claim Notice should only be invalid if:

A Response Notice would only be invalid if:

Consultees’ view

Enfranchisement

The RTM Consultation Paper

Discussion and recommendations for reform

Validity of notices

Waiver and amendment of defects in Claim Notices and Response Notices

The basis for denial of the claim

Tribunal should have the power to require the landlord to pay the leaseholder’s costs arising from an application to waive any such defect or to amend the Response Notice to add or amend the basis on which the claim is denied. Those costs would include both the costs of dealing with the application itself, the costs of any consequential amendments, and any costs that the leaseholder could show had been wasted as a result of the service of the original notice.

Tribunal discretion

application acted promptly in notifying the party making the application of the defect in the relevant notice.

Recommendation 68.

the application acted promptly in notifying the party making the application of the defect in the relevant notice.

RELEVANT TIMINGS

Consultees’ views and recommendations for reform

We consider the time frame proposed in the consultation is not practically workable in all matters, even if [these are] the desired timescales. Clearly the proposals require landlords to deal particularly quickly even though in most cases they would have had no warning of the claim. This will affect different landlords differently and we think it is important to remember that leaseholders are seeking to enforce their rights when they decide to do so and even if the landlord is not at fault. We believe it is an unnecessary change to the legislation that will not really assist the leaseholders in any significant manner. The Commission should be aware that many matters do, in practice, complete significantly faster than the legislation provides. It is our understanding that the timescales in the current legislation are there as more of a backstop rather than timings to work to and the current timings have shown themselves to be workable in the majority of cases and yet provide the necessary certainty for the parties.

It should be permitted for parties to agree to extend the deadline by which a landlord must respond. It is not unusual to run out of time to meet a counter-notice deadline due to awaiting missing information from the leaseholder’s advisors or having not been provided with access to inspect.

But some consultees opposed the idea that any such extensions should be possible.

Time for serving copies of the Claim Notice

Time for serving a Response Notice

If there is now to be a requirement that [the Response Notice] now includes the transfer/new lease, a period of 6 weeks is going to be difficult to meet. In practice, landlords are [being] expected to do more in less time...

Those consultees were, however, divided as to whether different time limits should be applied for different types of claim.

The default position should be to make this process as quick as possible without giving unreasonable deadlines. Businesses are incredibly adept at adjusting processes when they have to.

Period before an application to the Tribunal can be made

In [our] experience the Tribunal is used as a bargaining chip by both sides and encouraging more use of this will burden the Tribunal with huge amounts of extra workload and costs.

The majority of these consultees supported the existing two-month limit. But a few consultees, including the PBA, considered that the time limit could sensibly be shortened. The specific limits proposed ranged from 28 days to six weeks.

Recommendation 69.

CONDUCT OF THE RESPONSE TO THE CLAIM

Consultees’ views

any provision allowing an intermediate landlord to replace a competent landlord must include detailed grounds which the intermediate landlord must satisfy in order to be able to secure such an order. Otherwise, an intermediate landlord could abuse such provisions, and the issue.could itself lead to protracted proceedings in establishing which landlord should take on the role of competent landlord. This in turn will likely add to costs incurred by all parties and delay the passage of the claim.


para 11.109

para 11.111.

para 11.113.

para 11.115.


Discussion and recommendations for reform

Recommendation 70.

WHAT SHOULD HAPPEN IF A LANDLORD FAILS TO SERVE A RESPONSE NOTICE?

Consultees’ views

If the technicalities are relaxed for the leaseholders, the same should apply to the landlord. It is important to avoid the games of using technical arguments about forms of notice and strict time limits.

Echoing the relationship between this provisional proposal and our other proposals, the Leasehold Advisory Service (“LEASE”) thought that any easing of the current consequences for failure to serve a Response Notice should be conditional upon the introduction of our other proposals to increase the ease and certainty with which leaseholders could start a claim.

that there should be a long-stop date beyond which a landlord who has not served a Response Notice would not be able to intervene.1119

There is no reason for the landlord not to respond to a notice other than to frustrate the [leaseholder’s] claim... [I]t is fair and right to allow the [leaseholder(s)] to proceed based on the terms they proposed to avoid further unnecessary costs and delay.

But in contrast, another consultee, Michael Kucharski, a leaseholder, objected to our provisional proposals because it would make enfranchisement fairer for landlords, and argued that such a proposal fell outside our Terms of Reference. Other consultees were concerned that our provisional proposal would allow a landlord to ignore a Claim Notice without apparent sanction, and require leaseholders to incur costs in obtaining a determination from the Tribunal. For example, J Williams, a leaseholder, wrote that:

I am concerned that this provides landlords with a prime opportunity to frustrate the process and force the leaseholder(s) to put it into the Tribunal. At whose cost (time, money, resource)? There needs to be a consequence for non-response during the given timescales.

Discussion and recommendations for reform

Recommendation 71.

SETTING ASIDE A DETERMINATION

Consultees’ views and recommendations for reform

Should there be a power to set aside?

A landlord in such circumstances could simply arrange to absent themselves and devising criteria to satisfy absence would simply be a route map of how to get around it.

Absentee landlords must bear the risk that goes with what, often in our experience, is an unfortunate indifference to the building. There may be reason for their absence, but, in the context of flats being the homes of ordinary people and the lease bringing obligations for the landlord to steward the building containing those homes, we see little justification for a landlord to be absent in this way.

Other consultees noted that the landlord’s financial interest would be protected as a result of our provisional proposal that any determination made in the landlord’s absence would be made on the basis of evidence and the Tribunal’s expertise rather than simply on the terms set out in the leaseholder’s Claim Notice.1129

What should the criteria be for setting aside a determination?

Tribunal had misdirected itself, or reached a decision which no reasonable Tribunal could reach.

Setting aside a determination made under the Service Routes
Setting aside a determination made under the No Service Route

would risk encouraging leaseholders to rely on the No Service Route even where they are not reasonably entitled to do so.1141

Time limit for bringing an application to set aside a determination

Recommendation 72.

whichever is the earlier.

ENSURING THAT A CLAIM IS PROGRESSED

Consultees’ views and recommendations for reform

The current provisions are disproportionate when it comes to procedural time limits being missed by the leaseholder. It is also sensible to have a mechanism to deal with any stale claims, both from the perspective of the landlord and to enable other groups of leaseholders to make a claim.

But other consultees focussed on the benefits of our proposals for those advising leaseholders. For example, the Law Society supported our proposal on the basis that “the removal of ‘traps’ would reduce the number of claims for negligence against hapless advisers”. The Law Society also supported our strike out proposal as it would “bring abandoned claims to an end and provide a suitable inducement for leaseholders to continue promptly with their claims”. The PBA also supported our proposals, but on condition that a landlord should recover his or her costs if a claim does not proceed.

If the process is to move forward smoothly, both sides need to comply with the procedural timetable. There should be deemed withdrawal if limits are not kept to. In nearly all cases leaseholders will have a solicitor acting for them; there will be no excuse to miss limits.

Why should the already penalised leaseholder be further penalised if there are extenuating circumstances whereby deadlines are missed. Why should the leaseholder be penalised if procedure has been disrupted by circumstances beyond his or her control e.g. bad weather, strikes, postal disruption, lost post etc.

Revising our provisional proposals

Recommendation 73.

INTRODUCTION

EFFECT OF SERVING A CLAIM NOTICE

Consultees’ views and recommendations for reform

Statutory contracts

We do not believe that a statutory contract is necessary. If there is a statutory right then service of the Claim Notice would be enforceable in any event.

Another consultee, Shira Baram, a leaseholder, said that the service of a Claim Notice should simply be seen as the start of an enfranchisement claim:

The claim notice is not a contract it is merely informing the freeholder/ landlord/ superior landlord that the enfranchisement/ freehold acquisition process has started and that they are legally required to engage with the process...

The creation of a statutory contract can cause problems, particularly if the leaseholder wishes to withdraw the claim within the statutory timeframe after the price has been agreed or determined, as sometimes happens under the 1967 Act statutory contract.

Other consultees, including the Property Litigation Association (“the PLA”), thought that the position currently adopted in respect of collective enfranchisement claims, where a voluntary contract was entered into between the parties, provided greater flexibility and was to be preferred.

The creation of a statutory contract under the 1967 Act confers advantages on the leaseholder in that it can serve a notice to complete once the price is agreed. This is not possible under the 1993 Act until all the terms are agreed which leaves open the opportunity for advisers to say: "We will agree this price so long as you agree to our costs" which is underhand and is not right. I think leaseholders have more power if they have a contract from the outset.

Conveyancing regulations

We agree that detailed conveyancing regulations are not generally needed in relation to enfranchisement claims. On collective enfranchisement claims the parties generally agree a form of contract suitable to the circumstances, which incorporates the Law Society’s standard conditions of sale.

Ensuring claims are progressed smoothly

The role of a contract

Recommendation 74.

ASSIGNMENT OF THE BENEFIT OF A CLAIM NOTICE

Consultees’ views and recommendations for reform

Responses to the Assignment Proposal

“lead to greater confusion and administrative difficulties than if there is a positive decision to assign”. We disagree. We think that the need expressly to assign the benefit of a Claim Notice is more likely to generate confusion than its automatic assignment, particularly given that the underlying statutory right to acquire a new extended lease automatically runs with the ownership of the lease.

Responses to the Service Proposal

Recommendation 75.

If the assigning leaseholder has provided security for costs, we recommend that the benefit of that security should not automatically be assigned to the new leaseholder, although it may be expressly assigned. If the security is not expressly assigned, the claim should be stayed until the new leaseholder provides replacement security.

PROTECTING CLAIMS ON THE SALE OF THE LANDLORD’S INTEREST IN THE PROPERTY

Consultees’ views and recommendations for reform

Points in favour of our provisional proposal

Difficulties with our provisional proposal

Revising our provisional proposal

Making Claim Notices automatically binding

There will be added flexibility for the Tribunal to allow new issues to be raised or old issues to be reopened.1188 Moreover, we emphasise that, even if a Claim Notice is automatically binding on a new landlord, this does not affect the relevant leaseholder’s procedural obligations (for example, to substitute the new landlord for the old landlord as the defendant in ongoing Tribunal proceedings).

Recommendation 76.

LANDLORD’S INTEREST SUBJECT TO A MORTGAGE

Consultees’ views and recommendations for reform

Overview of consultees’ views

Points of opposition

represents an unnecessary complication where a small mistake such as not sending a confirmation to the lessee could result in disproportionate bureaucracy to remedy for the landlord, lessee, landlord’s lender and the courts along with a disproportionate punitive financial remedy.

Further payment options for leaseholders

If the landlord’s mortgagee is to receive payment then the landlord’s conveyancer will pay direct in return for its consent to the lease. If the lender so requires or there is no landlord’s conveyancer, the lender can direct the tenant to pay direct. This would be done by the tenant’s conveyancer. The Landlord should provide the tenant with its lenders mortgage details and authority to contact the lender.

The length of the time limits

Concerns about fraud

Recommendation

Recommendation 77.

A payment into court pursuant to this recommendation should qualify as the payment of the premium for the purposes of the completion of the grant of the new lease.

PROVIDING MORTGAGEES WITH A COPY OF A NEW EXTENDED LEASE

Consultees’ views and recommendations for reform

Recommendation 78.

MERGER AS PART OF A FREEHOLD ACQUISITION

Consultees views and recommendations for reform

A mortgagee may wish to retain certain rights. For instance, if the lease contains a repairing covenant but the mortgage deed itself does not but does oblige the leaseholder to observe the terms of the lease, the mortgagee may want the mortgage deed to be varied.

Our general conclusion regarding merger

Modifying our provisional proposal

How guaranteed merger would operate

A long lease has ten years left to run. The leaseholder grants a right of way over some of the land comprised within the lease to a neighbour. The easement is granted for a fixed period of ten years; if the lease happens to continue for longer than ten years, the easement will nevertheless come to an end. After granting and registering the easement, the leaseholder mortgages the lease to the bank. The easement has priority over the mortgage (so, in the case of default, the bank will take possession of the leased property that is subject to the easement).

Four years after granting the easement, the leaseholder pursues a freehold acquisition claim and wishes to merge the leasehold and freehold titles. When the leasehold title is merged with the freehold, both the mortgage and the easement will transfer to the freehold title. If the leaseholder defaults on the mortgage, the bank will now be entitled to enforce against the freehold. However, the easement will still have priority over the mortgage. But the term of the easement will not be extended in duration. It will last for the rest of the original fixed term (a further six years).

Our recommendation

Recommendation 79.

THIRD-PARTY CONSENT AND RESTRICTIONS ON THE LANDLORD’S TITLE

Further legal issues

Initial conclusions

The effect of enfranchisement on third-party proprietary interests

Mortgages

Beneficial interests under a trust of land

Registration Act 2002 and sections 2 and 27 of the Law of Property Act 1925 that overreaching should take place”.1217

Estate contracts

Restrictions protecting contractual rights

Land Registry restrictions against dealings are often registered in favour of an adjoining landowner in respect of positive obligations (e.g. to pay a service charge for a shared right of way). ... These types of conditions are uncontentious and easily satisfied. If the registration is not conditional on compliance, the adjoining owner will, in this example, have to pursue the freeholder for breach of covenant. This will incur legal costs etc. It is not clear on what basis the freeholder (or the adjoining land owner) can force the leaseholder to comply with this obligation after registration.

Court orders and restrictions

A new notification requirement

The effect of the second part of our provisional proposal, modified in the light of this discussion, would be that landlords must give notices to beneficiaries under trusts whose consent is no longer required, the beneficiaries of estate contracts that will be discharged, and the other parties to contracts which will be discharged under point (3) above. (Note that we are recommending independent rules regarding the notification of mortgagees.)1229

Recommendation

Recommendation 80.

the landlord should be required to make reasonable endeavours to notify the beneficiary or third party of the relevant disposition not less than 21 days before completion, and also within 14 days after completion.

FURTHER REGISTRATION REQUIREMENTS

Consultees’ views and recommendations for reform

Recommendation 81.

INTRODUCTION

the procedure successfully;

PROBLEMS WITH THE CURRENT LAW

A SINGLE VENUE FOR DETERMINING DISPUTES

Consultees’ views

Recent developments

Housing Court

Whether the proposed specialist Housing Court would be the appropriate forum for all enfranchisement claims would depend on the expertise and constitution of the Housing Court, which has not yet been announced by Government.

Civil Justice Council’s deployment project

Discussion and recommendations for reform

A single jurisdiction

A single jurisdiction in practice

Enforcement

Additional powers and facilities

Recommendation 82.

AN ALTERNATIVE PROCEDURE FOR VALUATION-ONLY DISPUTES

Consultees’ views

Whether certain valuation disputes should be dealt with by a single valuation expert

Which disputes should be dealt with

The nature of this procedure

Discussion and recommendations for reform

Our proposed scheme

Types of disputes to be allocated to the alternative track

are each taken into account deciding whether the alternative track should be used in any particular claim.

Power to direct a full hearing

Recommendation 83.

A CONTINUING ROLE FOR ALTERNATIVE DISPUTE RESOLUTION

INTRODUCTION

PROBLEMS WITH THE CURRENT LAW

Non-litigation costs

Litigation costs

SHOULD LEASEHOLDERS CONTRIBUTE TO THEIR LANDLORD’S NON-LITIGATION COSTS?

Consultees’ views

Leaseholders should not be required to make any contribution to their landlord's non-litigation costs. Landlords should account for the amount and likelihood of such costs as part of their ongoing financial modelling and forecasting.

The cost of acquiring the Freehold for properties is a significant barrier preventing leaseholders from purchasing the freehold of their properties. The total costs for surveys and other professional fees can be significant and greater in some cases than the value of the freehold itself, for many this would be prohibitive on its own. Furthermore, as the final cost is often unknown, it becomes risky endeavour to commit to enfranchisement in the first place and raises the barrier further, particularly as the Freeholder is in a position to draw out the process at little cost or risk to themselves.

Ensuring that landlords pay for their own non-litigation costs reduces the incentive for them to adopt gamesmanship or prolong the enfranchisement process. It does, in fact, encourage them, to look for ways to make the processes more streamlined and efficient.

Discussion and recommendations for reform

... The UK and Strasbourg Courts are likely to conclude that, in a context where the landlord already receives adequate compensation for his or her interest in a property, it would strike a fair balance and be proportionate to remove the landlord’s ability to recover his or her non-litigation costs from the leaseholder.1296

However, she notes that this argument is:

... Less likely to hold if the Government adopts valuation options that clearly depart from an attempt to capture market value.

. The further away the premium for enfranchisement claims is from the market value of the landlord’s asset, the more likely it is that non-litigation costs should be recoverable, in order for the overall package of compensation to be regarded as proportionate and compatible with A1P1.

It will, therefore, be necessary for the compatibility of the recommended removal of a landlord’s current right to recover his or her non-litigation costs with A1P1 to be assessed at the point that Government has determined how lease extensions and freehold acquisition are to be valued under any reformed regime.

Exceptions to the general rule

Exception 1: low value claims

Examples: leaseholder’s payment to landlord in a low-value claim (where there is to be a contribution to landlord’s non-litigation costs)

Contribution threshold (prescribed sum): £1,000 (illustrative)

Where landlord’s non-litigation costs (C) exceed premium (PR), leaseholder pays landlord lower of (1) the prescribed sum (PS), and (2) the landlord’s non-litigation costs (C).

Example (1):

Premium (PR) payable by leaseholder to acquire freehold: £850 (that is, less than PS)

Landlord’s reasonably incurred non-litigation costs (C): £750 (that is, less than PR)

Leaseholder pays £850

No contribution to landlord’s non-litigation costs required as C not greater than PR.

Example (2):

Premium (PR) payable by leaseholder to acquire freehold: £650 (that is, less than PS)

Landlord’s reasonably incurred non-litigation costs (C): £750 (that is, more than PR)

Leaseholder pays £750 (that is, lower of PS and C)

Contribution to landlord’s non-litigation costs: £100 (that is, total less PR)

Example (3):

Premium (PR) payable by leaseholder to acquire freehold: £150 (that is, less than PS)

Landlord’s reasonably incurred non-litigation costs (C): £750 (that is, more than PR)

Leaseholder pays £750 (that is, lower of PS and C)

Contribution to landlord’s non-litigation costs: £600 (that is, total less PR)

Example (4):

Premium (PR) payable by leaseholder to acquire freehold: £450 (that is, less than PS)

Landlord’s reasonably incurred non-litigation costs (C): £1,250 (that is, more than PR)

Leaseholder pays £1,000 (that is, lower of PS and C)

Contribution to landlord’s non-litigation costs: £550 (that is, total less PR)

Exception 2: additional costs resulting from elections made by leaseholders
Non-litigation costs arising from right to manage claims

Recommendation 84.

CALCULATING ANY CONTRIBUTION TO BE MADE

Consultees’ views: the basis for calculating a leaseholder’s contribution

Fixed costs

leaseholders from doing so. This is said to encourage some landlords to claim higher non-litigation costs that the Tribunal is unlikely to consider reasonable. The adoption of a fixed costs regime was seen by many consultees as helping to address these problems.

A fixed costs regime should not be introduced. Enfranchisement is a complex area where each case is case specific and no two cases are the same with complex issues often to investigate and resolve and issues such as breaches of lease to also resolve. Enfranchisement is a hybrid between litigious and non litigious and as such fixed costs would not fairly deal with the wide spectrum of fees incurred from those which are straightforward and uncontested to those which have several issues or complex title problems and are contested.

Mark Chick, a solicitor, described any fixed costs regime as “commercially unrealistic”. Other consultees expressed concerns that if they were unable to recover at least their reasonable non-litigation costs, landlords would be forced to settle cases at premiums that were less than was reasonable or fair.

Capped costs

Fixed costs subject to a cap

Relating the costs to the price paid for the interested acquired

Linking costs to the landlord’s response to the claim

Reducing the categories of recoverable costs

Preserving the existing categories of recoverable costs with a reformed assessment process

Expanding the categories of recoverable non-litigation costs

Recommendation for reform: the basis for calculating any contribution

Consultees’ views: collective freehold acquisitions and fixed costs

To compare a collective claim of a block of say 40 (or more) flats in [Prime Central London] with an individual freehold claim is to compare apples with pears; they are completely different. Any costs regime needs to reflect that.

It will be very difficult to identify what a suitable fixed cost level should be in respect of every potential additional feature and any reforms to the existing costs regime should build in flexibility to allow recoverability of reasonable costs for each feature in the claim.

Discussion and recommendation for reform: collective freehold acquisitions and fixed costs

Features justifying the recovery of additional non-litigation costs

How should any additional costs be calculated?

The use of a cap within a fixed costs regime

Consultees’ views and recommendations for reform: split reversions, intermediate leases, and management companies

Issues relating to intermediate landlords and management companies can be complex and time consuming to deal with, addressing important issues such as management obligations and other covenants necessary for the ongoing management of complex estates.

Recommendation 85.

CLAIMS THAT DO NOT REACH COMPLETION

Consultees’ views

Should a leaseholder contribute to a landlord’s non-litigation costs where the claim does not proceed?

Should the level of contribution depend upon the stage at which the claim has failed?

If the draft contract/lease/transfer becomes required at the Response Notice stage, then the difference in the non-litigation costs in the various withdrawal circumstances that could then exist are not likely in most cases to be so significant to merit differentiation.

These consultees argued, as they did in response in response to the first part of our consultation question, that landlords should be able to recover all of their wasted costs from leaseholders.

Recommendations for reform

Where leaseholders would be required to contribute were the claim to be completed

Where leaseholders would not be required to contribute were the claim to be completed

Recommendation 86.

A LANDLORD’S SECURITY FOR NON-LITIGATION COSTS

Consultees’ views

Recommendations for reform

where a leaseholder would not generally be required to contribute to those costs where a claim is completed; and second, where a leaseholder would not be required to contribute to those costs where a claim is completed.

If leaseholders are not generally required to contribute to their landlord’s non-litigation costs

If leaseholders are required to contribute to their landlord’s non-litigation costs

Recommendation 87.

PREVENTING VEXATIOUS CLAIMS: ENFRANCHISEMENT RESTRAINT ORDERS

Consultees’ views

Recommendation for reform

Enfranchisement Restraint Orders

Criteria for making an Enfranchisement Restraint Order

This contrasts with the position for civil restraint orders discussed above, where the court can rely only on an order striking out a claim or application that goes on to record that the claim or application was totally without merit.

The scope and effect of an Enfranchisement Restraint Order

In contrast to the position in respect of civil restraint orders, we do not believe that a higher threshold would need to be crossed before more a restrictive ERO could be made. Once the threshold for making an ERO has been met, the Tribunal would be able to determine the appropriate scope of the ERO.

Recommendation 88.

LITIGATION COSTS: COSTS-SHIFTING POWERS

Consultees’ views

The existing limited powers of the Tribunal to order litigation costs should apply to all disputes... If all matters concerning enfranchisement are to be transferred to the Tribunal’s jurisdiction the consequence must be that its limited powers to order costs be retained.

One of the benefits of the county court proceedings is that costs can be awarded where a party loses their claim. This can be a benefit to both leaseholders and landlords and even if the powers move to the tribunal, we believe these costs orders should still be possible to be made in the same way as they are currently.

Recommendations

The general rule

Exceptions to the general rule

aside a determination) wasted costs. First, further costs will not be wasted in dealing with an application for costs under the No Service Route as the landlord will not be in attendance. Second, we think that the costs likely to have been wasted where a landlord has successfully made an application to participate in a claim, or set aside an existing determination, are likely to be too varied to permit a fixed sum to be set without causing injustice in a significant number of cases. In contrast, we think that it would be possible to prescribe a fixed amount that should be payable by a leaseholder if an application to strike out was made successfully. This fixed sum should be payable whether the application to strike out was made by the landlord or by another leaseholder.1345

Additional exceptions

Recommendation 89.

LITIGATION COSTS: UNREASONABLE CONDUCT

Consultees’ views

The current limits on awards of costs at the Tribunal allow it to be a low-cost route to justice in a contested claim. To widen the areas of the award of costs will make the process of a disputed claim much riskier to all parties.

If the Tribunal is going to have comprehensive powers to deal with all disputes it needs to have comprehensive powers to order costs. Otherwise, this will lead to the parties using litigation frivolously which will have the opposite effect to that intended which is to increase costs and delay.

And the British Property Federation considered that:

In our view the ability to make orders on costs, concentrates the minds of parties to litigation and would reduce the element of ‘gaming’ that can currently take place where there is no effective cost sanction. We consider that the risk of a costs liability would act as a deterrent to both landlords and leaseholders in pursuing poor arguments or bad claims before the Tribunal.

I support the proposals on litigation costs but would like to see the definition of 'unreasonable conduct' extended to claims for costs or valuations that the responsible party should reasonably know to be wildly outside those that may reasonably be expected.

And Stephen Barney thought that a costs order should be made “if the Tribunal finds that the landlord has behaved unreasonably or has caused the Tribunal hearing”.

Recommendation

Recommendation 90.

A LANDLORD’S CONTRACTUAL ENTITLEMENT TO COSTS

Recommendation 91.

INTRODUCTION

INTERMEDIATE LEASES AND OTHER LEASEHOLD INTERESTS

Intermediate leases

Terminology

Intermediate leases in enfranchisement claims

Do intermediate leaseholders have enfranchisement rights?

Other leasehold interests in a building

PROBLEMS WITH THE CURRENT LAW

PROTECTING AN INTERMEDIATE LANDLORD IN AN ENFRANCHISEMENT CLAIM

regime. If the intermediate landlord does replace the competent landlord, the roles of the competent and intermediate landlords (as described in this part of the chapter) will be reversed.

Consultees’ views

Discussion and recommendations for reform

The need for a duty

What should the standard be?

Aiding compliance with the duty

Determination and settlement of claims

Costs between landlords

Figure 10: An intermediate landlord’s contribution to the competent landlord’s non-litigation costs

Fixed sum: (say) £1,000

Premium payable by leaseholder: £15,000

Proportion of premium payable to intermediate leaseholder: 35%

Premium payable to intermediate leaseholder: £5,250

Intermediate landlord’s contribution to competent landlord’s non-litigation costs: £350 (being 35% of £1,000)

Premium payable by leaseholder: £850

Proportion of premium payable to intermediate leaseholder: 35%

Premium payable to intermediate leaseholder: £297.50

Intermediate landlord’s contribution to competent landlord’s non-litigation costs: capped at £297.50 (as 35% of £1,000 - being £350 - would exceed the premium payable to the intermediate landlord)

Recommendation 92.

WHAT SHOULD HAPPEN TO AN INTERMEDIATE LEASE ON ENFRANCHISEMENT?

Recommendation 93.

ACQUIRING INTERMEDIATE LEASES CREATED IN A PREVIOUS COLLECTIVE FREEHOLD ACQUISITION

Consultees’ views

It seems an odd proposition to suggest that a freeholder can be obliged to take a leaseback by one group of leaseholders and then for that leaseback to be acquired compulsorily by another group of leaseholders. If the freeholder does not like that, it is suggested that he could simply sell his asset. However, there may be any number of reasons why a sale at a particular time in particular circumstances may not be advantageous. What is the justification for allowing the nominee purchaser to acquire the intermediate leasehold interest in these circumstances?

Other consultees warned of the complexity of this issue, and the difficulty of finding a general solution that would work in all cases. A few consultees noted that the introduction of a right to participate and a moratorium on subsequent collective claims would make the requirement to acquire such intermediate leases unnecessary due to a reduced chance of “ping-pong” claims.1388

Discussion and recommendations for reform

Recommendation 94.

WHERE THE INTERMEDIATE LANDLORD IS ALSO THE LEASEHOLDER OF THE RESIDENTIAL UNIT

Consultees’ views

Discussion and recommendations for reform

Recommendation 95.

HEAD LESSEES WHO ARE ALSO QUALIFYING LEASEHOLDERS

Consultees’ views

Discussion and recommendations for reform

Recommendation 96.

the head lease should be severed, with the part containing the residential units over which the intermediate leaseholder has enfranchisement rights being retained by the intermediate leaseholder, and the remainder being acquired by the nominee purchaser.

LEASES OF COMMON PARTS

We considered that this proposal would clarify the existing power under the 1993 Act in a way that is likely to be significantly less disruptive for the leaseholder of a lease of a residential unit that also contains common parts.

Consultees’ views

Leases of common parts

Development leases

[Developments] almost invariably involve major disruption [to the leaseholders] ... and for these developments to proceed under present law and regulations, the developer has to do deals with the [leaseholders] so that there is a balance between the developer’s right to develop, and the lessee’s right to peaceful enjoyment etc. If you change the law so that the developer can have his development rights preserved, without having to do such deals and without having to balance his rights against the rights of the [leaseholders] there will be huge problems.. What you appear to be suggesting is that if the developer (who has deep pockets and tax deductible business expenses) could show that the proper management of any common parts is not frustrated, then those [leaseholders] who wish to oppose him (who have by comparison little money and are paying out of net income after tax) have a very much weakened position.

Discussion and recommendations for reform

Leases of common parts

Development leases

Recommendation 97.

SUB-LEASES GRANTED OUT OF EXTENDED LEASES

Consultees’ views

... introduces more intermediate leases on a future collective enfranchisement. That will be particularly unfair if a claimant does not have to meet costs incurred by an intermediate landlord.

Discussion and recommendations for reform

Recommendation 98.

VALUATION

In complex cases there are situations where it is appropriate to deviate from the Sportelli rate, particularly if there is an intermediate interest with a set reversionary term. Therefore a certain amount of flexibility is necessary.

And in response to the suggestion of an online calculator, Fanshawe White, surveyors, said that:

An online calculator cannot determine an intermediate leaseholder's ground rent capitalisation rate as it would not know the head leaseholder's position (negative or positive). Consequently, an online calculator could not possibly determine an intermediate leaseholder's split.

This would also be an argument against the prescription of capitalisation rates and certainly against the prescription of a single capitalisation rate.

Example 1

Freehold Vacant Possession Value £250,000

Ground Rent £250pa fixed

A       B       C

Unexpired

Term (Years)

No IL

IL

Positive

IL

Negative

Increase B to A

As a

%age

Decrease

C to A

As a

%age

100

£6,032

£5,863

£17,635

£169

2.9%

£11,603

65.8%

75

£16,486

£16,345

£21,002

£141

0.9%

£4,516

21.5%

50

£43,986

£43,776

£46,915

£210

0.5%

£2,929

6.2%

25

£98,679

£98,466

£99,834

£213

0.2%

£1,155

1.2%

Example 2

Freehold Vacant Possession Value £1,250,000

Ground Rent £1,250pa fixed

A

B

C

Unexpired Term

IL

IL

Increase

As a

Decrease

As a

(Years)

No IL

Positive

Negative

B to A

%age

C to A

%age

100

£30,160

£29,316

£88,174

£844

2.9%

£58,014

65.8%

75

£82,430

£81,727

£105,012

£703

0.9%

£22,582

21.5%

50

£219,928

£218,878

£234,575

£1,051

0.5%

£14,646

6.2%

25

£493,393

£492,329

£499,168

£1,063

0.2%

£5,775

1.2%

In both examples, a single capitalisation rate of 6% has been used where there is no intermediate lease. A dual capitalisation rate of 6% and 2.25% has been used where the intermediate lease has a positive value and a single capitalisation rate of 1% has been used where the intermediate lease has a negative value.

Valuation Option for Reform

“MINOR SUPERIOR TENANCIES” AND “MINOR INTERMEDIATE LEASEHOLD INTERESTS”

Recommendation 99.

COMMUTING THE HEAD RENT

Consultees’ views

Discussion and recommendations for reform

the option set out above is pursued. However, if the option is not pursued, then commuting the head rent would remove the ability of the leaseholders to engineer such a windfall.

Recommendation 100.

INTRODUCTION

A note on terminology

THE CURRENT LAW

Voluntary lease extensions and freehold transfers

Contracting out

PROBLEMS WITH THE CURRENT LAW

Voluntary lease extensions and freehold transfers

Contracting out

LEASE EXTENSIONS OUTSIDE THE STATUTORY SCHEME

Consultees’ views

Do voluntary lease extensions cause problems in practice?

Tenants are unsure about the level of premium, the conveyancer is not able to advise on matters of value as this is a specialist area and the tenant is reluctant to pay for professional guidance from a suitably qualified surveyor.

However, other consultees believed that problems only arose where landlords sought to take advantage of the leaseholder, or the leaseholder was poorly advised or needed to proceed with the transaction quickly.

NLC has many case studies from leaseholders who have naively taken informal offers from freeholders and now find themselves in a much worse position than they were originally. We also have members who have bought leasehold properties where informal lease extensions were taken by previous owners and now find themselves trapped with onerous lease conditions that were not properly explained when they purchased the property.

In contrast, professionals and their representative groups tended to think that such problems occurred less frequently. The consultation response from the Chartered Institute of Legal Executives included the results of its own survey of members on the prevalence of problems with voluntary lease extensions:

But it also noted “anecdotal evidence obtained from some members” that suggested that problems were now less common than before. Other consultees argued that problems arose in a very small proportion of cases. A few consultees argued that the problems did not arise in more sophisticated markets, such as Prime Central London. And some consultees rejected the idea that voluntary lease extensions could cause significant problems. For example, the Property Bar Association argued that: “No evidence of any particular problems arising from [voluntary transactions] have been identified”.

Methods of controlling voluntary lease extensions

... it would be possible to extend the “contracting out” provisions in both the 1967 Act and the 1993 Act (simplified by giving jurisdiction to the Tribunal rather than the court) to any lease not granted under the statutory regime. That would generally discourage unjustified voluntary lease extensions whilst providing a route to allow those leaseholders who genuinely want a lease outside the statutory regime to have that choice.

If, as seems likely, the new regime encourages the use of the proposed legislative framework and makes it simpler and easier, then the desire to enter into agreements outside this framework may well diminish.

Discussion

The existence of a problem

Making statutory lease extensions more attractive to leaseholders

Government might also reduce the price difference between lease extensions that are on statutory terms and those that are not, thereby reducing the incentive for leaseholders to enter into a lease extension that was not on statutory terms. In addition, some of the options presented would (or could) make it cheaper for leaseholders to buy out their ground rent, thereby reducing any financial incentive for leaseholders to agree to a lease extension that retained any obligation to pay ground rent.

The objective behind any regulation of lease extensions that are not on statutory terms

statutory terms unless they have been understood, are on reasonable terms, and have been fairly priced.

Prohibiting all lease extensions that are not on statutory terms

Prohibiting lease extensions that are not on statutory terms only if unreasonable or unfair

Steps short of prohibition

Conclusion

INDIVIDUAL TRANSFERS OUTSIDE THE STATUTORY SCHEME

Consultees’ views

Do voluntary individual transfers create significant problems in practice?

We offer modernised versions of the lease covenants as transfer covenants or carrying over the exact lease covenants. We also offer fixed conveyancing and valuers’ costs to outside the Act sales. This offers certainty to both parties and ensures that covenants are reasonably uniform across the estate. Those purchasing a leasehold house on the estate are able to ask for those terms in advance of purchase (which we will provide to prospective purchasers/agents/advisers) and so there should be no surprises to an incoming owner.

Methods of controlling voluntary individual transfers

Discussion

The existence of a problem

Making statutory individual transfers more attractive to leaseholders

Controlling individual transfers that are not on statutory terms

Conclusion

COLLECTIVE TRANSFERS OUTSIDE THE STATUTORY SCHEME

Consultees’ views

Do voluntary collective transfers create significant problems in practice?

Methods of controlling voluntary collective transfers

Discussion

The existence of a problem

Making statutory collective transfers more attractive to leaseholders

Controlling collective transfers that are not on statutory terms

Conclusion

Recommendation 101.

CONTRACTING OUT

Consultees’ views

Discussion and recommendations for reform

Recommendation 102.

Part VII: Summary of our recommendations

Recommendation 1.

[Paragraph 3.36]

Recommendation 2.

[Paragraph 3.62]

Recommendation 3.

[Paragraph 3.112]

Recommendation 4.

[Paragraphs 3.145 to 3.147]

Recommendation 5.

[Paragraphs 3.209 to 3.210]

Recommendation 6.

[Paragraph 3.240]

Recommendation 7.

However, our recommendation does not apply to “special-purpose rights”. The Tribunal may determine disputes about whether a right is a special-purpose right.

the leaseholder is entitled to use under the terms of the existing lease.

Our recommendation does not apply to “special-purpose rights”.

[Paragraphs 3.298 to 3.300]

Recommendation 8.

[Paragraphs 3.321 to 3.322]

Recommendation 9.

[Paragraphs 3.333 to 3.334]

Recommendation 10.

he or she should nevertheless be entitled to acquire the freehold of the whole of that building or self-contained part of the building (as well as to acquire the reversion to any leases granted in respect of those other parts).

[Paragraphs 4.34 to 4.37]

Recommendation 11.

as if (in relation to settled land) the freehold were transferred pursuant to the powers conferred by the Settled Land Act 1925.

[Paragraphs 4.171 to 4.173]

Recommendation 12.

The provisions of agreements suspended on the service of a Claim Notice should be discharged on the completion of the claim.

[Paragraphs 4.217 to 4.218]

Recommendation 13.

The appurtenant property rights that may be created on an individual freehold acquisition should include land obligations, introduced through implementation of our recommendations in Making Land Work. Our recommendations do not apply to “special-purpose rights”.

[Paragraph 4.337]

Recommendation 14.

the leaseholder is entitled to use under the terms of the existing lease.

Our recommendations do not apply to “special-purpose rights”.

[Paragraph 4.351]

Recommendation 15.

[Paragraphs 4.370 to 4.371]

Recommendation 16.

[Paragraph 4.404]

Recommendation 17.

[Paragraph 5.59]

Recommendation 18.

[Paragraph 5.68]

Recommendation 19.

[Paragraph 5.102]

Recommendation 20.

[Paragraphs 5.149 to 5.151]

Recommendation 21.

[Paragraph 5.172]

Recommendation 22.

[Paragraph 5.195]

Recommendation 23.

[Paragraph 5.221]

Recommendation 24.

[Paragraph 6.45]

Recommendation 25.

[Paragraphs 6.67 to 6.68]

Recommendation 26.

[Paragraph 6.82]

Recommendation 27.

should be able to treat those separate long leases as a single long lease for the purposes of enfranchisement.

[Paragraphs 6.100 to 6.101]

Recommendation 28.

[Paragraph 6.115]

Recommendation 29.

[Paragraph 6.131]

Recommendation 30.

[Paragraph 6.138]

Recommendation 31.

[Paragraph 6.171]

Recommendation 32.

[Paragraph 6.186]

Recommendation 33.

[Paragraphs 6.214 to 6.215]

Recommendation 34.

[Paragraph 6.251]

Recommendation 35.

[Paragraph 6.264]

Recommendation 36.

[Paragraph 6.281]

Recommendation 37.

[Paragraph 6.296]

Recommendation 38.

[Paragraph 6.338]

Recommendation 39.

[Paragraph 6.349]

Recommendation 40.

[Paragraph 6.355]

Recommendation 41.

We recommend that the current prohibition on leaseholders of three or more flats in a building being qualifying tenants for the purposes of a collective enfranchisement claim should be abolished.

[Paragraph 6.371]

Recommendation 42.

[Paragraph 7.19]

Recommendation 43.

[Paragraph 7.38]

Recommendation 44.

[Paragraph 7.61]

Recommendation 45.

[Paragraphs 7.92 to 7.93]

Recommendation 46.

[Paragraph 7.145]

Recommendation 47.

[Paragraphs 7.182 to 7.183]

Recommendation 48.

[Paragraph 7.210]

Recommendation 49.

[Paragraph 7.242]

Recommendation 50.

[Paragraph 7.246]

Recommendation 51.

[Paragraph 7.259]

Recommendation 52.

[Paragraph 8.49]

Recommendation 53.

[Paragraphs 8.73 to 8.74]

Recommendation 54.

[Paragraph 8.89]

Recommendation 55.

[Paragraph 8.108]

Recommendation 56.

[Paragraph 8.117]

Recommendation 57.

[Paragraph 8.145]

Recommendation 58.

In the case of (3) and (4)(a) above, the Tribunal should have power to give directions relating to late service of the Claim Notice, and future participation of the unserved split reversioner or owner of other land (as the case may be) in the claim.

[Paragraph 8.171]

Recommendation 59.

[Paragraph 8.201]

Recommendation 60.

but, in each case, only where the address has been provided within the 12 months preceding the service of the Claim Notice.

but, in each case, only where the address has been provided more than 12 months preceding the service of the Claim Notice;

[Paragraphs 8.242 to 8.244]

Recommendation 61.

[Paragraph 8.254]

Recommendation 62.

the leaseholder should be entitled to apply to the Tribunal for an order determining the claim in the landlord’s absence;

[Paragraph 8.332]

Recommendation 63.

address for the landlord within Group A or Group B,

the leaseholder should be entitled to apply to the Tribunal under the No Service Route for an order allowing him or her to proceed with the claim;

[Paragraph 8.333]

Recommendation 64.

[Paragraph 8.334]

Recommendation 65.

checks by the Tribunal to be set.

[Paragraphs 8.335 to 8.336]

Recommendation 66.

[Paragraph 8.337]

Recommendation 67.

premises and (if relevant) include the landlord’s response to any request by leaseholders that the landlord take a leaseback;

[Paragraphs 9.36 to 9.38]

Recommendation 68.

application acted promptly in notifying the party making the application of the defect in the relevant notice.

[Paragraphs 9.63 to 9.69]

Recommendation 69.

[Paragraph 9.95]

Recommendation 70.

[Paragraphs 9.107 to 9.109]

Recommendation 71.

[Paragraphs 9.125 to 9.126]

Recommendation 72.

whichever is the earlier.

[Paragraph 9.151]

Recommendation 73.

[Paragraph 9.177]

Recommendation 74.

[Paragraphs 10.27 to 10.28]

Recommendation 75.

If the assigning leaseholder has provided security for costs, we recommend that the benefit of that security should not automatically be assigned to the new leaseholder, although it may be expressly assigned. If the security is not expressly assigned, the claim should be stayed until the new leaseholder provides replacement security.

[Paragraphs 10.54 to 10.55]

Recommendation 76.

[Paragraph 10.81]

Recommendation 77.

A payment into court pursuant to this recommendation should qualify as the payment of the premium for the purposes of the completion of the grant of the new lease.

[Paragraph 10.106]

Recommendation 78.

[Paragraph 10.122]

Recommendation 79.

[Paragraphs 10.147 to 10.149]

Recommendation 80.

the landlord should be required to make reasonable endeavours to notify the beneficiary or third party of the relevant disposition not less than 21 days before completion, and also within 14 days after completion.

[Paragraphs 10.210 to 10.212]

Recommendation 81.

[Paragraph 10.223]

Recommendation 82.

[Paragraphs 11.29 to 11.32]

Recommendation 83.

[Paragraphs 11.49 to 11.52]

Recommendation 84.

[Paragraph 12.56]

Recommendation 85.

[Paragraphs 12.109 to 12.111]

Recommendation 86.

[Paragraphs 12.128 to 12.129]

Recommendation 87.

[Paragraphs 12.145 to 12.146]

Recommendation 88.

[Paragraphs 12.165 to 12.167]

Recommendation 89.

[Paragraphs 12.187 to 12.188]

Recommendation 90.

[Paragraph 12.196]

Recommendation 91.

[Paragraph 12.204]

Recommendation 92.

[Paragraph 13.45]

Recommendation 93.

[Paragraph 13.51]

Recommendation 94.

[Paragraph 13.60]

Recommendation 95.

[Paragraphs 13.67 to 13.69]

Recommendation 96.

the head lease should be severed, with the part containing the residential units over which the intermediate leaseholder has enfranchisement rights being retained by the intermediate leaseholder, and the remainder being acquired by the nominee purchaser.

[Paragraph 13.82]

Recommendation 97.

[Paragraphs 13.104 to 13.107]

Recommendation 98.

[Paragraph 13.117]

Valuation Option for Reform

[Paragraph 13.145]

Recommendation 99.

[Paragraph 13.151]

Recommendation 100.

[Paragraph 13.158]

Recommendation 101.

[Paragraph 14.122]

Recommendation 102.

[Paragraph 14.134]

(signed) Sir Nicholas Green, Chairman

Professor Sarah Green

Professor Nick Hopkins

Professor Penney Lewis

Nicholas Paines QC

Phil Golding, Chief Executive 26 June 2020

THE LAW COMMISSION: RESIDENTIAL LEASEHOLD LAW REFORM

TERMS OF REFERENCE

The project was announced in the Law Commission's Thirteenth Programme of Law Reform and in Government's response to its consultation Tackling unfair practices in the leasehold market.

The project will be a wide-ranging review of residential leasehold law, focussing in the first instance on reform to:

The Commission and Government are discussing other areas of residential leasehold reform that could be included in the project.

The Government has identified the following policy objectives for the Law Commission's recommended reforms:

Generally

Enfranchisement

Commonhold

Right to manage

Enfranchisement covers the statutory right of leaseholders to:

The project will consider the following issues:

Commonhold is a form of ownership of land which is designed to enable the freehold ownership of flats. There are various legal issues within the current commonhold legislation which affect market confidence and workability. The Commission will review those issues to enable commonhold to succeed.

The following legal issues will be considered:

The project will commence with the publication of a call for evidence. Other legal problems that emerge from that call for evidence will be included in the project by agreement with Government.

The Commission’s review will complement Government’s own work to remove incentives to use leasehold, and Government’s work to address non-legal issues to re-invigorate commonhold such as education, publicity and supporting developers, lenders and conveyancers. As part of its call for evidence, the Commission will invite consultees’ views on (i) whether, and if so how, commonhold should be incentivised or compelled, and (ii) the non-legal issues that must be addressed to re-invigorate commonhold, and report on the outcome of that consultation, without making recommendations.

The right to manage was introduced by the Commonhold and Leasehold Reform Act 2002. It is a right granted to leaseholders to take over the landlord’s management functions through a company set up by the leaseholders for this purpose.

The Law Commission is asked to conduct a broad review of the existing right to manage legislation with a view to improving it. In particular, the Law Commission will:

  • 1 West India Quay Residents’ Association

A L Knowles

Aaron [no other name given] Adam Stamboulid

Adi [no other name given] Adlington Property Limited Adrian Page

Afzal Memon

Agnes Kory

Aiton Marr

Alan Davies

Alan Davis

Alan Henry Brook

Alan Riggs

ALEP (Association of Leasehold Enfranchisement Practitioners)

Alexia Dempsey

Alexis Kakoullis

Alice Brown

Alison Rowe

Alison Rowlands

Altaf Sumra

Alun Gruffydd Phillips

Alun Phillips

Amanda Khan

Amanda Murphy

Amanda Whitenstall

Amar Kansal

Amarjit [no other name given]

AML Surveys and Valuation Ltd

Amy Pegnam AnchorHanover

Andrea Carr

Andrea Leech

Andrea Manzini

Andrea McKie

Andrea Millward

Andrew Athey

Andrew Baker

Andrew Boorman

Andrew Brophy

Andrew Callan

Andrew Childs

Andrew Dunn

Andrew Henderson

Andrew Pridell Associates Ltd

Andrew Richard Perrin

Andrew Strain

Andrew Yelland

Angela Capper

Angela Doran

Angela Whitehead

Anita [no other name given]

Ann Middleton

Ann Redshaw

Anna Jones

Anna Symonowicz

Anna Williams

Annabella Louise Scoffin

Anne Hunter

Anne Juliff

Annmarie O'Brien

Anthony and Lynn Cotterill

Anthony Baker

Anthony Brunt

Anthony Cummisky

Anthony Hurndall

Anthony Kent

Anthony Shamash

Anthony Shilson

Anthony Wood

Anton Schwarzin

Antonio De Gouveia

Apex Housing Group

ARCO (Associated Retirement Community Operators)

Asela Kuruwita Arachchilage

Ashley Hill

Association of British Insurers

Avril Pino

Barbara Warburton

Barry Carpenter

Barry Evans

Barry McNorton

Barry Stock

Bearwood Court (Maintenance) Limited

Beata Baryla

Belgravia Residents Association

Belmont Park Close,

Belmont Park and Brandram

Road, Lewisham, London SE13 Leaseholders

Benjamin Newton

Berkeley Group Holdings PLC

Bert Lourenco

Beth Leahy

Beth Rudolf

Beverley Woodward

Bi-Borough Legal Services for Westminster and Kensington and Chelsea

Bikrish Amatya


Birmingham Law Society

Bob Ford

Boodle Hatfield

Boris Vucicevic

Brenda McMahon

Bretton Green Ltd

Brian Turnbull

Bridget Murphy

British Insurance Brokers'

Association (BIBA)

British Property Federation

Brockenhurst Parish Council

Bruce Maunder-Taylor

BRW Sparrow

Bryan Cave Leighton

Paisner LLP

Bryan Wildman

Buckingham Court

Residents Association

Building Societies

Association

Cadogan

Candy Green

Cannock Mill Cohousing

Colchester Limited

Carol Barber

Carol Giles

Carol Greenwood

Carol Johnson

Carol Seymour

Carol Walsh

Caroline Marks

Carrie Rollinson

Carter Jonas LLP

Cassie Ilett

Catherine Gale

Catherine Kane

Catherine Loader

Catherine Williams

Caxtons Commercial Ltd

Celina Jowett

Cellina Momodu

Cerian Jones

Charities Property Association

Charles Oliver

Charles Tellerman

Charlie Coombs

Charlotte [no other name given]

Charlotte Newton

Charlotte Thomas

Cherry Denison

Chin Li

Chris Alexander

Chris and Lynn Scully

Chris Austin

Chris Burns

Chris Lawrenson

Chris Longley

Chris Martin

Chris Mitchell

Chris Pearce

Chris Smith

Chris Uden

Christina Goddard

Christina Mary Edmunds

Christina Varnakidou

Christine Rigby

Christopher Balogh

Christopher Cubbin

Christopher Denny

Christopher Elliott

Christopher J.D. Roberts

Christopher Jessel

Christopher Mark Hepple

Christopher Myers

Church & Co Chartered Accountants

Church Commissioners for England

CILEx

Ciro Ahmad

City of London Corporation

Clare Butchart

Clare Ellis

Clare Huntingford

Clare Schofield

Cliff Hawkins

Clifford Chance LLP

Cluttons

CMS Cameron McKenna Nabarro Olswang LLP (CMS)

Colin Greenbank

Colin Joseph Gavan

Conrad Lea

Consensus Business Group

Cora Beeharry

Corrina Davies

Cottons

Council for Licensed

Conveyancers

Country Land and Business Association

Craig Alexander

Craig Hamer

Craig Moodie

Craig Stamper

Cyntra Properties Limited

D Taylor

Dale Robertson

Dame Alice Owen's Foundation

Damian Greenish

Damien Coyle

Dan Smith

Daniel Allum

Daniel Hooley

Daniel Jones

Daniel Latto

Dave and Sue Parker

Dave Chapman


Dave Smith

Derek Walker

Francesco [no other name

David Allen

Des Kinsella

given]

David Britch

Dhar [no other name given]

Francesco Guariglia

Francine Jones

David Clapp

Doreen Keane

David Cobb

Douglas Whyte

Franciszka Mackiewicz-Lawrence

David Deaville

Dr Anthony Shaw

Gabriel Netser

David Dixon

Dr Bernard Johnston

Gabriel Schembri

David Evans

Dulwich Estate

Gareth Helsby

David Hatch

E Pugh

Gary Humphries

David Heard

Each Side Leasehold

Gary Nolan

David Hinchliffe

Ebrahim Esat

Gary Okell

David Johnson

Ed Meyer

Gavin Allen

David Johnston

Eileen O'Brien

Gemma James

David Lester

Eileen Walsh

Geoff Fear

David Lewis

Elizabeth Bull OBE

Geoffrey Brewis-Levie

David Masterman

Elizabeth Pearce

Geoffrey Holmes

David Mawer

Ellen Booth

George Donath

David McArthur

Elliot Sweeney

Geraint Evans

David Michael Pugh

Emily Harris

Gerald Eve LLP

David Murphy

Emily Harrison

Gerald Grigsby

David Newton

Emma Hynes

Gerald Hyam

David Pearce

Emma Latham

Giles Rowlinson

David Robson

Emma McDonald

Gilles Costerousse

David Sainsbury

Emma Sutton

Gillian Miller

David Sheppard

Emma Thomas

Glen Armstrong

David Silvermam

Emma Thorncroft

Glyn Jenkins

David Stewart

Erik Magnusson

Gordon Clifton

David Thorogood

Estates Business Group

Gordon Peters

David Whitworth

Estelle Hargraves

Graeme Foster

Dawn Barnes

Eunice Keane

Graham Dixon

Debbie Peaford

Fanshawe White

Graham Hollingworth

Debbie Winfield

Deborah Holmes

Federation of Private

Residents' Associations

Graham McGouran

(FPRA)

Graham Webb

Debra Harvey

Fee Simple Investments

Greg Davies

Declan O'Byrne

Limited

Greg Passeri

Deepak Gupta

Fieldfisher LLP Solicitors

Grosvenor

Della Bramley

Fiona Biglin

Guy Charrison

Denise Clark

First-tier Tribunal (Property

Hamlins LLP

Derek AR Gomez

Derek Sparrow

Chamber)

Five Rivers Cohousing

Hampstead Garden Suburb Trust

Hannah Kopel

Hannah Yates

Hatal Raninga

Hayes Point Collective

Freehold Limited

Heather Keates

Hele Meehan

Helen Atack

Helen Butcher

Helen Leighton

Helen Merrifield

Helen Short

Hilary McDonagh

Hitesh Sangtani

Howard de Walden Estates

Limited

Hugh Donaldson

Huw Thomas

Iain Glennon

Ian Ashmore

Ian Daniels

Ian Grant

Ian Holland

Ian Humphreys

Ian Jefferson

Ian Kirby

Ian Leigh

Ian Morgan

Ian Murphy

Ian Nicholson

Ian Teacher

Ian Thomson

Ian Young

Institute and Faculty of

Actuaries (IFoA)

Irwin Mitchell LLP

J Walsh

J Williams

Jacob Fraser

Jacqueline Coals

Jacqueline Perkins


Jad Adams

John Bound

Jahangir Hussain

John Byers

James Driscoll

John Davidson

James Matthews

John Fosyer

James Mills

John Fryer

James Moyse

John Hall

James Pickering

John Hammerbeck

James Souter

John Lyon's Charity

James Strong

John Paul Hardesty

James T Palmer

John Rogers

Jamie Farrell

John Shorrock

Jamie John Atkins

John Smyth

Janaka Prasad Vithanage

John Stephenson

Janan Shan

John W Bunting

Jaqueline Gay Meeks

Jonathan Adams

Jasmin Akhtar

Jonathan and Yvonne Boyd

Jason Smith

Jonathan Clark

Jay Beeharry

Jonathan Grisenthwaite

Jayne Field

Jonathan King

Jean Lemon

Jonathan Poulter

Jeanette [no other name

Jonathan Pringle

given]

Jonathan Rolls

Jeanette Allen

Jonathan West

Jeanette Rodgers

Joseph McGuigan

Jean-Sebastien Tourtel

Josephine Rostron

Jeffrey Ellis

Joy Dickinson

Jennifer Ellis

Judith Read

Jennifer McMaster

Julian E C Briant

Jenny Harley

Julian Parsons

Jeremy Gibbs

Julian Wilkins & Co

Jeremy Goldberg

Chartered Surveyors

Jeremy Shall (on behalf of

Jupiter Investments Ltd

Denise Saccone)

Kalpesh Patel

Jerry and Tamzin Mannion

Kapil Purohit

JLL

Karen Burrell

Jo Darbyshire

Karen Conneely

Jo Morgan

Karen Deakin

Joan Bingham

Karen Knowles

Joanne Walker

Karen Mills

Jocelyn [no other name given]

Karen Wilson


Karim Walji

Leonardo Monzon

Lucy Watt

Karl Briggs

Leshane Perry

Luke Boyden

Karl Layland

Lesley Johnson

Lune Valley Community Land Trust Ltd

Kate Jones

Lesley Rentell

Kath Jones

Leslie Smee

Lynn Myers

Kathleen Fellows

Lewis Cowey

Lynne Briggs

Kathryn Cavanagh

Liam Goodwin

Lynne Butler

Kathryn McGouran

Lilac Mutual Home

Lynne Martin

Katie Johnson

Ownership Society

Lynne O'Brien

Katie Kendrick

Linda Berriman

Lynsey Foster

Keith Hince

Linda Diane Parsons

Linda Friend

M Naseef Owasil

M Y Ecker

Keith Richardson

Kelly Casey

Linda Macdonald

Maddox Capital Partners Limited

Ken Moore

Linda Skelton

Linda Sloane

Madeleine Brierley

Kerry Knowles

Kerry Maisey

Lindsey Smith

Malgorzata Zymla

Man Fai Lo

Kevin Joyce

Linz Darlington

Marbeth Gordon

Kevin Sephton Kevin Tranter

Kirsty Marsden KPMG

Lisa [no other name given]

London Borough of Camden London Borough of Islington London Borough of Tower

Margaret Benton

Margaret Moore

Maria Jouce

Hamlets

Maria Manalo Nwachuku

Kris Bradshaw

London Diocesan Fund

Marian Berkeley

Kristian Littlewood

Long Harbour and

Marie Joyce-Reidy

Kristine and Geoff Taylor

Bryher

Kyle Hollingworth

Laura Ferrie

HomeGround

Lord Berkeley

Lord Carnwath of Notting

Hill

Marie McLaughlin Marilyn Campbell Mark Attenborough

Laura Woodward

Lord Truscott

Mark Baynton-Glen

Laurence Griffiths

Lorena Vacca

Mark Chick

Laurence Prax

Lorraine Black

Mark Emeny

LEASE

Lorraine Jimenez

Mark Hanson

Leasehold Forum

Louisa Tunney

Mark Hawkins

Leasehold Knowledge

Louise Glover

Mark Hood

Partnership

Louise Hudspith

Mark Sullivan

Leasehold Solutions

Louise Jones

Mark Tomkins

Lee Baker

Louise O’Riordan

Mark Wall

Lee Broadbent

Louise Whitnall

Marsha Oza

Lee Dickinson

Lucia O'Brien

Marshel Weerakone

Lee Livett

Lucy Carmichael

Martha Commandeur

Leonard Samson

Lucy Lenton

Martin and Fiona Nicolle

Martin Beesley

Miss J Boyce and Mr Mark Mitchell

Martin Chamberlain

Martin Cottam

Mitchell [no other name given]

Martin Dawson

Morgoed Estates Limited

Martin Geoghegan

myleasehold ltd

Martin William D T Ward

Nagappan Selvan

Martine Colby

Nancy Hopkins

Martyn Eynon Jones Not applicable

Nasir Zaman

Mary Stiff

Natalia Bremner

Matthew Alton

Natalie Suggitt

Matthew Hewstone

Natasha Forster

Matthew McKay

Natasha Sampson

Matthew Olley

National CLT Network and the UK Cohousing Network

Maureen Gillooly

National Housing Federation

Maureen Whitlock

National Leasehold

Mavis Chakwenya

Campaign

Mavis Paterson

National Trust

Max Beckett

Neil Gear

Mayoor Agarwal

Nesbitt and Co

Mayor of London

Neville Brian Gallacher

McCarthy & Stone

Nicholas Roberts

Megan Bowyer

Nick Raymond

Mehboob Neky

Nick Steel

Melanie West

Nick Trainer

Melissa Goodwin

Nicola Beswick

Melissa Johnson

Nicola Bowden

Michael Hollands

Nicola Callaghan

Michael Huang

Nicola Jenkinson

Michael Kelly

Nicola Jones

Michael Kucharski

Nicola Reid

Michael Marshall

Nicola Smith

Michael Moran

Nicola Tann

Michalis Kapsos

Nicola Tomlinson

Michelle Merrilees

Nicola Warburton

Midland Valuations Limited

Nigel Carnie

Mike [no other name given]

Nigel Edwards

Mike Searle

Nigel Keen

Millbrooke Court Residents

Nina Rautio

Association

Nina Salsotto Cassina


North View Fold Resident Group

Notting Hill Genesis

Oakfield Court Residents'

Association

Octavia Housing

Oliver Stancombe

Onward Homes

Orme Associates Property

Advisers

Ormond P Simpson

Owen O'Neill

Pamela Cunliffe

Pamela Rose

Parthenia

Patricia Kennedy

Paul and Sally Coulthard

Paul Church

Paul Glover

Paul Goodlad

Paul Gothard

Paul Hamilton

Paul Hird

Paul Osborne

Paul Potts

Paul Roberts

Paul Rowntree

Paul Tayler Limited

Paul Thomas

Paul Thurston

Paul Willmott

Paul Worley

Paula Hill

Paula Shaw

Pauline Mawer

PBM Property Management

Pearn Ltd

Penelope Brook

Pennington Manches LLP

Penny Atkinson

Penny Gell


Persimmon PLC

Pete Liggins

Peter and Christine Davis

Peter Barker

Peter Beckett

Peter Cunningham

Peter Finneran

Peter Jones and Gabrielle Maxwell-Jones

Peter Muir

Peter Weeks

Peter Wright

Philip Ashley

Philip Bullivant

Philip Cross

Philip Culley

Philip Kelly

Philip Rainey QC

Phyllis Helen Buchanan

Piers Haben

Polly Durey

Pollyanna Williams

Professor Grey Giddins

Property Bar Association

Prosper Marr-Johnson

Rachael Ball

Rachael Newman

Rachel Florey

Rachel Lewin

Rachel Rose Dring Radamanthos Tsotsos

Rakesh Tiwari

Rama Vorray

Ramilla Shah

Randy Silver

Ravelle Josephs

Ray Chapple

Renate Thompson

Residential Landlords Association

Residents’ Association of

Canary Riverside

Rhett Ewer

Richard Baron

Richard Bass

Richard Chester

Richard Glass

Richard Hards

Richard Hartigan

Richard McCarthy

Richard Porter

Richard Stacey

Richard Warwick

Richard William Morris

Rishi Mital

Rita Simmonds

Robert Bater

Robert Brooks

Robert Guerrini

Robert James

Robert Nix

Robert Owen

Robert Parr

Robert Warren

Robert Wood

Robin Benjamin

Roger Dunn

Roger Parkin

Rolfe Klement

Ron Harris

Rory & Elizabeth

Cunningham

Rory Cunningham

Rosemary Hadfield

Rosie Bahr

Rothesay Life

Royal Institution of

Chartered Surveyors (RICS)

Rupert Barnes

Rupert Houltby

Russell Hughes

Russell Thomson

S M Rendell

Salah Banna

Sally Jane Jenkins

Sally Mills

Sandeep Dulai

Sandra Smith

Sanja Williams

Sara Cornthwaite

Sarah Brachtvogel

Sarah Chan

Sarah Cooper

Sarah Elise Robertson

Sarah Foster

Sarah Hilton

Sarah Johnston

Sarah Majid

Sarah Webb

Sarfraz Rajwadkar

Sarum St Michael

Management Company Ltd

Saul Gerrard

Sayyam Sahni

Scrivener Tibbatts Ltd

Sharon Johnson

Shaun Porter

Sheila Jalving

Sheila Neville

Sheila White

Shelagh Fitzpatrick

Shelley King

Shepard Way Residents

Association

Shira Baram

Shirley Mcdonagh

Shoosmiths LLP

Simon Davies

Simon Davies

Simon Elliott

Simon Wones


Sinnathamby Senthitselvan Sir John Cass's Foundation Sladana Tanaskovic Sophie Wolf

South East Leasehold

Southlands College Estate Wimbledon Limited

St Thomas's Leaseholders

Stefania Maulucci

Stella Roberts

Stephanie Holm

Stephanie Livesey

Stephanie Russell Stephanie Stockton

Stephen Barney

Stephen Desmond

Stephen Heslop

Stephen Hogg

Stephen Nottridge

Stephen Wharton

Steve Fiddler

Steve Lydiate

Steven Harding

Steven Robert Jones

Steven Short

Stewart Gray

Stone King LLP

Stuart Cox

Sue Murray

Sumita Harris

Suraiya Akter

Susan Airey

Susan Clarke

Susan Heywood

Susan Kirby

Susan Lydiate

Susan Pearmain

Susan Routledge

Sutton Leaseholders Association

T Smethurst

TANT (Tenants Association of the National Trust) -Killerton Group

Tapestart Limited

Tenants Association National Trust

Tenants Association of the National Trust

Terence Perkind

Terence Robert Ballard

Thackray Williams LLP (Solicitors)

The Alan Mattey Group

The Chalfont Dene Lease Owners Association, and Mr Derrick Fuller-Webster, in a response endorsed and supported by Mrs Margaret Rutherford QC, Mr John Edwards, and about 40 leaseholders of the Audley Inglewood Retirement Village

The Charity of Richard Cloudesley

The Conveyancing Association

The Crown Estate

The Land Trust

The Landmark Trust

The Law Society

The Portman Estate

The Property Litigation Association (PLA)

The Royal Commission for the Exhibition of 1851

The Society of Licensed Conveyancers

The Wellcome Trust

Therese Leignel

Thomas Beech

Thomas JD Travers

Tim Reeves

Tom Ellis

Tom Muir

Tommy Reeves

Tony Boys

Tony Burke

Tony Smetham

Tracey Cummings

Tracey Horton

Transport for London

Trevor Leigh

Trowers and Hamlins LLP

UK Finance

Valerie Gibson

Valerie Johnson

Vanessa Austin Badoor

Veer Shah

Verina Glaessner

Verity McMahon

Vicky Johnson

Victor and Freda Margaret

Crew

Victor Levy

Victoria Bradbury

Victoria Davies

Victoria Holden

Wales Co-operative Centre

Wallace LLP

Wallace Partnership Group

Ltd

Wayne Rowlatt

Wedlake Bell LLP

Wendy Parga

Wendy Seddon

Wesley Kinsella

William Bullin

William Coney

William Doran

William Stansfield

Wing Man Kan

Wojciech Zymla

Womble Bond Dickinson

(UK) LLP

Wrigleys LLP


Xuxax Limited


Yvonne Tolliday


Zhaokai Ma


The list of consultees set out in this Appendix excludes those who wished to remain anonymous or whose response to our consultation was intended to be confidential.

CCS0620752350

978-1-5286-2061-1

841

1

UK Cladding Action Group, Cladding and internal fire safety: mental health report 2020 (May 2020), p 6, at https://drive.google.com/file/d/1ezKSaJqO3bVyG9-eH58SoiT2bH4D8PjW/view.

2

In the 2010 British Social Attitudes survey, 86% of respondents expressed a preference for buying a home and 14% preferred to rent: Department for Communities and Local Government, Public attitudes to housing in England: Report based on the results from the British Social Attitudes survey (July 2011), at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/6362/193 6769.pdf.

3

Renting Homes (Wales) Act 2016. The 2016 Act was enacted following recommendations made by the Law Commission in its reports, Renting Homes (2003) Law Com No 284 and Renting Homes in Wales (2013) Law Com No 337.

4

See proposal for a Renters Reform Bill, which would remove the current right of landlords in the private rented sector to evict their tenants by giving two months’ notice to leave: The Queen’s Speech, December

5

2019, pp 46-47, at

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/853886/Q ueen_s_Speech_December_2019_-_background_briefing_notes.pdf. See also temporary measures whereby landlords will have to give all renters 3 months’ notice if they intend to seek possession of a property in the Coronavirus Act 2020, s 81 and sch 29.

Leasehold home ownership: buying your freehold or extending your lease - Report on options to reduce the price payable (2020) Law Com No 387 (“the Valuation Report”).

6

Subject to exceptions.

7

Subject to exceptions.

8

Including leasehold owners of future homes, to the extent that leases are still granted of future homes.

9

If a lease is unmortgageable, and if the leaseholder cannot afford to extend the lease, the leaseholder might be able to sell the lease to a cash-buyer who can afford to pay the landlord to extend the lease. The purchase price would be reduced by (at least) the cost of a lease extension.

10

I Cole and D Robinson, “Owners yet tenants: the position of leaseholders in flats in England and Wales” (2000) 15 Housing Studies 595.

11

N Hopkins and J Mellor, ““A Change is Gonna Come”: Reforming Residential Leasehold and Commonhold” (2019) 83(4) Conveyancer and Property Lawyer 321, 331-322 (“A Change is Gonna Come (2019)”).

12

Historically, the sale of houses on a leasehold basis became widespread practice in particular areas of the country.

13

A Change is Gonna Come (2019).

14

Housing, Communities and Local Government Committee, Leasehold Reform (2017-19) HC 1468, para 25, at https://publications.parliament.uk/pa/cm201719/cmselect/cmcomloc/1468/1468.pdf.

15

Valuation Report, para 1.71 and 3.45 onwards (on the inequality of arms), para 3.4 onwards (on inherent unfairness), and Ch 3 generally on competing views about reform.

16

We summarise the wider policy debate in Ch 1 of our Enfranchisement, Commonhold and Right to Manage CPs, where we refer to media coverage, the activities of campaign groups, Government announcements, the work of the All-Party Parliamentary Group on Leasehold and Commonhold, and various Parliamentary debates about leasehold.

17

The First-tier Tribunal (Property Chamber) in England and the Leasehold Valuation Tribunal in Wales.

18

Competition and Markets Authority, Leasehold housing: update report (February 2020) para 33, at https://www.gov.uk/cma-cases/leasehold.

19

Competition and Markets Authority, Leasehold housing: update report (February 2020).

20

A Change is Gonna Come (2019), 330-331.

21

Commonhold was created by the Commonhold and Leasehold Reform Act 2002. While primarily designed to enable the freehold ownership of flats, commonhold is equally capable of applying in a commercial context. It can, for example, regulate the relationship between individually owned offices within an office block.

22

L Xu, “Commonhold Developments in Practice” in W Barr (ed), Modern Studies in Property Law: Volume 8 (2015) p 332.

23

Taken from A Change is Gonna Come (2019), 328-329.

24

Housing, Communities and Local Government Committee, Leasehold Reform (2017-19) HC 1468, para 81.

25

See, for example, https://wslaw.co.uk/wp-content/uploads/2019/07/LR-December-Bulletin-2018.pdf, p 3.

26

S Bright, “Do freeholders provide a unique and valuable service?” (2019) at

https://www.law.ox.ac.uk/housing-after-grenfell/blog/2019/04/do-freeholders-provide-unique-and-valuable-service.

27

Housing, Communities and Local Government Committee, Leasehold Reform (2017-19) HC 1468, para 17.

Once we have commonhold in a way that works ... we do not need long residential leases. Commonhold solves the two underlying concerns that we hear about leases. . Once commonhold is there and it is working, if you want a system of ownership that removes those underlying concerns with leasehold,

28

Housing, Communities and Local Government Committee, Oral evidence: Leasehold reform (2017-19) HC 1468), response to Question 456, at

http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/housing-communities-and-local-government-committee/leasehold-reform/oral/95161.pdf.

29

A Change is Gonna Come (2019), 328.

30

There is an exception: leaseholders of houses can extend their lease without paying a premium but instead paying a higher annual rent. See para 2.8(2) below.

31

Valuation Report.

32

Our project did, however, provide an opportunity to gather evidence on these wider measures to reinvigorate commonhold, and we report on them in our Commonhold Report.

33

See: (1) Department for Communities and Local Government (“DCLG”), Tackling unfair practices in the leasehold market: A consultation paper (July 2017) (“Tackling unfair practices consultation, July 2017”);

(2) DCLG, Tackling unfair practices in the leasehold market: Summary of consultation responses and Government response (December 2017) (“Tackling unfair practices response, December 2017”);

(3) MHCLG, Implementing reforms to the leasehold system in England: A consultation (October 2018) (“Implementing reforms consultation, October 2018”);

(4) MHCLG, Implementing reforms to the leasehold system in England: Summary of consultation responses and Government response (June 2019) (“Implementing reforms response, June 2019”); and

(5) MHCLG, Government response to the Housing, Communities and Local Government Select Committee report on leasehold reform (July 2019) (“Response to Select Committee, July 2019”).

(1) and (2) are at https://www.gov.uk/government/consultations/tackling-unfair-practices-in-the-leasehold-

market; (3) and (4) are at https://www.gov.uk/government/consultations/implementing-reforms-to-the-

leasehold-system; (5) is at

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/814334/C CS0519270992-001_Gov_Response_on_Leasehold_Reform_Web_Accessible.pdf.

34

Implementing reforms response, June 2019, Ch 2. The ban would apply, predominantly, to houses that are built in the future. The ban on the grant of leases of houses would, however, also prevent the grant of a new lease over an existing house. The ban would not apply to existing leases of houses.

35

Implementing reforms response, June 2019, Ch 3.

36

The proposals included plans for a mandatory code of practice covering letting and managing agents and nationally recognised qualification requirements for letting and managing agents to practise. In addition, an independent regulator was proposed which would oversee both the code of practice and the delivery of the qualifications: DCLG, Protecting consumers in the letting and managing agent market: call for evidence (October 2017), and MHCLG, Protecting consumers in the letting and managing agent market: Government response (April 2018). A working group chaired by Lord Best was subsequently tasked with “considering the entire property agent sector to ensure any new framework, including any professional qualifications requirements, a Code of Practice, and a proposed independent regulator, is consistent across letting, managing and estate agents”: see: Regulation of property agents working group - final report (July 2019), at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/818244/R egulation_of_Property_Agents_final_report.pdf.

37

  Response to Select Committee, July 2019, pp 25-29.

38

  Response to Select Committee, July 2019, pp 23-24.

39

  Response to Select Committee, July 2019, p 29.

40

  Response to Select Committee, July 2019, pp 29-30. We have previously recommended that forfeiture be

abolished and replaced with a regime to enforce the terms of leases in a proportionate way: Termination of Tenancies for Tenant Default (2006) Law Com No 303.

41

Tackling unfair practices response, December 2017, Ch 4.

42

Response to Select Committee, July 2019, p 13. We explain the right of first refusal in para 1.28(1)(d) above.

43

Letter from Heather Wheeler MP, then Minister for Housing and Homelessness, to the Rt Hon Lord Justice Green, Chair of the Law Commission, 27 March 2019, at https://s3-eu-west-2.amazonaws.com/lawcom-prod-storage-11jsxou24uy7q/uploads/2017/03/Letter-from-Mrs-Heather-Wheeler-MP.pdf.

44

The Queen’s Speech 2016, p 61, at

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/524040/Q ueen_s_Speech_2016_background_notes_.pdf; Tackling unfair practices response, December 2017, para 36; and Implementing reforms consultation, October 2018, para 2.21. See also Making Land Work: Easements, Covenants and Profits A Prendre (2011) Law Com No 327.

45

MHCLG, Strengthening consumer redress in the housing market (January 2019), para 123, at https://www.gov.uk/government/consultations/strengthening-consumer-redress-in-housing.

46

Implementing reforms response, June 2019, Ch 5, which sets out proposals for a cap of £200 plus VAT and a timeframe of 15 working days.

47

Tackling unfair practices response, December 2017, Ch 5; Implementing reforms response, June 2019, Ch 4.

48

Tackling unfair practices response, December 2017, para 81.

49

Implementing reforms response, June 2019, paras 2.34-2.35; Response to Select Committee, July 2019, p

13.

50

Response to Select Committee, July 2019, pp 23 to 24.

51

MHCLG, Redress for purchasers of new build homes and the New Homes Ombudsman: technical consultation (June 2019) and Government response (February 2020), at https://www.gov.uk/government/consultations/redress-for-purchasers-of-new-build-homes-and-the-new-homes-ombudsman.

52

MHCLG, Considering the case for a Housing Court - A Call for Evidence (November 2018), at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/755326/C onsidering_the_case_for_a_housing_court.pdf.

53

The Tenants’ Associations (Provisions Relating to Recognition and Provision of Information) (England) Regulations SI 2018 No 1043. The regulations are intended to make it easier for residents’ associations to contact leaseholders, increasing the likelihood of those leaseholders becoming members of the association. This affects the chances of the association being formally recognised under s 29(1) of the Landlord and Tenant Act 1985, which improve if a higher percentage of the leaseholders are members. For background, see s 130 of the Housing and Planning Act 2016; DCLG, Recognising residents’ associations, and their power to request information about tenants (July 2017), at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/632116/s130_HPAct_consult ation.pdf.

54

MHCLG, Public pledge for leaseholders (27 June 2019), at

https://www.gov.uk/government/publications/leaseholder-pledge/public-pledge-for-leaseholders.

55

Tackling unfair practices response, December 2017, para 47; MHCLG, Leasehold axed for all new houses in move to place fairness at heart of housing market (27 June 2019), at https://www.gov.uk/government/news/leasehold-axed-for-all-new-houses-in-move-to-place-fairness-at-heart-of-housing-market; MHCLG, Housing Secretary clamps down on shoddy housebuilders (24 February 2020), at https://www.gov.uk/government/news/housing-secretary-clamps-down-on-shoddy-housebuilders

56

MHCLG, Funding for new leasehold houses to end (2 July 2018), at https://www.gov.uk/government/news/funding-for-new-leasehold-houses-to-end.

57

  Tackling unfair practices response, December 2017, p 25.

58

Developers have to present genuine reasons for a house to be marketed as leasehold. In addition, starting ground rents need to be limited to a maximum of 0.1% of the property’s sale value and leasehold agreements have to have a minimum term of 125 years for flats and 250 years for houses.

59

Written Statement: Leasehold Reform in Wales (6 March 2018), at https://gov.wales/written-statement-leasehold-reform-wales.

60

Residential Leasehold Reform - A Task and Finish Group Report, pp 21-22, at

https://gov.wales/independent-review-residential-leasehold-report. See also Written Statement: Response to Report of the Task and Finish Group on Leasehold Reform (6 February 2020), at https://gov.wales/written-statement-response-report-task-and-finish-group-leasehold-reform.

61

Welsh Government, Estate charges on housing developments: call for evidence (February 2020), at https://gov.wales/sites/default/files/consultations/2020-02/estate-charges-on-housing-developments.pdf.

62

In addition, it is necessary to consider leasehold owners of future homes, to the extent that leases are still granted in the future.

63

MHCLG, Estimating the number of leasehold dwellings in England 2017-2018 (26 September 2019), at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/834057/E stimating_the_number_of_leasehold_dwellings_in_England__2017-18.pdf.

64

MHCLG, House building; new build dwellings, England: December Quarter 2019 (26 March 2020), at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/875361/H ouse_Building_Release_December_2019.pdf.

65

A Change is Gonna Come (2019), 330.

66

We refer to the sale of flats to cover (a) the sale, for the first time, of new-build flats, and (b) the sale of existing flats which are not already subject to a long lease, such as where a freehold owner splits a house into multiple flats and sells the individual flats.

67

Housing, Communities and Local Government Committee, Leasehold Reform (2017-19) HC 1468, p 3.

68

House of Commons Library Briefing Paper, Tackling the under-supply of housing in England (2020), http://researchbriefings.files.parliament.uk/documents/CBP-7671/CBP-7671.pdf; Welsh Government, Delivering More Homes for Wales: Report of the Housing Supply Task Force (2014), at https://gov.wales/sites/default/files/publications/2019-04/delivering-more-homes-for-wales-recommendations.pdf.

69

Subject to exceptions.

70

  Including leaseholders of any future houses that are sold on a leasehold basis.

71

  Including leaseholders of any future flats that are sold on a leasehold basis.

72

The legal position is that positive obligations cannot bind future owners of the land (see para 1.20 above). However, freehold land can be subject to a requirement to pay an “estate rentcharge”, and there are various “workarounds” which can be effective to bind future freehold owners such as a “chain of covenants” protected by a restriction at HM Land Registry.

73

See Roberts v Lawton [2016] UKUT 395 (TCC), [2017] 1 P & CR 3, which featured the method of enforcing rentcharges implied by s 121(4) of the Law of Property Act 1925 whereby the holder of a rentcharge that is in arrears may grant a lease of the charged land to a trustee to raise money to discharge the outstanding debt. See MHCLG’s work on fees and charges (paras 1.63(14)(a) and (b) above) and the Welsh Government Call for Evidence (para 1.68 above).

74

See, for example, BBC News, 'Fleecehold': New homes hit by 'hidden costs' (20 March 2019), at https://www.bbc.co.uk/news/uk-england-46279048. See also MHCLG’s work on permission fees (para 1.63(14)(d) above).

75

Although we are recommending the expansion of enfranchisement rights, some leaseholders would remain unable to buy the freehold. For example, while we recommend increasing the threshold for commercial use from 25% to 50% (see para 1.12(2) above), leaseholders will not be able to buy the freehold to their block if more than 50% of the block is in commercial use.

76

See paras 1.45 to 1.68 above.

77

The restriction on ground rents will not change the ground rents in existing leases, so this measure will only affect leaseholders of future homes. Removing ground rent in existing leases can be done through an enfranchisement claim: see para 1.96(1) above.

78

Indeed the restriction of ground rents to zero is one of the measures that would remove the current incentive to use leasehold, and might therefore go some way to encourage the use of commonhold.

79

We generally use the term “leaseholder” instead of “tenant” when describing those who enjoy enfranchisement rights. We do so because “leaseholder” is typically used to denote those who own their home by holding a long lease (who therefore qualify for such rights), whereas “tenant” is generally used to refer to those who rent their home with short leases (such as a one-year “assured shorthold tenancy”). However, the enfranchisement legislation uses the word “tenant”, and, in some instances, we adopt that language when referring to the legislation - for example, when referring to a “qualifying tenant”.

80

CP, para 1.1 and following.

81

I Cole and D Robinson, “Owners yet tenants: the position of leaseholders in flats in England and Wales” (2000) 15 Housing Studies 595.

82

For details of what is a “modern ground rent” and its calculation, see CP, para 14.88 and following.

83

For details of when a lease is an “excluded tenancy” and the “low rent test” see paras 7.267 below and CP, paras 7.25 to 7.31.

84

The Leasehold Reform, Housing and Urban Development Act 1993 uses the language of “qualifying tenants”, but establishing its meaning is convoluted (see the 1993 Act, s 39(3)). In this instance, “qualifying tenant” is used to mean a long leaseholder of a flat who has enfranchisement rights under the 1993 Act.

85

CP, Ch 9.

86

CP, Ch 14 and the Valuation Report, Ch 2.

87

Leasehold Valuation Tribunals are one of the types of Tribunal that make up the Residential Property Tribunal Wales, see https://residentialpropertytribunal.gov.wales/about.

88

Strictly speaking, leaseholders obtain a new lease for a term expiring 90 years after the term date of their original lease. It is, however, generally referred to as a “lease extension”. The notional rent applies during both the remaining term of the existing lease, and the additional 90 years.

Many long leases specify an annual ground rent of a peppercorn. Strictly, the landlord could, under the lease, require the leaseholder to provide him or her with a peppercorn annually, but invariably this is not demanded. A peppercorn rent is used in circumstances where it is deemed appropriate for there to be no substantive rent payable. The inclusion of a nominal rent is intended to satisfy the English contract law requirement of “consideration” - meaning that an exchange must occur in order to form a binding contract.

89

See the 1993 Act, s 3.

90

CP, Ch 14 and the Valuation Report, Ch 2.

91

Competition and Markets Authority, Leasehold housing - Update report (February 2020), paras 20 to 32, at https://www.gov.uk/cma-cases/leasehold.

92

CP, Ch 1, fig 1.

93

See para 14.3 and following below.

94

See the Thirteenth Programme of Law Reform (2017) Law Com No 377, para 2.32 and following. Details of the Law Commission’s Thirteenth Programme of Law Reform are at https://www.lawcom.gov.uk/project/13th-programme-of-law-reform/. For information about how this project was included in the Thirteenth Programme of Law Reform, see CP, paras 1.15 and 1.16.

95

Protocol of 29 March 2010 between the Lord Chancellor (on behalf of the Government) and the Law Commission (2010) Law Com No 321, at https://www.lawcom.gov.uk/document/protocol-between-the-lord-chancellor-on-behalf-of-the-govemment-and-the-law-commission/; and Protocol of 10 July 2015 between the Welsh Ministers and the Law Commission, at https://www.lawcom.gov.uk/document/protocol-rhwng-gweinidogion-cymru-a-comisiwn-y-gyfraith-protocol-between-the-welsh-ministers-and-the-law-commission/. Also see para 2.63 below.

96

Consultees are listed in Appendix 2. Responses were received via our online form, by email and by post.

97

See the Valuation Report, paras 1.71 to 1.73.

98

See para 1.69 and following above.

99

Our Terms of Reference require us to consider “the options to reduce the premium (price) payable by existing and future leaseholders to enfranchise, whilst ensuring sufficient compensation is paid to landlords to reflect their legitimate property interests” (emphasis added).

100

See the Valuation Report, para 6.144 and following.

101

For further information on what is meant by “onerous” ground rents, see para 3.93 below.

102

At para 2.51 below, we summarise our recommendation to Government that it should consider taking steps to regulate the ability of leaseholders and landlords to enter into voluntary agreements to extend leases or transfer freeholds on terms that are inconsistent with our statutory scheme.

103

See para 6.38 below for further details about is meant by “residential unit”.

104

See our explanation of the Valuation Report at para 2.45 above.

105

See para 5.73 below.

106

See our discussion at paras 6.166 to 6.171 in the context of individual freehold acquisition claims, and paras

6.326 to 6.338 in the context of collective freehold acquisition claims.

107

See the Valuation Report, paras 6.119 to 6.154.

108

Termination of Tenancies for Tenant Default (2006) Law Com No 303.

109

Government response to the Housing, Communities and Local Government Select Committee report on Leasehold Reform (2019) CP 99, para 85, at https://www.parliament.uk/business/committees/committees-a-z/commons-select/housing-communities-and-local-government-committee/news/leasehold-reform-govt-response-published-17-19/.

110

Competition and Markets Authority, Leasehold housing - Update report (February 2020).

111

The law relating to unfair terms can apply, in some cases, to the terms of residential leases. However, we regard the application of unfair terms law to leases as being in need of review. Our Thirteenth Programme of Law Reform, para 2.45 and following, indicated that a project on the topic of unfair terms in residential leases would be undertaken when resources allow.

112

  See the Landlord and Tenant Act 1987, s 1. Also see paras 1.28(1)(d), 1.63(9) and 1.63(14) above.

113

  CP, para 1.71.

114

  CP, para 1.72.

115

  See para 1.61 and following above.

116

The Housing and Planning Act 2016, s 136 and sch 10, confers a power to make regulations governing minor intermediate leasehold interests for the purposes of enfranchisement legislation (namely the Leasehold Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993). The power is exercisable by the Secretary of State in relation to land in England and by the Welsh Ministers in relation to land in Wales. Regulations for England were made by the Department for Communities and Local Government in 2017 (Valuation of Minor Intermediate Leasehold Interests (England) Regulations 2017 (SI 2017 No 871)).

117

Government of Wales Act 2006, sch 7, Pt I, para 11.

118

Wales Act 2017, s 3 and schs 1 and 2 (and the new schs 7A and 7B).

119

Protocol of 10 July 2015 between the Welsh Ministers and the Law Commission, at

https://www.lawcom.gov.uk/document/protocol-rhwng-gweinidogion-cymru-a-comisiwn-y-gyfraith-protocol-between-the-welsh-ministers-and-the-law-commission/.

120

CP, Consultation Question 1, para 3.42.

121

This conclusion was also reached in the Valuation Report, para 1.82.

122

At https://www.lawcom.gov.uk/project/leasehold-enfranchisement/.

123

See para 2.53(1) above.

124

See paras 2.31 to 2.32 above.

125

The list of contributors includes those who have worked on this Report full- or part-time.

126

See paras 6.27 to 6.45 below.

127

We explain what is meant by an “onerous” ground rent at para 3.93 below.

128

We discuss this risk in more detail in our discussion of the terms of a lease extension, beginning at para 3.148 below.

129

See para 14.54 below.

130

The issue of voluntary lease extensions is outside the scope of our Terms of Reference for this project, which is focussed on the exercise of statutory enfranchisement rights. Accordingly, the views which we express and the suggestions which we make in Ch 14 as to how voluntary lease extensions might be regulated do not amount to formal recommendations to Government.

131

See CP, paras 4.3 to 4.37.

132

A “modern ground rent” is the rent determined under s 15 of the 1967 Act, payable during the additional term of a lease extension of a house. It is calculated by valuing the “site”, and then decapitalising that value.

133

Many long leases specify an annual ground rent of a peppercorn. Strictly, the landlord in these cases could require the leaseholder to provide him or her with a peppercorn annually, but invariably this is not demanded. A peppercorn rent is used in circumstances where it is deemed appropriate for there to be no substantive rent payable. However, a nominal rent must be specified because of the English contract law requirement of “consideration” - meaning that an exchange must occur in order for a binding contract to be formed.

134

See further discussion of the issue of inequality between landlords and leaseholders at para 3.150 below.

135

See CP, Consultation Question 2, Pt 1, para 4.40.

136

See Ch 3 of the Valuation Report - in particular paras 3.4 to 3.11.

137

See also Competition and Markets Authority, Leasehold housing - Update report (February 2020), para 77(c).

138

Damian Greenish, a solicitor, suggested that it is inconsistent with Government’s proposed ban on leasehold houses to permit leases of houses to be extended. However, the ban is intended to apply to new leases only. While a lease extension technically takes the form of a surrender of the existing lease and the grant of a new lease, Government has confirmed that lease extensions of existing leases on houses will not be contrary to the ban.

139

See Chs 6 and 7 below for discussion of these issues.

140

See CP, paras 4.22 and 4.25.

141

See CP, para 4.39, and Consultation Question 2, Pt 2, para 4.41.

142

In addition to 125 years, popular suggestions included 95, 99 or 100 years.

143

Philip Rainey QC, Damian Greenish and Mark Chick (a solicitor).

144

For further explanation of this point, see Philip Rainey QC’s full consultation response, available in the published consultation responses on the Law Commission website.

145

Landlord and Tenant Act 1954, s 30(1)(f).

146

The exception to this would be where the remaining term of the lease to be extended is very short (relatively speaking), so that even after a 90-year extension, the landlord’s reversionary interest retains some value.

147

See para 3.47 above.

148

See Recommendations 59, 64 and 86, and at paras 8.201, 9.107 to 9.109 and 13.45 below.

149

The references to the last 12 months of the term of the original lease and the last five years of each period of 90 years after the commencement of the extended term are intended to ensure that redevelopment break rights under our recommendation align with any such rights which might already exist in relation to other leases in the same building, which have already been extended under the current regime. See our explanation of the current law on redevelopment break rights at para 3.11 above.

150

See para 4.26 of the CP.

151

Consultation Question 3, para 4.46.

152

Philip Rainey QC and Mark Chick.

153

Ministry of Housing, Communities and Local Government, Implementing reforms to the leasehold system in England - Summary of consultation responses and Government response (June 2019), paras 3.41 to 3.48: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/812827/1 90626_Consultation_Government_Response.pdf.

154

See para 3.91 below for discussion of what is meant by an “onerous” ground rent.

155

Consultation Question 7, paras 4.98 to 4.99.

156

There is no set definition of an onerous ground rent, though it seems to have become generally accepted in the market (reflecting a view that has conventionally been held by valuers for many years) that a ground rent above 0.1% of the property’s freehold value is onerous. This view partially stems from the Tribunal’s decision in Millard Investments Ltd v Cadogan (LON/LVT/1756/04), but has been widely accepted. The Nationwide Building Society’s lending policy is not to lend on properties with a ground rent above 0.1% of the value of the property (see CP, para 15.65). For a summary of some of the arguments about what amounts to an onerous ground rent, see Leasehold Reform, Report of the Housing, Communities and Local Government Committee (March 2019) HC 1468, paras 88 to 91, at https://publications.parliament.uk/pa/cm201719/cmselect/cmcomloc/1468/1468.pdf. The Tribunal’s decision in Roberts v Fernandez (LRA/14/2014) suggested that a ground rent above 0.21% of the property value was onerous. Ground rents which double frequently (e.g. every 10 years) are generally regarded as being onerous, and have been subject to Government intervention: see https://www.gov.uk/government/publications/leaseholder-pledge/public-pledge-for-leaseholders.

157

See the Valuation Report at paras 2.12 to 2.27.

158

Ministry of Housing, Communities and Local Government, Tackling unfair practices in the leasehold market - Summary of consultation responses and Government response (December 2017), paras 67 to 72: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/670204/T ackling_Unfair_Practices_-_gov_response.pdf.

159

Ministry of Housing, Communities and Local Government, Implementing reforms to the leasehold system in England - Summary of consultation responses and Government response (June 2019), paras 3.41 to 3.48: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/812827/1 90626_Consultation_Government_Response.pdf

160

See the Valuation Report, paras 6.144 to 6.154.

161

See para 3.93 above for discussion of what is meant by an onerous ground rent.

162

See para 3.47 above.

163

See the Valuation Report, para 2.54 (see the value of “the reversion” for Houses 1, 2, 3 and 4, which have unexpired terms of 101, 76, 241 and 241 years respectively), and para 7.17 (for the valuation of the reversion for an equivalent house with 150 or 200 years unexpired).

164

For an explanation of “marriage value”, see the Valuation Report, para 2.40. For an explanation of “development value”, see the Valuation Report, para 2.58(1).

165

See CP, para 4.48.

166

See paras 3.241 to 3.300 below.

167

Under the current law, the proviso is expressed to apply in the context of both lease extension claims and claims to acquire the freehold of a house under the 1967 Act. We discuss its application in the context of individual freehold acquisition claims in Ch 4 below, at paras 4.10 to 4.11, and 4.31 to 4.37.

168

Response Notices are discussed in Ch 9 below, at paras 9.5 to 9.38.

169

See CP, Consultation Question 4, para 4.52.

170

Birmingham Law Society.

171

LKP.

172

See CP, para 4.50 and n 186.

173

Robert Nix, a leaseholder.

174

In both of these examples, it is possible that the “ancillary use” provision would apply, as the residential unit might be considered to be “ancillary” to other premises, and therefore no enfranchisement rights would attach: see Ch 6 at paras 6.83 to 6.86 onwards. However, that provision is narrow and rarely applicable.

175

See Ch 6, at paras 6.22 to 6.104.

176

See Ch 6, at paras 6.132 to 6.138.

177

The concept of the “curtilage” of a building was recently considered in detail in Hampshire CC v Secretary of State for the Environment, Food and Rural Affairs [2020] EWHC 959 (Admin), [2020] 4 WLUK 229, at [71] onwards.

178

It may be desirable, for instance, for a small meadow over the road from (but let with) a house and garden to be included in the lease extension of the house and garden, even though, at present, this might be prevented by the “curtilage” requirement. However, any relaxation of this requirement would not be intended to catch some of the more extreme examples such as those involving extensive grounds and woodland: see para 3.128 above.

179

Planning Law in Wales (2018) Law Com No 383. Recommendation 18-16, at para 18.99.

180

See paras 3.127 and 3.128 above.

181

See para 3.122 above.

182

See paras 9.21 to 9.38 below.

183

We recommend that Response Notices should only be rendered invalid in very limited circumstances: where the prescribed form has not been used, it fails to make clear (to a reasonable recipient) whether the claim is admitted or denied (and the basis for any denial of the claim, if relevant) or the landlord’s address for service, or it has not been signed: see Recommendation 68, at paras 9.63 to 9.69 below.

184

See paras 9.110 to 9.151.

185

See paras 9.52 to 9.69, where we recommend that the parties should be able to agree to amend (or apply to the Tribunal for amendment of) a notice which contains a defect that does not affect the validity of the notice.

186

See paras 5.152 to 5.172 and para 9.35 below.

187

See paras 12.189 to 12.196.

188

We explain the concept of flying freeholds, and the associated problems, in Ch 4 at para 4.11.

189

See paras 4.10 to 4.11 and 4.31 to 4.37 below.

190

See paras 3.123 to 3.124 above.

191

  See CP, para 4.81 and following.

192

See discussion of this issue at paras 1.71 to 1.73 and 3.45 to 3.49 of the Valuation Report. The points made in those paras regarding landlords’ and leaseholders’ respective abilities to contest a dispute over an enfranchisement premium would apply equally to a dispute over the terms of a lease extension.

193

See CP, Consultation Question 6, Pts 1 and 2, paras 4.91 and 4.92.

194

See Recommendation 5 at paras 3.209 to 3.210 below.

195

The provisions being referred to are 1993 Act, s 57(1) and 1967 Act, s 15(1).

196

  The provisions being referred to are 1993 Act, s 57(2) and 1967 Act, s 15(3).

197

  The provisions being referred to are 1993 Act, s 57(6) and 1967 Act, s 15(7).

198

See para 3.175 below.

199

See para 3.151 above, and fig 3 at para 4.85 of the CP.

200

This starting point is not intended to apply to Aggio lease extensions, which we discuss below at para 3.189 to 3.204.

201

See paras 3.16 and 3.161 to 3.162 above.

202

See the Thirteenth Programme of Law Reform (2017) Law Com No 377, para 2.45 and following. Details of the Law Commission’s Thirteenth Programme of Law Reform are at https://www.lawcom.gov.uk/project/13th-programme-of-law-reform/.

203

See para 11.21 below.

204

See para 1.63 above and Competition and Markets Authority, Leasehold housing - Update report (February 2020), paras 81 to 92, at https://www.gov.uk/cma-cases/leasehold.

205

See paras 3.284 to 3.286 and Recommendation 7 at paras 3.298 to 3.300 below.

206

See CP, para 4.87.

207

Save in relation to Aggio lease extensions, as discussed at paras 3.189 to 3.204 below.

208

See para 3.194 below.

209

Where the lease is a disposition of a registered estate in land and is required to be completed by registration under s 27(2)(b) of the Land Registration Act 2002, r 58A of the Land Registration Rules 2003 requires the lease to include a standard set of clauses at the beginning of the lease. These clauses include (inter alia) the date of the lease, the landlord’s title number(s), the term of the lease and the premium payable on grant of the lease. The particulars also require a statement to be included where the lease is granted pursuant to the provisions of the 1993 Act.

210

We discuss similar arguments in relation to regulation of lease extensions on non-statutory terms at para 14.56 to 14.58 below.

211

  See para 14.74 below.

212

  See paras 3.62 above.

213

Howard de Walden Estates Ltd v Aggio [2008] UKHL 44, [2009] 1 AC 39. See Ch 4 of the CP, at para 4.88 onwards.

214

See paras 6.23 to 6.24 below.

215

See CP, Consultation Question 6, Part 3, at para 4.93.

216

  Wallace LLP, solicitors.

217

  Philip Rainey QC.

218

Mark Chick.

219

Long Harbour and HomeGround.

220

On the approach that we suggest at paras 14.10 to 14.76 below.

221

  See para 11.21 below.

222

  See para 3.177 above.

223

See Ch 4 of the CP, at para 4.90.

224

Boodle Hatfield LLP, writing in response to Consultation Question 6.

225

See, for example, Mosley v Hickman (1986) 12 HLR 292, 296.

226

See CP, Consultation Question 5, para 4.54.

227

See CP, para 4.53.

228

1993 Act, s 58(4).

229

1967 Act, s 14(6), which refers to cases “where under a lease executed to give effect to this section the new tenancy takes effect subject to a subsisting charge on the existing tenancy”.

230

HM Land Registry require a mortgage over the existing lease either to be discharged or transferred to the new lease by a deed of substituted security (Practice guide 27: the leasehold reform legislation (March 2018), para 9.7.2).

231

1967 Act, s 14(4); 1993 Act, s 58(1) and (2).

232

Paras 10.150 to 10.212 below.

233

There is an additional complication. Even if the existing lease was unauthorised by the mortgagee, if the existing lease was granted before the 1967 Act came into force (for leases of houses) or before the 1993 Act came into force (for leases of flats), the new lease will be binding on the mortgagee.

234

See paras 3.169 to 3.179 above.

235

See Ch 14.

236

Recommendation 80, particularly para 10.210(1) below.

237

Recommendation 77, para 10.106 below.

238

See paras 4.372 to 4.404 and 5.183 to 5.195 below.

239

See CP, para 4.48.

240

Law Com No 327.

241

Law of Property Act 1925, s 62(1) and (4).

The freehold owner of plot A lets the plot (the house and the land) to a leaseholder on a 50-year residential lease. The freeholder also owns the freehold of plot B. The freeholder grants the leaseholder an easement over plot B (specifically, a right of way to use the driveway which leads to the leaseholder’s front door, shown in grey).

We will consider some variations of the grant of the right of way over plot B. It might be granted within the lease, or by a separate deed executed at the same time or on a later occasion. We will also consider cases in which the right of way is granted for a fixed period that is shorter than the lease term.

The leaseholder also has an easement over plot C (specifically, a right of way over a path to the leaseholder’s back door, marked by the dotted lines). We will consider two scenarios.

In the first scenario, plot C used to be owned by the landlord (the freeholder who owns plots A and B) and the landlord granted the right to use the path. But plot C has now been sold to a third party. Importantly, when the landlord sold plot C, he or she failed to reserve a right of way over the land for the benefit of the freehold title to plot A. So, plot C is burdened by a right of way for the benefit of the lease of plot A, but not for the benefit of the freehold to plot A.

In the second scenario, plot C was always owned by a third party. The leaseholder negotiated independently with that third party for a grant of a right of way to benefit the lease of plot A.

3.255 We will refer back to this illustration repeatedly in explaining how we think we should resolve the issues raised by consultees. But while the illustration only refers to rights of way, we intend our discussion also to apply to all other property rights, such as restrictive covenants.

3.256 Our discussion will be structured as follows.

(1) First, we will consider in what circumstances leaseholders should be entitled to claim an extension of appurtenant rights alongside a lease extension. In addressing this issue, we will examine

242

1967 Act, s 15(1); 1993 Act, s 57(1).

243

1967 Act, s 15(4); 1993 Act, s 57(3).

244

Hague, para 32-08.

245

(1984) 47 P&CR 59

246

However, Lord Neuberger also noted that the decision in Nevill Long is not beyond criticism. The Court of Appeal took it for granted that selling land burdened by an easement granted in a lease counted as a severance of the reversion; the point was not specifically argued

247

Decision of the County Court at Central London (31 March 2020), at https://www.falcon-

chambers.com/images/uploads/news/Judgment-Lupin_Ltd_-v-_7_-_11_Princes_Gate_Ltd_and_another-final_31_March_2020.pdf.

248

Recommendation 58, para 8.171 below.

249

Paras 3.169 to 3.179 above.

250

Recommendation 5, para 3.209 above.

251

We recognise that it is rare for owners to let qualifying leases run down to this point and also rare for lease extension claims then to be brought; it may be easier and not much more expensive to negotiate for the grant of a completely new lease. But cases of this kind may become more common under our new scheme if the valuation options chosen by Government make lease extensions significantly cheaper.

252

Recommendation 20, paras 5.149(4) and 5.150 below.

253

Making Land Work: Easements, Covenants and Profits a Prendre (2011) Law Com No 327, paras 3.249 and 3.252; MRA Engineering Ltd v Trimster Co Ltd (1988) 56 P&CR 1.

254

Golden Lion Hotel (Hunstanton) Ltd v Carter [1965] 1 WLR 1189.

255

[2007] EWCA Civ 444, [2007] Ch 390.

256

Easements, Covenants and Profits a Prendre (2008) Law Commission Consultation Paper No 186, paras 5.72 to 5.85.

257

This possibility is discussed in by Andrew Francis in Restrictive Covenants and Freehold Land: A Practitioners Guide (5th ed, 2019), para 7.42.

258

Paras 13.46 to 13.51 below.

259

Paras 4.146 to 4.147 above.

260

Barrett v Morgan [2000] 2 AC 264, 271.

261

The law is not entirely clear on this point. The issue turns on whether the surrender of a lease is a “registrable disposition” within the meaning of s 27 of the Land Registration Act 2002. And the answer to that question depends on whether the surrender of a lease is a “transfer” of the lease to the landlord. Our tentative view is that it is not.

262

The grant of the new lease is a registrable disposition under s 27 of the Land Registration Act 2002.

263

See paras 13.46 to 13.51 below.

264

We are not aware of any case in which the court has considered this point of interpretation concerning s 5(7) of the 1967 Act (or the equivalent provision in s 19(4) and (5) of the 1993 Act).

265

The Court of Appeal in Rennie and Rennie v Proma Ltd and Byng (1990) 22 HLR 129 held (at 139) that, if a provision of an agreement is void under s 23(1) of the 1967 Act, it “must be void ab initio; one must look at the position as at the time when the agreement was made”. Following Proma Ltd, an agreement for the sale of the landlord’s freehold cannot purport to exclude or modify a right to acquire the freehold or an extended lease if it is uncertain whether a lease with enfranchisement is going to be granted.

266

Paras 4.186 to 4.190.

267

Recommendation 1, para 3.36 above.

268

Recommendation 12, at paras 4.217 to 4.218 below.

269

Paras 10.150 to 10.213, especially Recommendation 80, para 10.210(3).

We discuss which leaseholders qualify for an individual freehold acquisition in more detail at para 6.139 onwards.

270

We discuss intermediate leases in Ch 13.

271

See paras 3.13 to 3.15, and 3.113 to 3.147.

272

“Premises” includes “any garage, outhouse, garden, yard and appurtenances” which are let to the leaseholder with the house: see para 3.13.

273

See para 3.13. As with lease extension claims, the provisos are subject to a strict two-month time limit.

274

See CP, para 5.16.

275

See CP, first part of Consultation Question 13, para 5.30(1).

276

See para 3.114 above.

277

See paras 3.143 to 3.144, and Recommendation 4 (specifically para 3.147).

278

See para 1.20. It is for this same reason that flats are almost universally owned on a leasehold, rather than freehold, basis. We note that commonhold enables the freehold ownership of flats, by providing a structure to manage the relationship between individually-owned freehold flats, therefore avoiding the problems usually associated with flying freeholds: see the Commonhold Report at paras 2.4 to 2.6.

279

See CP, second part of Consultation Question 13, para 5.30(2).

280

See paras 3.117 to 3.118.

281

The Portman Estate, a landlord.

282

The Law Society.

283

See paras 6.142 to 6.145.

284

LM Homes Ltd v Queen Court Freehold Co Ltd [2020] EWCA Civ 371, [2020] 2 WLR 1135, at [28] to [38], in which it was held that the airspace and subsoil form parts of the “building” to which the qualifying tenants were entitled to claim the freehold. This case specifically concerned collective enfranchisement under the 1993 Act, but the relevant principles will be of general application to individual and collective freehold acquisitions under our recommended reforms.

285

The concept of a “curtilage” is discussed at paras 3.133 to 3.134 above.

286

See para 3.136 above. We will also consider whether the “curtilage” requirement should be somewhat relaxed, as we discuss in that para.

287

  See Sub-option (3) in the Valuation Report, at paras 6.176 to 6.179.

288

  The scope of the provisos is set out in more detail at para 3.13 above.

289

See paras 3.140 to 3.142 above.

290

See paras 12.189 to 12.196 below.

291

See CP, paras 5.7, 5.18 and 5.31.

292

The Housing, Communities and Local Government Committee, Leasehold Reform (2017-19) HC 1468, para

131, at https://publications.parliament.uk/pa/cm201719/cmselect/cmcomloc/1468/1468.pdf.

293

Save perhaps where the leaseholder will derive a corresponding benefit under the principle in Halsall v Brizell [1957] Ch 169. This problem is noted and discussed by the authors of Hague at paras 6-24 and 6-30.

294

As we note in para 4.81 to 4.82 below there are a number of mechanisms commonly used by conveyancers to ensure that positive covenants do bind successors in title (but this does not happen automatically). Again, the authors of Hague discuss this problem at para 6-24.

295

See Hague, para 6-24: “since the Act is so unsatisfactory in its provisions relating to “common facilities” the only sensible solution is for the landlord and the tenant to agree voluntarily a practical scheme that ensures that such common facilities continue to be properly maintained and that the cost thereof can be recovered. In most cases it is to the practical advantage of both parties that this should occur”.

296

See para 1.63 above. For example, giving freeholders the right to challenge service charges where they are unreasonable, and protecting freeholders from losing their homes where unpaid service charges are owed as “rentcharges”.

297

Subject to a few restrictions under the law of contract - for example, a valid contract cannot require a party to do something illegal.

298

As we note in paras 4.81 to 4.82 below, there are mechanisms by which such personal obligations can be made to bind successive owners of land (even if they do not relate in any way to the land itself). In particular, such personal obligations can legitimately be protected by a restriction on the register, or one of the conveyancing mechanisms referred to in para 4.82 below might be used. In this way personal obligations can be made to behave like property rights, even though they do not benefit land.

299

Rhone v Stephens [1994] 2 AC 310.

300

Law of Property Act 1925, s 1(2)(e).

301

Rentcharges Act 1977, s 2(1) and (2), and 3(1).

302

Rentcharges Act 1977, s 2(3)(c) and (4)(a).

303

Law Com No 327.

304

A similar point was made in the White Paper on Leasehold Reform in England and Wales, (1966) Cmnd 2916, para 21, which said: “Most of the covenants under the existing lease concern the relations between the landlord and leaseholder and will automatically and rightly disappear when the lease is enfranchised”.

305

An exception may be where there is a mortgage over the freehold. The mortgage lender may, as part of the mortgage contract and to protect their security, require their consent to be obtained before the freehold owner lets the property.

306

See paras 10.123 to 10.149.

307

See CP, para 5.48.

308

  1967 Act, s 8(2).

309

  1967 Act, s 8(2).

310

See Megarry & Wade: The Law of Real Property (9th ed 2019), para 14-081: “The term “incumbrances” covers all subsisting third party rights such as leases, rentcharges, mortgages, easements and restrictive covenants. It also includes statutory liabilities, if they are not merely potential or imposed on property (or a particular class of property) generally”.

311

District Bank Ltd v Webb [1958] 1 WLR 148, pp 149 to 150.

312

See, for example, Belvedere Court Management Ltd v Frogmore Developments Ltd [1997] QB 858.

313

See Hague, para 6-12: “the expression ‘incumbrances’ usually has a wide meaning, covering subsisting third party rights such as leases, mortgages, easements and restrictive covenants, and these are clearly included”.

314

See Hague, para 6-12.

315

Emmet and Farrand on Title (looseleaf ed 2020), para 28-070

316

  [2006] EWCA Civ 162, [2007] Ch 1, para [50].

317

  Hague, para 6-12.

318

Note that s 10(1) of the 1967 Act, which deals with the rights that the landlord is deemed to grant under s 62 of the Law of Property Act 1925, also contains the following provision: “the landlord shall not be bound to convey to the tenant any better title than that which he has or could require to be vested in him”.

319

The “relevant time” is the date on which the leaseholder serves the Claim Notice on the landlord (1967 Act,

s 37(1)(d)).

320

See Hague, para 6-17.

321

Law of Property Act 1922, sch 12, para 6.

322

Paras 4.372 to 4.410 below.

323

  1967 Act, s 8(4).

324

Land Registration Act 2002, s 29.

325

Paras 3.323 to 3.334 above.

326

Housing Act 1974, s 118.

327

See paras 4.46 to 4.51 above.

328

See paras 4.46 to 4.51 above.

329

Making Land Work: Easements, Covenants and Profits A Prendre (2011) Law Com No 327.

330

Rentcharges Act 1977, s 2(4).

331

Department for Communities and Local Government, Tackling unfair practices in the leasehold market:

Summary of consultation responses and Government response (December 2017), paras 80 to 81:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/670204/T ackling_Unfair_Practices_-_gov_response.pdf.

332

We recognise that problems can arise for leaseholders on enfranchisement if a landlord in the position of A in the above example fails to reserve a right of way (or other relevant right) over Plot Y when Plot Z is sold to C. In that situation, A cannot subsequently transfer the freehold to B with the benefit of a freehold right of way over Plot Z (because A no longer owns Plot Z), We discuss how this problem may be resolved at paras 4.333 to 4.335 below.

333

Law of Property Act 1925, s 62(1), (2) and (4) (a lease of a property is a “conveyance” within the meaning of the Act).

334

See paras 4.148 to 4.165 below.

335

Recommendation 8, para 3.321(2) above.

336

See para 1.63 above.

337

We recognise that a situation could arise in which B’s restrictive covenant was not properly registered because of a mistake by HM Land Registry, rather than a mistake by B (for example, HM Land Registry may have wrongly registered the restrictive covenant against the incorrect title number). In such a case both B and C are protected by the scheme under Land Registration Act 2002 relating to rectification of the register and indemnities.

338

Paras 3.308 and 3.321(2) above.

339

In this context, a landowner’s equity of redemption is the landowner’s remaining interest in the property after taking account of the mortgage (which includes the landowner’s right to recover the property on payment of the mortgage debt). If the debt is very large, the value of the landowner’s remaining interest will correspondingly be very small. A property is in negative equity when the amount secured by the mortgage exceeds the value of the property.

340

See paras 4.372 to 4.404 below.

341

Land Registration Act 2002, s 33.

342

As overriding interest is one that can bind the purchaser of registered land even though the interest was not recorded in the register. An important category of overriding interest is an interest belonging to a person in discoverable actual occupation of the land being purchased.

343

Land Registration Act 2002, s 29 and sch 3, para 2.

344

Paras 10.150 to 10.212 below.

345

For example, in Rennie and Rennie v Proma Ltd and Byng (1990) 22 HLR 129, a trust was deliberately structured to prevent the appointment of a second trustee and thereby prevent enfranchisement.

346

Paras 3.323 to 3.334 above.

347

Paras 3.323 to 3.324 above.

348

The statutes that govern registered and unregistered conveyancing use different phrases. The Land Registration Act 2002 refers to “valuable consideration” (s 29(1)). The Land Charges Act 1972 uses both phrases (see ss 4(6) and 17(1)) as does the Law of Property Act 1925 (see s 205(1)(xxi)).

349

Some agreements are binding under particular statutes despite the fact that there would not otherwise amount to valid contracts.

350

Paras 10.150 to 10.212 below.

351

Land Registration Act 2002, s 42(1)(a).

352

Land Registration Act 2002, s 41(1).

353

  See CP, para 11.179.

354

  Paras 10.150 to 10.212 below.

355

See paras 4.78 to 4.84 above.

356

See CP, para 5.49.

357

  (1990) 22 HLR 129.

358

The facts of the case also contained an added complication as the terms of the trust also provided that the power to appoint new or additional trustees was exercisable only by Mr Byng. As Proma Ltd was a sole trustee and was not a trust corporation, a transfer of the property to the leaseholders would not have overreached Mr Byng’s beneficial interest.

359

  (1990) 22 HLR 129, 138.

360

(1990) 22 HLR 129, 139.

361

(1990) 22 HLR 129, 139.

362

See paras 4.163 to 4.165 above.

363

Paras 8.31, 11.21(8) and 11.29 to 11.32 below.

364

A possible example would be where the landlord holds the property on behalf of a club (or unincorporated association) and cannot dispose of it without complying with the club rules. This requirement may be protected by a restriction in Form R.

365

The Tribunal may, however, take into account the notification requirement on the landlord and what efforts have been made to comply with it in setting a date for completion.

366

See paras 4.90 to 4.98.

367

See Hague, para 6-12.

368

(2011) Law Com No 327.

369

For an explanation of this requirement, see (2011) Law Com No 327, paras 5.49 to 5.70.

370

(2011) Law Com No 327, Chs 5 and 6, and Appendix A (draft Law of Property Bill), Part 1, particularly clause 1(2), (3) and (5), and clause 9.

371

[1957] Ch 169.

372

A landlord is also permitted to exclude the words implied under ss 62 or 63 “for the purpose of preserving or recognising any existing interest of the landlord in tenant’s incumbrances or any existing right or interest of any other person” (1967 Act, s 10(1)). We are unsure, however, to what cases this exception would apply. Part of the difficulty is the unclarity over the meaning of “tenant’s incumbrances” discussed at paras 4.92 to 4.97 above.

373

Law Com No 327, paras 3.52 to 3.70.

374

The time when the Claim Notice was served.

375

1967 Act, s 10(2)(i).

376

See CP, para 5.41.

377

See CP, para 5.43.

378

See para 4.334 below.

379

See CP, para 5.45.

380

See paras 4.362 and 4.368.

381

See CP, second and third parts of Consultation Question 15, paras 5.49 and 5.50.

382

See CP, paras 5.56, 5.57, 5.66 and 5.67.

383

See CP, paras 5.52 and 5.58.

384

See CP, para 5.52.

385

See CP, para 5.58.

386

Although there are some exceptions to this general rule, which we discuss below at paras 4.364 to 4.371.

387

See para 4.76.

388

Law Com No 327.

389

We discuss freehold acquisitions which are not on statutory terms further in Ch 14. We have recommended that Government considers regulating individual freehold acquisitions that are not on statutory terms.

390

See paras 3.298 and 3.322.

391

1967 Act, s 10(5).

392

At paras 3.272 to 3.273.

393

See paras 10.123 to 10.149.

394

We explain some of these workarounds in more detail in paras 4.81 to 4.82 above.

395

Regency Villas Title Ltd and others v Diamond Resorts (Europe) Ltd [2018] UKSC 57.

396

See CP, para 5.43.

397

We are assuming that the relevant registration requirements have been met for the purchaser of plot B to be bound by the rights in the lease.

398

See paras 3.262 to 3.266.

399

See para 3.299.

400

See paras 3.257 to 3.268.

401

See para 3.299.

402

See paras 3.276 to 3.281.

403

See para 3.282.

404

See para 4.437.

405

See paras 3.317 to 3.319.

406

See 10.123 to 10.149.

407

We explain what we mean by “personal obligations” in paras 4.74 to 4.75 above.

408

See para 4.42 above.

409

See CP, para 5.45.

410

See CP, para 5.45.

411

See the Valuation Report, paras 6.155 to 6.179.

412

On behalf of Dame Alice Owen’s Foundation, the Charity of Richard Cloudesley, and the Dulwich Estate (charity landlords).

413

We discuss “service-obligations” in paras 4.224 to 4.228 and 4.327 above.

414

See CP, Consultation Question 14, paras 5.34 to 5.35.

415

See CP, Consultation Question 27, paras 6.107 to 6.108.

416

1967 Act, s 12(1).

417

1967 Act, s 12(2).

418

1967 Act, s 12(8)

419

1967 Act, s 12(1).

420

1967 Act, s 8(4)(b).

421

1967 Act, s 11(2).

422

1967 Act s 11(4) and (5).

423

We explain why we cannot adopt this suggestion in para 10.88.

424

Or, if the property is in negative equity, at least the open market value of the property.

425

Government will need to weigh the potential impact on mortgagees in deciding which of the options set out in the Valuation Report to pursue.

426

Rentcharges Act 1977, s 2(1).

427

Rentcharges Act 1977, s 3. A few rentcharges that were created before the 1977 Act but became payable after it came into force may be extinguished a bit later (60 years after they first became payable).

428

Rentcharges Act 1977, s 2(4) and (5).

429

See CP, paras 6.6 to 6.59.

430

In Ch 6 below, we recommend a scheme of qualifying criteria based around the single concept of a “residential unit”, rather than categorising leasehold homes into houses and flats.

431

See CP, paras 6.61 to 6.66.

432

See CP, paras 6.69 to 6.78.

433

See CP, Consultation Question 21, paras 6.67 to 6.68, and Consultation Question 22, para 6.79.

434

See CP, paras 6.80 to 6.85.

435

As to that proposal, see CP, paras 6.144 to 6.156.

436

   See CP, Consultation Question 23, paras 6.86 to 6.87.

437

   See CP, paras 6.88 to 6.90. The Tribunal referred to is the First-tier Tribunal (Property Chamber) in England

or the Leasehold Valuation Tribunal in Wales.

438

See CP, Consultation Question 24, paras 6.91 to 6.92.

439

Only a small majority stated expressly that they agreed with our provisional proposal in Consultation Question 21. However, a number of those who disagreed with that proposal explained that they only did so because they did not agree with the exception which we proposed to the general requirement to use a company nominee purchaser. There was widespread support for the general requirement itself.

440

Pt I of the Landlord and Tenant Act 1987 requires that the landlord of a building containing flats which meets certain qualifying criteria must not dispose of his or her interest in the building without first offering it to the leaseholders of the flats.

441

For a simple explanation of the concept of bona vacantia and the doctrine of escheat, see https://www.burges-salmon.com/-/media/files/non-pub-pdfs/escheat-guidance-flyer.pdf?la=en.

442

See the RTM Report, paras 6.3 to 6.10.

443

See the Commonhold Report, para 7.67.

444

Companies Act 2006, Pt 15 and s 853A.

445

Companies Act 2006, ss 477 to 479. It will be very rare for a nominee purchaser company not to be a “small company”. See Companies Act 2006, ss 382 to 384.

446

Consultation Question 23 sought consultees’ views as to the matters which should fall in each of these categories: see CP, para 6.87.

447

A “white knight” is a third party who contributes to the premium payable on a collective freehold acquisition claim in respect of the non-participating leaseholders’ share of that premium.

448

See para 5.3 above and paras 5.222 to 5.246 below.

449

Law of Property Act 1925, s 34(2).

450

Note that organisations which describe themselves as “co-operatives” may use a variety of legal forms, both incorporated (meaning that the organisation has legal personality and can hold property and enter into contracts) and unincorporated (meaning that the organisation does not have legal personality and must act via its individual members). Clearly, for a nominee purchaser, an incorporated form would be required, such as a co-operative society, company limited by guarantee or company limited by shares. An unincorporated association, which is a common form of co-operative, would not be suitable.

451

A “Tyneside lease”, suggested by one consultee, is not a form of corporate structure and as such would not be suitable for use on a collective freehold acquisition claim. In any event, the Tyneside lease is a specific arrangement which is only suitable for use in buildings consisting of one ground floor flat and one first floor flat.

452

See para 5.3 above and paras 5.222 to 5.246 below.

453

The reasons why it is preferable for a company limited by guarantee to be used as the RTM company are set out in the RTM Report at paras 6.3 to 6.10.

454

Landlord and Tenant Act 1987, s 42.

455

“Dormant accounts” are an abridged and unaudited form of annual company accounts which can be filed at Companies House in place of full company accounts where a company is dormant (ie not carrying out any business activity or receiving an income).

456

See para 5.3 above and paras 5.222 and 5.246 below.

457

We have recommended in the RTM Report that those prescribed articles should remain under a new RTM regime (subject to a small number of changes). See the RTM Report, paras 6.38 to 6.102

458

See the RTM Report, paras 6.44 to 6.85.

459

Commonhold Regulations 2004 (SI 2004 No 1829), sch 3, as amended by the Commonhold (Amendment) Regulations 2009 (SI 2009 No 2363).

460

Our decision not to recommend the introduction of the right to participate at this time, including the challenge of developing appropriate anti-avoidance measures, is discussed at paras 5.222 to 5.246 below.

461

See CP, paras 6.93 to 9.65.

462

See CP, Consultation Question 25, Pt 1, para 6.96.

463

See CP, paras 6.95(2) and (3).

464

See CP, Consultation Question 25, Pt 2, para 6.97.

465

See CP, para 8.156.

466

See CP, Consultation Question 54, para 8.157.

467

See RTM CP, Ch 4.

468

See RTM CP, paras 4.24 to 4.31 and 4.51 to 4.70.

469

See RTM CP, paras 4.48 and 4.70.

470

We proposed in the CP, and recommend in Ch 6 below, that the new enfranchisement regime should retain the requirements under the current law that at least two-thirds of the residential units in a building must be let on long leases for the building to be eligible for a collective freehold acquisition claim, and that the owners of at least half of the residential units in the building must participate in such a claim. See CP, paras 8.135 to 8.144 and paras 6.239 to 6.521 and 6.266 to 6.281. Where a building contains a significant number of residential units let to social housing tenants, it is less likely that these requirements will be satisfied.

471

We understand that estates owned by local authorities will often have a form of “Residents’ Council”, which can be joined by both leaseholders and short-term tenants.

472

See CP, paras 7.32 to 7.58.

473

Our recommendations as to the qualifying criteria and participation requirements for a collective freehold acquisition claim are set out in detail in Ch 6 below, from para 6.233 onwards.

474

These types of buildings do not meet the qualifying criteria for a collective freehold acquisition claim: see Ch 6 below, from para 6.233 onwards.

475

See paras 6.267 to 6.281 below: the leaseholders of at least half of the total number of residential units in a building must participate in a collective freehold acquisition.

476

See Ch 6 below.

477

See the RTM Report, Ch 5.

478

One can imagine, for example, two similar blocks of flats next door to one another. Although there may be no formal connection between the two, they might enjoy cost savings by employing the same managing agents, cleaners and gardeners to attend to both blocks.

479

See paras 5.214 to 5.221 below.

480

See CP, paras 6.98 to 6.99.

481

See CP, paras 6.100 to 6.102.

482

See CP, Consultation Question 26, paras 6.103 to 6.104.

483

See paras 3.125 to 3.137 and paras 4.21 to 4.26 above.

484

See para 5.117 above.

485

Note that in the recent decision of LM Homes Ltd v Queen Court Freehold Co Ltd [2020] EWCA Civ 371, [2020] 3 WLUK 203, it was held that the airspace and subsoil form parts of the “building” of which the qualifying tenants were entitled to claim the freehold.

486

See Valuation Report, paras 6.155-6.179.

487

We explain in Ch 4 above, at para 4.11, what is meant by a flying freehold, and why it is considered problematic.

488

See paras 5.73 to 5.108 above for our discussion of multi-building collective freehold acquisition.

489

See paras 3.125 to 3.137 and paras 4.21 to 4.26 above.

490

  See Ch 6 below.

491

  See para 5.102 above.

492

See Ch 3 at para 3.136, and Ch 4 at para 4.26.

493

See paras 5.137 to 5.138(1) above.

494

  1993 Act s 21(4).

495

A secure tenancy is a tenancy under which a dwelling house is let as a separate dwelling by a landlord which is a prescribed public body to a tenant who occupies the dwelling as his or her principal home: see the Housing Act 1985, ss 79 to 81. An introductory tenancy is a “trial tenancy” granted by a local authority to a new tenant. The purpose is to assess whether the tenant will be a good tenant before they are granted a secure tenancy. Tenants under introductory tenancies have fewer rights than secure tenants and lesser security of tenure. See Housing Act 1996, ss 124 to 143.

496

See CP, paras 6.16 to 6.26 for more detailed discussion of the current law on leasebacks. We discuss what is meant by a “qualifying tenant” briefly at para 6.2(1) of the CP, and in more detail at paras 7.54 to 7.67 of that paper.

497

See CP, paras 6.129 to 6.131.

498

Consultation Question 31, para 6.132.

499

See paras 6.317 to 6.338 below.

500

Pt IV of sch 9 to the 1993 Act is likely to be informative in this regard.

501

See para 5.160 above.

502

See Ch 13, at paras 13.46 to 13.51.

503

See paras 4.171 to 4.173 and 4.217 to 4.218.

504

See paras 4.337, 4.351 and 4.370 to 4.371.

505

See para 4.85.

506

However, we noted in Ch 4 that, in exceptional cases, a leaseholder may acquire more extensive premises on an individual freehold acquisition than he or she occupied under the lease (see para 4.311).

507

See CP, Consultation Question 27, at paras 6.107 and para 6.108.

508

Paras 4.372 to 4.410 above.

509

  1993 Act, sch 8, para 2(2).

510

Recommendation 77, para 10.106 below.

511

Paras 4.398 to 4.400 above.

512

This was also a key issue raised by consultees who responded to our question about individual freehold acquisitions.

513

Paras 4.81(2) and 4.405 to 4.410.

514

See CP, paras 6.1 and 6.34.

515

  See RTM Report, paras 10.147 to 10.154.

516

  See RTM Report, paras 10.204 to 10.224.

517

See CP, paras 6.133 to 6.137.

518

See CP, Consultation Question 32, paras 6.138 to 6.139.

519

See Chapter 6 at paras 6.267 to 6.281 for a full discussion of the participation requirement for collective freehold acquisition claims.

520

See para 6.277 below.

521

See discussion of this type of multi-building claim at para 5.104 above.

522

See discussion of “break-away” claims at 5.107 above.

523

See the Commonhold Report, at paras 4.6 to 4.40.

524

See CP, paras 6.144 to 6.148.

525

See CP, paras 6.149 to 6.153.

526

See CP, paras 6.154 to 6.155.

527

See CP, Consultation Question 34, Pts 1 and 2, paras 6.157 and 6.158.

528

See CP, para 6.156.

529

See CP, Consultation Question 34, Pt 3, para 6.159.

530

The qualifying criteria in respect of houses were discussed at para 7.6 of the CP onwards, and those in respect of flats are discussed at para 7.51 of the CP onwards.

531

The “original” and “alternative” low rent tests were explained at paras 7.25 to 7.31 of the CP.

532

These three specific examples of inconsistencies between the 1967 Act and the 1993 Act were discussed in more detail at paras 7.87 to 7.92 of the CP.

533

See CP, paras 2.5 to 2.10, and paras 7.93 to 7.95.

534

We considered these issues in detail in the CP, at paras 7.96 to 7.107.

535

See CP, paras 7.106 to 7.107.

536

See CP, paras 7.108 to 7.111.

537

See CP, paras 7.25 to 7.28, where we discussed the effect the Housing and Regeneration Act 2008 has had on the low rent test.

538

We explained these and other criticisms of the low rent test at paras 7.112 to 7.114 of the CP.

539

See CP, para 7.115.

540

See CP, paras 7.116 to 7.117.

541

See CP, paras 7.118 to 7.121.

542

See CP, paras 7.122 to 7.123.

543

See CP, paras 7.124 to 7.126.

544

See CP, paras 7.127 to 7.128.

545

See CP, paras 7.129 to 7.131.

546

See CP, para 8.5.

547

See below at para 6.372 onwards.

548

Our proposed scheme was set out in more detail in para 8.16 onwards of the CP.

549

See fig 6 below.

550

The concepts “residential unit” and “long lease” are considered below at paras 6.27 to 6.45 and paras 6.69 to 6.82 respectively.

551

The premises that can be included in this lease extension are discussed at paras 3.113 to 3.147 above. We also discuss which leaseholder qualifies for enfranchisement rights where there is a chain of leasehold interests at paras 13.9 to 13.10 below: in summary, only the most inferior long leaseholder who meets the enfranchisement qualifying criteria will have enfranchisement rights.

552

We discuss this additional lease extension option at paras 6.132 to 6.138 below.

553

See CP, para 8.36 (n 523).

554

See CP, paras 8.42 to 8.56. We also consider the definition of a building in detail at paras 6.187 to 6.215 below.

555

See CP, paras 8.48 and 8.49.

556

See CP, Consultation Question 38 (first and second parts), paras 8.57 to 8.58. The third part of Consultation Question 38 (at para 8.59) concerned business leases and is considered below.

557

Damian Greenish (a solicitor); Boodle Hatfield LLP (solicitors).

558

The Wallace Partnership Group, a landlord.

559

SI 1987 No 764.

560

See CP, para 8.41.

561

If a unit is contained within a larger set of premises, the larger premises will not themselves be a unit; there can be no “unit within a unit”. In other words, a unit will be the smallest part of a premises which meets the definition: see CP, para 8.43.

562

Aldford House Freehold Limited v Grosvenor (Mayfair) Estate, K Group Holdings Inc [2019] EWCA Civ 1848, [2020] Ch 270, which concerned the definition of a flat under the 1993 Act, at [17]. As Lewison LJ stated in [19], the fact that the separation is “potentially reversible with little effort” does not mean that two sets of premises are not separate from each other.

563

As we explained in the CP, at para 8.44, the fact that premises are accessible only by means of a communal staircase or hallway would not render the premises incapable of “independent” use. Nor would premises cease to be “independent” if the lease of a house or flat does not include structural elements such as the walls and roofs.

564

See CP, paras 8.42 to 8.56. The construction or adaptation should not be in breach of covenant (save where the breach has been consented to or waived by the landlord).

565

Aldford House, above, at [36].

566

As we explained at para 8.46 of the CP, we favour adopting the approach of the Court of Appeal in Hosebay Ltd v Day [2010] EWCA Civ 748, [2010] 1 WLR 2317, and approved by the Supreme Court on appeal ([2012] UKSC 41, [2012] 1 WLR 2884): where premises are constructed for one use and are later adapted for another, the purpose of the original design or construction should no longer be determinative and can be overridden by subsequent adaptations.

567

  See paras 2.33 to 2.35 of the RTM Report.

568

  See below at para 6.86 for a discussion of this situation.

569

This differs from a live/work unit of the kind which is seen more frequently, where a leaseholder lives and works in their property: in which case, as we state above, this will constitute a residential unit.

570

We expanded upon this point in the CP, at para 8.40.

571

See CP, para 8.45 onwards.

572

See Recommendation 3, at para 3.37 of the RTM Report.

573

See CP, para 8.50.

574

See CP, Consultation Question 38 (third part), para 8.59.

575

We made an equivalent provisional proposal in the context of qualifying for the right to manage: see the RTM Report, at para 4.112 onwards.

576

For instance, Howard de Walden Estates Ltd (a landlord).

577

 Long Harbour and HomeGround.

578

  Philip Rainey QC.

579

Philip Rainey QC, who contended that “all four of the tests set out in para 8.52 and 8.53 should be adopted, as a panoply of restrictions which should together catch all business units”.

580

Howard de Walden Estates Ltd.

581

See the RTM Report, at para 4.122.

582

See para 6.140 above.

583

Whether a lease permits a certain type of use is a question of construction of the lease as a whole, rather than being evaluated solely by reference to the user clause: see Sequent Nominees Ltd (formerly Rotrust Nominees Ltd) v Hautford Ltd [2019] UKSC 47, [2020] AC 28.

584

We recommend the same approach to excluding business leases in the RTM Report, at paras 4.122 to 4.130.

585

In our view, a leaseholder should not fall within the enfranchisement regime by reason of having occupied the premises for purposes which are in breach of a covenant in their lease.

586

There is a difference between refusing to allow leaseholders to gain statutory rights because of a breach of covenant (as in para 6.62 above), and taking away rights that they would otherwise have where they are in breach of covenant. The landlord in the latter cases will be able to take action to require the leaseholder to cease the non-residential use in accordance with the lease.

587

See CP, para 8.61. A tenancy at will is a tenancy, usually entered into while negotiations for a lease are pending, which may be brought to an end by either party at any time (on reasonable notice). A tenancy at sufferance arises where a tenant remains in possession of a property following expiration of his or her lease, without the landlord’s consent.

588

See CP, Consultation Question 39, para 8.67; and see CP, paras 8.62 to 8.66, for more detail.

589

See CP, paras 7.17 to 7.22 in respect of the 1967 Act, and paras 7.59 to 7.61 in respect of the 1993 Act.

590

The Country Land and Business Association, a landlord representative body.

591

CMS Cameron McKenna Nabarro Olswang LLP, solicitors.

592

  1967 Act, s 3(1); 1993 Act, s 7(1).

593

See CP, paras 7.21 to 7.22, and 7.59 to 7.61.

594

  1967 Act, s 1(3)(b).

595

  1967 Act, s 1(3)(a).

596

  1967 Act, s 3(1) (in respect of which the position is more complex, as described in para 7.21(1) of the CP),

and s 7(2) of the 1993 Act. The criteria which, if met, exclude these leaseholders from rights are that the notice is capable of being given at any time after the death, marriage or civil partnership of the leaseholder, that the length of the notice is not more than three months, and the terms of the lease preclude both its assignment and the subletting of the whole of the premises comprised in it.

597

See CP, para 8.65.

598

The authors of Hague write at para 4-02 that there is only one known case on this point: Brightbest Ltd v Meyrick (26 March 2014) Winchester County Court (unreported). In that case, the authors of Hague explain that “ancillary” was defined as meaning “that which is subordinate to some other thing” (referring to Dictionary of English Law: Earl Jowitt, 1959).

599

See para 6.41 above.

600

The same result may arise in respect of, say, a caretaker’s cottage let with (and situated in the middle of) school grounds.

601

We explained these three provisions at paras 8.68 to 8.70 of the CP.

602

See CP, Consultation Question 40, paras 8.71 to 8.72.

603

Philip Rainey QC.

604

Heather Keates, a conveyancer.

605

Irwin Mitchell LLP, solicitors.

606

The issue of which “premises” are associated with a residential unit is discussed at paras 3.125 to 3.137 above.

607

We note the different context of the rule that separate collective freehold acquisition claims must be made over different self-contained parts of a building where those parts are held by different freeholders: 1993 Act, s 4(3A).

608

Sub-option (6), at para 6.223 of the Valuation Report.

609

See the Valuation Report, paras 6.242 to 6.249.

610

We set out the criticisms of the low rent test and the use of rateable values at paras 7.112 to 7.115 of the CP.

611

See CP, Consultation Question 41, para 8.74.

612

Nesbitt and Co, surveyors.

613

Wallace Partnership Group Ltd.

614

Under ss 1AA and 32A of the 1967 Act respectively.

615

See Ch 9 of the Valuation Report, and particularly our summary of the options for Government at para 9.122 onwards.

616

See paras 7.270 to 7.273 below.

617

See below at paras 7.236 to 7.241, and Recommendation 49 (at para 7.242).

618

See para 6.43 above.

619

Though we note that a proportion of these market-rent leases are likely to continue to be excluded under our new scheme on the basis of other provisions, such as the exclusion for business leases.

620

See para 7.120 onwards.

621

See CP, paras 7.118 to 7.121.

622

See CP, Consultation Question 42, para 8.77.

623

See CP, para 7.117.

624

We explained the inconsistency at para 7.117 of the CP.

625

Josephine Rostron.

626

CILEx.

627

As we explained in para 7.120 of the CP, the benefit of the notice may be assigned with the lease, but is not capable of subsisting apart from the lease. It is essential, therefore, that there is a legal assignment of both the lease and the notice together - a requirement, we understand, which has led to a number of disputes over whether a valid assignment has taken place.

628

CILEx.

629

The Law Society.

630

In the Valuation Report, we included the option for Government to remove marriage value altogether, or to remove the 80-year cut off (if done as part of a package of reforms that would reduce premiums overall): see, in particular, our explanation of Scheme 1 (at para 5.85 onwards) and Option 5 (at para 6.217 onwards) respectively.

631

Geraint Evans, a surveyor.

632

Sir John Cass’s Foundation, a charity landlord.

633

We discuss the “premises” that a leaseholder will be able to include in lease extension claims in at paras 3.113 to 3.147 above.

634

We discuss the criteria which must be met in order to qualify for an individual freehold acquisition immediately below, at para 6.139 onwards.

635

See above at para 3.130 onwards.

636

We explain at para 4.11 above what is meant by a flying freehold, and why it is considered problematic. It is because of these difficulties that flats are almost universally owned on a leasehold, rather than freehold, basis: see para 1.20. We note that commonhold enables the freehold ownership of flats, by providing a structure to manage the relationship between individually-owned freehold flats, therefore avoiding the problems usually associated with flying freeholds: see the Commonhold Report at paras 2.4 to 2.6.

637

The premises which can be included in the individual freehold acquisition are discussed at paras 4.6 to 4.37 above.

638

We considered these four questions in detail at paras 8.83 to 8.94 of the CP.

639

See CP, Consultation Question 43, para 8.95.

640

See CP, paras 8.113 to 8.118.

641

See CP, Consultation Question 46, paras 8.119 to 8.121.

642

We consider the application of a non-residential percentage limit in the context of collective freehold acquisition at paras 6.317 to 6.340 below.

643

See CP, para 8.118.

644

The specific situation of a flat above a shop is considered further below, at para 6.172 onwards.

645

Philip Rainey QC.

646

Millbrooke Court Residents’ Association.

647

See, in particular, para 6.336 below.

648

See para 6.339 below.

649

See CP, paras 8.167 to 8.179.

650

See CP, Consultation Question 56, paras 8.180 and 8.181.

651

Stephen Desmond.

652

Shoosmiths LLP and Bryan Cave Leighton Paisner LLP.

653

The First-tier Tribunal (Property Chamber) in England or the Leasehold Valuation Tribunal in Wales.

654

CILEx.

655

Bert Lourenco.

656

We discussed this and other concerns raised by our advisory group in respect of creating a new “ancillary” or “complementary” use proviso in this context at para 8.175 of the CP.

657

See CP, para 7.100(1).

658

See CP, paras 8.97 to 8.103.

659

See CP, paras 7.35 to 7.36.

660

“Overhang” and “underhang” arise where a building is divided partly horizontally and partly vertically. In these cases, part of a building will lie above or below another part of the building, potentially giving rise to the issue of flying freeholds, explored at para 4.11 above.

661

See CP, Consultation Question 44, paras 8.104 and 8.105.

662

See CP, Consultation Question 45, para 8.109, with the associated explanation at paras 8.106 to 8.108.

663

Philip Rainey QC.

664

Damian Greenish.

665

The meaning of “structurally detached” was recently considered in detail in Consensus Business Group (Ground Rent) Ltd v Palgrave Gardens Freehold Company Ltd [2020] EWHC 920 (Ch) at [95] onwards.

666

See CP, Consultation Question 57, para 8.184.

667

The Property Litigation Association (“the PLA”).

668

We explain “Aggio” lease extensions at para 3.189 onwards.

669

Long Harbour and HomeGround.

670

Maddox Capital Partners Ltd, a landlord.

671

Sub-option (4), at para 6.180 onwards of the Valuation Report.

672

Mark Chick.

673

See paras 6.207 to 6.213 above.

674

See CP, Consultation Question 54, para 8.157.

675

See CP, para 7.78 onwards.

676

See CP, para 7.74 onwards.

677

Article 1 of Protocol 1 to the European Convention of Human Rights.

678

See CP, Consultation Question 48, para 8.142, with the explanation at paras 8.135 to 8.141.

679

We discuss the definition of a “long lease” above, at paras 6.69 to 6.82.

680

In our RTM Report, we also recommend preserving the equivalent two-thirds rule, which we refer to in that context as the “qualification threshold”: see para 3.140 onwards.

681

See para 7.6 onwards.

682

See CP, para 7.56 onwards, for an explanation of the definition of a flat.

683

See CP, Consultation Question 47, para 8.134, with the explanation at paras 8.129 to 8.133.

684

However, as we reiterate at para 6.262 below, we agree that each individual leaseholder should have the right to a lease extension in respect of their residential unit or units.

685

The question of how many leaseholders must actually participate in order to effect a collective freehold acquisition is considered generally below at para 6.266 onwards, and specifically in respect of two-unit buildings at para 6.282 onwards.

686

See para 6.248(1) above for a brief discussion of the basis for the individual freehold acquisition right.

687

See para 6.248(2) above.

688

See CP, para 8.133.

689

See CP, para 7.81, for an explanation of the current law.

690

See CP, Consultation Question 49, para 8.144.

691

See CP, para 10.142, for an explanation of the current law.

692

As we explain at para 5.4(4) above, “ping-pong” enfranchisement claims involve one group of leaseholders successfully exercising the right to enfranchise, only for another group in the same building (or part of the building) to do so immediately thereafter, with the result that the freehold and management move back and forth between them (potentially repeatedly).

693

See paras 5.222 to 5.246 above.

694

See para 5.214 above.

695

See Recommendation 23, at para 5.221 above.

696

See para 7.6 onwards.

697

The Commonhold and Leasehold Reform Act 2002 (Commencement No 1, Savings and Transitional Provisions) Order 2002 (SI 2002 No 1912) sch 2, para 2.

698

See CP, Consultation Question 50, para 8.147.

699

See CP, para 8.146.

700

On behalf of Dame Alice Owen’s Foundation, the Charity of Richard Cloudesley, and the Dulwich Estate (charity landlords).

701

See paras 5.222 to 5.246.

702

As we explained in para 8.146(2) of the CP, the right to participate could provide the potential for the acquisition to become truly “collective” at a later stage.

703

We explain our recommendation in respect of the right to manage in more detail in the RTM Report, at paras 3.157 to 3.183. See particularly the comparative table at para 3.177 of the RTM Report.

704

See CP, Consultation Question 55, para 8.166, with the associated explanation and discussion at paras 8.160 to 8.165.

705

See paras 5.206 to 5.221 above.

706

See CP, para 8.163.

707

We consider a related point at para 6.292 above.

708

See CP, para 7.80.

709

See CP, Consultation Question 52, at para 8.153, with the associated explanation at paras 8.150 to 8.152.

710

Consultees’ views on the application of a percentage non-residential use limit in individual freehold acquisitions, and on what that percentage should be, are considered at paras 6.152 to 6.164 above.

711

Bruce Maunder-Taylor.

712

LEASE, for instance.

713

The National Leasehold Campaign, Jo Darbyshire, Steven Harding (a surveyor), and Roger Dunn, among others.

714

LKP, for instance.

715

Hansard (HC), 9 February 1993, vol 218, col 883.

716

See CP, at para 2.27.

717

Hansard (HL), 15 March 2001, vol 623, col CWH 206.

718

Landlord and Tenant Act 1987, s 1(3). The right of first refusal is the right for leaseholders of flats to be offered the freehold of their building before it is sold to a third party.

719

See the Commonhold Report, at para 4.27. This recommendation also aligns with our recommended move towards a 50% non-residential limit in the context of the right to manage: see the RTM Report at paras 3.115 to 3.126.

720

See para 5.152 onwards.

721

See para 5.168 above.

722

See paras 5.153 to 5.154. It may be desirable for a freeholder to request a leaseback in these situations because it preserves an income stream from a business tenant.

723

See CP, para 7.80.

724

Premises have a resident landlord if (a) they are not (and do not form part of) a purpose-built block of flats; (b) the same person has owned the freehold of the premises since before they were converted into two or more flats or other units; and (c) the landlord (or an adult member of his or her family) has occupied a flat or other unit within the premises as his or her only or principal home for the preceding 12 months: 1993 Act, s 10.

725

1993 Act, s 4(5).

726

See CP, Consultation Question 53, para 8.155.

727

John Stephenson, and Orme Associates Property Advisers, respectively.

728

The Landlord and Tenant Act 1987, suggested by John Stephenson.

729

Sheila Jalving, a leaseholder, who suggested that a freeholder who has resided in a house which has been converted into flats for a specified amount of time should also receive the benefit of the exclusion.

730

As we set out at para 7.80(2) of the CP, the scope of the exception is significantly narrower than that. In order to apply, it requires, for instance, the freeholder to have converted the property into flats himself or herself, and it cannot be engaged where the property is a purpose-built block of flats or where there are more than four flats. Furthermore, there is a residence condition, which is an ongoing requirement.

731

CLRA 2002, s 118.

732

See the RTM Report, at paras 4.45 to 4.52.

733

See CP, para 7.75.

734

See CP, paras 7.124 to 7.126.

735

See CP, para 7.79.

736

See CP, Consultation Question 51, para 8.149, with the associated explanation at para 8.148.

737

Bruce Maunder-Taylor.

738

The British Property Federation.

739

Boodle Hatfield LLP.

740

See CP, Consultation Question 58, paras 8.192 and 8.193, with the associated explanation at paras 8.185 to 8.191.

741

Geraint Evans.

742

Professor James Driscoll.

743

The PBA.

744

Bryan Cave Leighton Paisner LLP and Shoosmiths LLP.

745

See Sub-option (4), at para 6.180 onwards of the Valuation Report.

746

See the recent House of Commons Library briefing paper: H Cromarty, Shared ownership (England): the fourth tenure? (House of Commons Library Briefing Paper No 08828, February 2020) pp 7 to 9, at https://researchbriefings.files.parliament.uk/documents/CBP-8828/CBP-8828.pdf. While there is no information presented on the percentage of shared ownership leaseholders who are first-time buyers, the product is marketed at such buyers and the data reproduced in this paper about the previous tenures occupied by such buyers indicate the prevalence of first-time buyers.

747

In some cases, there is a cap on the percentage share which a shared ownership leaseholder is entitled to acquire through staircasing, in order to ensure that the property remains a shared ownership property (and, thus, a form of affordable housing) forever. For example, this may be desirable in the case of homes in rural areas, where the provision of new housing can be challenging, or in the case of properties aimed at the retirement sector: see further discussion of this issue at paras 7.72 to 7.73 below.

748

See, for example, S Bright, N Hopkins and N Macklam, “Owning part but losing all: using Human Rights to protect home ownership”, N Hopkins (ed) Modern Studies in Property Law: Volume 7 (2013) pp 15 to 38.

749

The rent payable on the “unacquired share” of a shared ownership property will often be subject to controls intended to ensure the rent remains affordable. Shared ownership developments which are built using public funding, for example, will have an initial annual rent which does not exceed 3% of the value of the unacquired share and annual rises limited to RPI + 0.5%.

750

Most long leases are not assured tenancies, because they are at a low rent: Housing Act 1988, s 1(1)(c) and (2), and sch 1, Pt 1, paras 3 to 3C. However, almost all shared ownership leases will exceed the rental limits stated in schedule 1, because of the rent payable on the “unacquired share”. See Richardson v Midland Heart [2008] L & TR 31.

751

At the date of service of the “Section 8 notice” relating to the proceedings for possession, and at the date of the hearing: Housing Act 1988, sch 2, Pt 1, Ground 8.

752

This was the result in Richardson v Midland Heart Ltd [2008] L & TR 31. It should be noted, however, that Government has committed to changing the law so that long leaseholders will not be classed as assured tenants simply because (as explained in n 5 above) they pay a high ground rent: see Department for Communities and Local Government, Tackling Unfair Practices consultation - Summary of consultation responses and Government response (December 2017) p 21, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/670204/T ackling_Unfair_Practices_-_gov_response.pdf. We assume that Government’s work in this area will also extend to shared ownership leaseholders paying rent on the unacquired share which exceeds the limits in sch 1 to the Housing Act 1988.

753

Although forfeiture of a long lease can be a draconian remedy, a leaseholder is entitled to seek relief from forfeiture, and this jurisdiction is usually exercised generously. See Megarry and Wade, The Law of Real Property (9th ed 2019) Ch 17.

754

This is because a “section 21 notice” to end an assured shorthold tenancy can only take effect after the fixed term of the tenancy has ended: see Housing Act 1988, s 21. In the case of a shared ownership lease, the fixed term will likely be 99 years or more.

755

See CP, paras 9.10 to 9.23.

756

The First-tier Tribunal (Property Chamber) in England or the Leasehold Valuation Tribunal in Wales.

757

See CP, paras 9.24 to 9.29 for discussion of the confusion as to whether shared ownership leases of flats qualify for enfranchisement rights.

758

It should be noted that, under the recommendations made in the RTM Report, shared ownership leaseholders will, however, be able to participate in a right to manage claim to take over the management of their building: see paras 4.8 to 4.21 of that Report.

759

See CP, para 9.35.

760

See CP, Consultation Question 61, para 9.37.

761

See CP, Consultation Question 61, para 9.38.

762

An even broader range of lease extension lengths was suggested in relation to the general question about lease extension length in Ch 4 of the CP (see paras 3.41 to 3.47 above). However, suggestions between 90 and 999 years were most common.

763

See the Valuation Report, paras 5.10 to 5.42. We explain the relevance of Article 1 of Protocol 1 to the European Convention on Human Rights to enfranchisement premiums at paras 1.41 to 1.55 of that Report.

764

These schemes appear somewhat similar to Options 2A, 2B and 2C presented in the CP, although their underlying rationale is different. See the Valuation Report, paras 5.5 to 5.9 and paras 5.77 to 5.93.

765

See the Valuation Report, paras 2.40 to 2.55.

766

The model shared ownership leases published by Homes England would suggest that shared ownership leaseholders do not generally pay a ground rent until they have staircased to 100%, at which point the rent on the unacquired share is replaced by a minimal ground rent (such as a peppercorn). However, we have heard from a number of shared ownership providers who have told us that ground rents of up to several hundred pounds per annum are routinely included in their shared ownership leases. Our leaseholder survey also revealed that, of 19 shared ownership leaseholders who submitted responses, 15 had some sort of ground rent obligation.

767

A shared ownership leaseholder with an “onerous” ground rent would, however, be able to take advantage of our suggested cap on the level of ground rent which is to be taken into account in this calculation, if this valuation option is adopted by Government: see paras 6.119 to 6.154 of the Valuation Report. Alternatively, if no such cap is introduced, but our recommendation at para 3.112(1) above is adopted, he or she would be able to extend the term of the lease without buying out the ground rent, in the same way as any other leaseholder. We explain what is meant by an “onerous” ground rent at para 3.93 above.

768

See Recommendation 2, at para 3.62 above, and Recommendation 42, at para 7.19 above.

769

The calculations are indicative, and are based on the rates that we adopted in the worked examples in the Valuation Report, but rounded for simplicity.

770

See paras 13.14 to 13.15 below.

771

For a fuller explanation of chains of leasehold interests and the concept of the “competent landlord”, see paras 13.9 to 13.13 below.

772

Where a collective freehold acquisition claim is made in respect of a building which contains units let on shared ownership leases by a housing association, those units will be the subject of a mandatory “leaseback” to the housing association, which will thereby remain the immediate landlord of the shared ownership leaseholder. See discussion of leasebacks at paras 5.152 to 5.172 above.

773

See CP, paras 9.39 to 9.40.

774

  See CP, paras 8.135 to 8.144, and paras 6.239 to 6.251 and 6.267 to 6.281 above.

775

  A shared ownership lease will, of course, be a “long” lease in the sense that it is granted for a term

exceeding 21 years. However, within our scheme of qualifying criteria, we use the phrase to indicate not only a lease with a certain minimum term but one which enjoys enfranchisement rights. See paras 6.17 to 6.18 and 6.69 to 6.104 above.

776

See para 7.39.

777

A summary of the relevant provisions can be found at paras 9.10 to 9.23 of the CP. The criteria which must be satisfied vary depending on the identity of the landlord.

778

See CP, paras 9.24 to 9.29 for discussion of the confusion as to whether shared ownership leases of flats qualify for enfranchisement rights.

779

This definition was inserted by ss 156, 157 and 166 of the Localism Act 2011 into provisions of the Law of Property Act 1925, Land Registration Act 2002 and Landlord and Tenant Act 1985 respectively. However, in each case that definition is expressed to be for the purposes of that provision or Act only.

780

See CP, paras 9.10 to 9.23 for a detailed discussion of the different criteria which determine whether shared ownership leases granted by different kinds of landlord are excluded from enfranchisement rights.

781

See CP, Consultation Question 63, paras 9.48 to 9.49.

782

In the case of a shared ownership lease granted within a block of flats held on commonhold, the position will be different. We recommend in the Commonhold Report, at para 11.73, that where a shared ownership leaseholder in a commonhold staircases to 100%, the provider’s freehold title to the unit should be transferred to him or her.

783

See CP, paras 9.18 to 9.23 for further discussion of this issue.

784

The criteria which govern the exclusion of shared ownership leases from enfranchisement rights under the 1967 Act provide that leases in designated protected areas will be excluded provided that (among other things) the leaseholder is entitled to acquire at least an 80% share in the house. See 1967 Act, s 33A, sch 4A, para 4A and Housing (Shared Ownership Leases) (Exclusion from Leasehold Reform Act 1967) (England) Regulations 2009 (SI 2009 No 2097) (“2009 regs”), reg 8(2). The designated protected areas are identified in the Housing (Right to Enfranchise) (Designated Protected Areas) (England) Order 2009 (SI 2009 No 2098).

785

See 1967 Act, s 33A and sch 4A, para 4 and Housing Association Shared Ownership Leases (Exclusion from Leasehold Reform Act 1967 and Rent Act 1977) Regulations 1987 (SI 1987 No 1940) (“1987 regs”), reg 3 and sch 2. However, these provisions relate to leases granted by a registered housing association, and would not therefore apply to leases granted by a private retirement housing provider such as Anchor Hanover.

786

As defined in 1987 regs, sch 2, para 1.

787

A similar criterion exists among those which govern the exclusion of shared ownership leases from enfranchisement rights under the 1967 Act. See 1967 Act, s 33A and sch 4A, paras 3, 3A and 4A; 1987 regs, reg 2 and sch 1, para 2(a); and 2009 regs, regs 5(2) and 9(2).

788

Indeed, the model shared ownership leases produced by Homes England currently provide for the acquisition of additional shares in increments of 10%, and Government has recently announced proposals to reduce this to 1%: https://www.gov.uk/government/news/changes-to-shared-ownership-to-help-more-people-get-on-the-property-ladder. The staircasing provisions of the model lease are one of the “fundamental clauses” which shared ownership leases of homes funded by Homes England must include.

789

See 1967 Act, s 33A and sch 4A, paras 3(2)(f) and 3A(2)(f); 1987 regs, reg 2 and sch 1, para 4; and 2009 regs, reg 7.

790

  We explain at para 4.11 above what is meant by a flying freehold, and why it is considered problematic.

791

  This complication does not arise where the block is held on commonhold. In that case, the provider of the

shared ownership lease would hold the freehold title to the unit. Commonhold has been designed to facilitate the freehold ownership of flats and avoid the difficulties usually associated with flying freeholds. In the Commonhold Report at para 11.73 we recommend that, where a shared ownership lease is granted within a commonhold building, the provider’s freehold title to the unit is transferred to the shared ownership leaseholder on staircasing to 100%. That reflects the fact that an ordinary purchaser in commonhold would be able to buy the freehold of the unit.

792

In other words, where the property is a house, and the provider of the shared ownership lease is the freeholder.

793

See the Commonhold Report, paras 11.4 to 11.19.

794

Commonhold CP, para 12.29.

795

This definition is based on that adopted in several statutes pursuant to amendments brought about by the Localism Act 2011. See n 34 above.

796

See the National Trust Act 1907, s 4(1) and the National Trust Act 1937, s 3.

797

By s 21(1) and sch 1 of the National Trust Act 1907, certain National Trust properties are expressly stated to be inalienable. The National Trust also has power, under s 21(2) of the 1907 Act, to determine by resolution that other land or properties which it owns are to be held for the benefit of the nation, upon which such land or buildings shall thereafter be inalienable. Further, properties granted to the Trust pursuant to the National Trust Act 1939 are inalienable, by reason of s 8 of that Act. In total, around 95% of National Trust land is inalienable.

798

  1967 Act, s 32.

799

  1993 Act, s 95. It should be noted, however, that the vast majority of National Trust leaseholders have a

lease of a house rather than a flat. The National Trust has told us that it has around 85 flats, and around 30 further lease arrangements where tenants occupy part or parts of a property (which may or may not be described as a “flat” in the ordinary sense of the word).

800

  See CP, Consultation Question 64, para 9.60.

801

  See CP, Consultation Question 64, para 9.61.

802

See CP, para 9.58(3).

803

The National Trust also suggested that leases which have been granted at a market rent rather than in exchange for a premium should be excluded from enfranchisement rights. This suggestion, which is not just of relevance to the National Trust, is discussed above at para 6.116 onwards.

804

See n 52 above.

805

See Recommendations 1 and 2, at paras 3.36 and 3.62 above.

806

See para 7.94 above.

807

We discuss further at paras 7.141 to 7.144 below why we think the introduction of the right to buy back is appropriate, and how we think it can operate successfully and fairly.

808

As originally enacted, both the 1967 Act and the 1993 Act contained a form of “residence test”, requiring that the leaseholder had occupied the property in question as his or her home for a set period of time for enfranchisement rights to be available to him or her. However, these qualification criteria were removed by the 2002 Act. See CP, Ch 2.

809

See CP, paras 8.185 to 8.193 and 15.30 to 15.38; the Valuation Report, paras 6.180 to 6.204; and paras 6.372 to 6.391 of this Report.

810

See paras 3.52 to 3.62 above.

811

See para 7.117(4) above.

812

See paras 3.241 to 3.300, 4.293 to 4.251 and 4.339 to 4.351 above.

813

  1967 Act, s 33(1) and 1993 Act, s 94(1). An exception may apply in the case of a claim by a sub-lessee

against a landlord under a head lease from the Crown. The claim can proceed if the landlord (or a superior landlord under a lease from the Crown) is entitled to grant such a lease extension without the concurrence of the “appropriate authority”, or the “appropriate authority” notifies the landlord that, as regards any Crown interest affected, it will grant or concur in granting the freehold or lease extension sought: 1967 Act, s 33(1)(a) and (b) and 1993 Act, s 94(2).

814

This undertaking was first given in 1992, and was reconfirmed by Baroness Scotland of Asthal (then Parliamentary Secretary, Lord Chancellor’s Department) in a written reply following the Third Reading of the Commonhold and Leasehold Reform Bill, which proposed amendments to the 1967 and 1993 Acts (ultimately brought into effect by the 2002 Act): Hansard (HL), 11 December 2001, vol 629, col 196.

815

The undertaking provides that the Leasehold Valuation Tribunal - now the First-tier Tribunal - is to be empowered to act as arbitrator and will hear such disputes on voluntary reference.

816

At the time the CP was written, we were only aware of the Crown Estate’s voluntary policy and we erroneously assumed that this policy was applied by all of the Crown bodies. We now know that this is not the case.

817

See: https://www.thecrownestate.co.uk/media/2836/excepted-areas-guide.pdf.

818

The Crown Estate Commissioners may not grant a lease in excess of 150 years: Crown Estate Act 1961, s 3(2). While this restriction is disapplied in respect of lease extensions granted by analogy with the enfranchisement legislation (1967 Act, s 33(3) and 1993 Act, s 94(3)), the Crown Estate Commissioners continue to apply the 150-year limit to leases granted over properties in the excepted areas.

819

See CP, Consultation Question 65, para 9.66.

820

Where a consultee has simply referred to “the Crown”, we have generally taken this to refer to a claim against the Crown Estate specifically (unless the context suggests otherwise).

821

See para 7.151 above.

822

Written Answer, Hansard (HL), 31 May 1967, vol 747, col 42W.

823

It should be noted that this information is not entirely consistent with what we were told by the Duchy of Lancaster itself. See paras 7.171 to 7.172 below.

824

We discuss the low rent test at CP paras 7.25 to 7.31 and paras 8.73 to 8.74, and in this Report at paras 6.108 to 6.115. We discuss the designated rural areas exemption at paras 7.266 to 7.273 below.

825

See para 7.161 above.

826

We note that Lord Berkeley introduced a Private Member’s Bill to the House of Lords in January 2020 that would abolish various exemptions and immunities held by the Duchy of Cornwall, including the Duchy’s exemption from the current enfranchisement regime.

827

We acknowledge that we have not spoken to any government departments, which also fall within the exemption for the Crown under the current law. However, we have not heard of any issues arising from the application of the exemption to government bodies. We therefore propose to continue to treat government departments in the same way as the other Crown bodies.

828

See the RTM Report at paras 4.100 to 4.105.

829

See Recommendation 2, at para 3.62 above.

830

See Ch 6 above.

831

See Recommendation 28, at para 6.115 above.

832

  1967 Act, s 33(3) and 1993 Act, s 94(3).

833

For a simple explanation of the doctrine of escheat, see: https://www.burges-salmon.com/-/media/files/non-pub-pdfs/escheat-guidance-flyer.pdf?la=en.

834

See CP, paras 9.67 to 9.73.

835

See CP, Consultation Question 66, paras 9.74 to 9.75.

836

See Implementing reforms to the leasehold system in England - Summary of consultation responses and Government response (June 2019),

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/812827/1 90626_Consultation_Government_Response.pdf.

837

See para 7.187.

838

See, for example, Al Rayan Bank, https://www.alrayanbank.co.uk/home-finance/home-purchase-plan/; UBL Bank, https://www.ubluk.com/islamic-banking/product-and-services/home-finance/islamic-home-purchase-plan/; Ahli United Bank, https://www.ahliunited.com/uk/uk-property-finance/islamic-home-purchase-plan/.

839

See Commonhold CP, paras 12.69 to 12.89.

840

See the Commonhold Report, paras 11.142 to 11.145.

841

See Implementing reforms to the leasehold system in England - Summary of consultation responses and Government response (June 2019), https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/812827/1 90626_Consultation_Government_Response.pdf.

842

As we explain in Ch 3 of the Commonhold Report, conversion to commonhold is the process by which leaseholders in a building can take advantage of the commonhold model (and obtain the freehold of their flats) by replacing the existing leasehold structure with a commonhold ownership and management structure.

843

Particularly if Government adopts conversion “Option 2”, which would require all leaseholders who are eligible to participate in the conversion process to take the freehold of their flat (or “unit” in the context of commonhold) on conversion. This would necessarily frustrate the financial arrangement between the customer and the finance provider. Consequently, if Government does not exclude customers from enfranchisement rights, it would be necessary to ensure that the finance provider, rather than the customer, takes the commonhold unit on conversion, so as not to undermine the financial arrangement.

844

Some leases for life, which meet certain criteria, are excluded from enfranchisement rights under the 1967 Act and the 1993 Act: see CP, paras 7.21(1) and 7.59. In general, however, it would appear that such leases will qualify for enfranchisement rights even though their duration is at all times uncertain and may, in reality, end up being less than 21 years. This is because leases granted for the duration of a lifetime will take effect as a 90-year lease, by virtue of s 149(6) of the Law of Property Act 1925. We do not make any recommendations in this Report which would change this position: see para 6.84 above.

845

See CP, Consultation Question 67, para 9.96.

846

1984 Act, s 32.

847

Alternatively, the exemption will apply where any part of the house or premises is the property of a body not established or conducted for profit, and a direction has been given in relation to it under s 26 of the 1984 Act (or an application for such a direction is pending). Under s 26 of the 1984 Act (which has now been repealed), the Treasury was empowered to make a direction in relation to a list of categories of property which had been, or were to be, transferred to a body not established or conducted for profit, very similar to the categories of property listed in s 31. In addition, s 32A of the 1967 Act provides that the reference to designation under s 31 of the 1984 Act should also be read as referring to designation under s 34 of the Finance Act 1975 or s 77 of the Finance Act 1976, and that the reference to a direction under s 26 of the 1984 Act should also be read as a reference to a direction under para 13 of sch 6 to the Finance Act 1975. It appears to us that these provisions of the Finance Act 1975 and the Finance Act 1976 were the direct predecessors of ss 26 and 32A of the 1984 Act. We have limited information as to the numbers of properties which were the subject of a direction under s 26 of the 1984 Act or para 13 of sch 6 to the Finance Act 1975, or which were designated under s 34 of the Finance Act 1975 or s 77 of the Finance Act 1976. For convenience, we therefore refer only to designation under s 31 of the 1984 Act throughout our discussion.

848

See further discussion of this condition at paras 7.239 to 7.240 below.

849

See paras 6.27 to 6.45 above.

850

See CP, paras 7.25 to 7.31 and 7.49 to 7.50

851

See paras 6.108 to 6.115 above.

852

See CP, paras 9.80 to 9.86 for more detail as to these provisions.

853

The “Right to Buy” refers to the right of some social housing tenants to purchase the property which they are living in, at a significant discount on market value. It is provided for by Pt V of the Housing Act 1985.

854

Hansard (HL), 10 May 1984, vol 451, col 1019.

855

See CP, paras 9.89 and 9.90 for a fuller explanation of these exemptions.

856

See CP, paras 9.91 to 9.93.

857

Brick Farm Management Ltd v Richmond Housing Partnership Ltd [2006] EWHC 1004 (Ch), [2005] 1 WLR 3934.

858

See, for example, S Bright and N Hopkins, “Home, Meaning and Identity: Learning from the English Model of Shared Ownership” (2011) 28 Housing, Theory and Society 377.

859

1993 Act, s 96.

860

1967 Act, s 31 and 1993 Act, sch 2, para 8. The exception to these requirements is where such matters have been determined by a court or by the Tribunal.

861

We set out the law on the low rent test in full at paras 7.25 to 7.31 of the CP.

862

1967 Act, s 1AA(3). The following statutory instruments have designated particular geographical areas to be rural areas for the purposes of this provision: Housing (Right to Acquire or Enfranchise) (Designated Rural Areas in the West Midlands) Order (SI 1997 No 620); Housing (Right to Acquire or Enfranchise) (Designated

Rural Areas in the East) Order (SI 1997 No 623); Housing (Right to Acquire or Enfranchise) (Designated Rural Areas in the North East) Order (SI 1997 No 624); Housing (Right to Acquire or Enfranchise) (Designated Rural Areas in the North West and Merseyside) Order (SI 1997 No 622); Housing (Right to Acquire or Enfranchise) (Designated Rural Areas in the South East) Order (SI 1997 No 625); Housing (Right to Acquire or Enfranchise) (Designated Rural Areas in the South West) Order (SI 1997 No 621).

863

See paras 6.108 to 6.115 above.

864

We do not think that this analysis is correct. In Lovat v Hertsmere Borough Council [2011] EWCA Civ 1185, [2012] QB 533 it was held that “adjoining land” means neighbouring land that may or may not touch, or physically adjoin, the house.

865

See discussion at paras 7.71 to 7.76 above. The areas named as “designated protected areas” in the Housing (Right to Enfranchise) (Designated Protected Areas) (England) Order 2009 (SI 2009 No 2098) appear to be largely the same as those named as “designated rural areas” in the statutory instruments set out in n 119 above. We have recommended that this exception should be retained in a new enfranchisement regime.

866

We observed that residential long leases tend not to be sold on premiums that are substantially different from those paid for freehold interests at para 1.40 of the CP. See also Competition and Markets Authority, Leasehold housing - Update report (February 2020) para 77(c).

867

[2011] EWCA Civ 1185, [2012] QB 533 at [22].

868

Of course, some charities will be able to benefit from one or more of the exemptions outlined earlier in this chapter. For example, a community-led housing development may be constituted as a charity.

869

We use “enfranchisement claim” (as defined in the Glossary) to describe claims under the current law and our recommended procedural regime.

870

CP, para 11.13.

871

A Claim Notice (as defined in the Glossary) is a notice which is served by the leaseholder(s) in order to begin an enfranchisement claim under our recommended regime: see paras 8.109 to 8.117 below.

872

“third party” or a “third party to the lease”. This language mirrors that in the CP, para 11.102 and following. We discuss our proposals regarding service of the Claim Notice on these third parties at paras 8172 to 8.201 below.

873

An “intermediate landlord” (as defined in the Glossary) is a person who holds an intermediate lease.

874

The First-tier Tribunal (Property Chamber) in England or the Leasehold Valuation Tribunal in Wales.

875

This outline agreement is usually referred to as agreeing “Heads of Terms”.

876

We consider the broader division of powers between the Tribunal and the county court in Ch 11.

877

In addition, the new owner is unable to start a new individual claim until he or she has held the lease for two years. We are recommending, however, that this requirement is removed: see para 6.131 above.

878

The current law requires leaseholders to pay their landlords’ reasonably incurred non-litigation costs. We consider that topic in Ch 12.

879

We discuss the “inequality of arms” between landlords and leaseholders in the Valuation Report, paras 1.71 to 1.73.

880

Information Notices are discussed at paras 8.75 to 8.89 below; Claim Notices are discussed at paras 8.109 to 8.117 below. A Response Notice (as defined in the Glossary) may be served by a competent landlord in response to a Claim Notice; Response Notices are discussed at paras 9.5 to 9.38 below.

881

The competent landlord (as defined in the Glossary) is the first superior landlord whose own interest in the building is sufficient to be able to grant or transfer the interest claimed by the leaseholder.

882

We explore the No Service Route further at paras 8.245 to 8.254 below.

883

Alternatively, where the parties have entered into a formal contract, either party may apply to the county court for an order of specific enforcement of that contract: see para 11.27 below.

884

See para 9.4(5) below.

885

A notice or a land charge is may be registered by making an application at HM Land Registry. Whether a notice or land charge is appropriate will depend upon whether the property which is the subject of the claim is registered.

886

See paras 3.333 and 3.335; 4.174(2), 4.217 and 4.218; and 5.173 to 5.182 above.

887

CP, Consultation Question 70, para 11.13.

888

CP, Consultation Question 71, para 11.17. We also asked whether a single Claim Notice should be used for all enfranchisement claims: see CP, Consultation Question 74, para 11.40. The consultation responses to both questions are considered together in this section.

889

See paras 8.42 and 8.43 above.

890

See para 8.44 above.

891

Collective freehold acquisition claims, including those involving multiple buildings, are considered in Ch 5.

892

  See para 8.45 above.

893

  See para 8.46 above.

894

CP, para. 11.37.

895

Those details are also set out in the text box following para 8.109 below.

896

Leasebacks and their role in our proposed enfranchisement regime are considered at paras 5.152 to 5.172 above.

897

Those details are also set out in the text box following para 9.6 below.

898

See paras 8.62 to 8.64 above.

899

See paras 9.63 to 9.69 below.

900

See para 9.95 below.

901

At paras 9.66 to 9.69, we make recommendations regarding waiver and amendment of defects in Claim Notices and Response Notices. Unless a party challenges the form of the notice in accordance with our recommendation at para 8.74 below, any defect as to the form of the notice would be automatically treated as waived, and the notice could then be amended pursuant to our recommendation in Ch 9.

902

See para 8.51 above.

903

See para 8.63 above. Additional pages could also be used where leaseholders found that the space provided for other answers within a Claim Notice was insufficient.

904

This approach is taken by the First-tier Tribunal (Property Chamber) in its application forms for a determination under s 27A of the Landlord and Tenant Act 1985 (in relation to service charges) and for a variation of leases under Pt IV of the Landlord and Tenant Act 1987.

905

CP, Consultation Question 73, para 11.30. We consider the issue of who should be served with the Claim Notice at paras 8.146 to 8.171 below.

906

CP, paras 10.74 to 10.76 (in respect of lease extensions) and 10.119 to 10.121 (in respect of collective enfranchisement claims).

907

There is no direct sanction for a failure to comply with such a notice under the current law. Instead, a leaseholder may, having served a default notice on the landlord, apply to the county court for an enforcement order: see 1993 Act, s 92. Ultimately, a failure to comply with an enforcement order could be punished as a contempt of court.

908

As we explain at para 11.21 below, any failure to comply with the order made by the Tribunal would need to be enforced by the county court.

909

See above, at para 5.228 onwards.

910

We explain that conclusion at para 5.245 and 5.246 above. See also para 2.53(1) above.

911

CP, paras 6.149 to 6.151.

912

CP, Consultation Question 75, para 11.43.

913

CP, para 6.132; see also our recommendation at para 5.172 above.

914

CP, paras 6.138 and 6.139; see also our recommendation at para 5.221 above, which modifies our provisional proposal.

915

CP, para 8.149; see also our recommendation at para 6.371 above.

916

A “white knight” is a third party who contributes to the premium payable on a collective enfranchisement in respect of the non-participating leaseholders’ share of that premium.

917

RTM CP, para 6.82.

918

CP, Consultation Question 74, paras 11.39 and 11.40. The same question also invited consultees views as to whether a single prescribed claim notice should be adopted regardless of the type of enfranchisement claim being made. The responses to that question are considered at paras 8.53 to 8.55 above.

919

  CP, para 11.33.

920

  CP, para 11.34.

921

See paras 3.298 and 3.299; 4.337 and 4.351 above. We discuss how these recommendations should be extended to collective freehold acquisitions at para 5.181 to 5.182 above.

922

See para 9.64.

923

For example, where an Aggio lease is being extended, we recommend that the parties should agree terms separately (rather than following our categories of variation): see para 3.210 above.

924

For the position under the 1967 Act, see CP at paras 10.10 and 10.48. For the position under the 1993 Act, see CP at paras 10.70 and 10.113.

925

  CP, para 11.18.

926

  CP, para 11.19.

927

  CP, para 11.21.

928

  CP, para 11.22.

929

CP, Consultation Question 72, para 11.25.

930

We set out consultees’ responses to those provisional proposals at paras 8.261 to 8.264 below.

931

CP, Consultation Question 72, para 11.26.

932

CP, para 11.20.

933

  1993 Act, s 99(5), as amended by the Leasehold Reform (Amendment) Act 2014, s 1. Note, however, that

the 2014 Act has since been repealed by the Housing (Wales) Act 2014, which amended s 99(5) of the 1993 Act to the effect that the new signature rule would apply to Wales as well as England.

934

Electronic execution of documents (2020) Law Com No 386.

935

We considered the broader circumstances in which an enfranchisement notice could be challenged as invalid in the CP at para 11.9(6) and (7), and paras 11.116 to 11.119. These issues are addressed further at paras 9.39 to 9.69 below.

936

Whether the number of participators will affect the premium to be paid in a collective freehold acquisition will depend upon which valuation option is chosen by Government in response to the Valuation Report.

937

For details of the Service Routes see paras 8.206 to 8.244 below.

938

  See para 8.284 below.

939

  See para 8.254 below.

940

Where the statement of truth would need to be signed by or on behalf of all the leaseholders bringing the application.

941

CP, Consultation Question 78, para 11.60.

942

CP, para 11.56. The immediate landlord would also be the competent landlord if his or her interest in the property were sufficient to allow him or her to transfer or grant the interest claimed by the leaseholder.

943

CP, paras 11.102 to 11.106, and paras 8.172 to 8.201 below.

944

CP, para 11.60.

945

CP, paras 11.102 to 11.106, and paras 8.172 to 8.201 below.

946

In the RTM Report (at para 8.50) we recommend that the right to manage company should only be required to serve the claim notice on the freeholder (or freeholders), and not any intermediate landlords.

947

CP, Consultation Question 82, para 11.106; see paras 8.172 to 8.201 below.

948

See para 11.106 and para 8.201 below.

949

See paras 9.108 and 9.109 below.

950

See para 13.45 below.

951

Unlawful means conspiracy is a tort committed where two or more people (in this instance, the competent landlord and one or more leaseholders) act together with the shared intention of using unlawful means to cause loss to another (in this instance, an intermediate landlord). The unlawful means would be a breach of the competent landlord’s statutory duty to serve a copy of the Claim Notice on the intermediate landlord and/or the competent landlord’s duty of care: see para 13.45 below.

952

See paras 7.39 to 7.47 above, where we discuss the position in cases in which a shared ownership leaseholder seeks a lease extension where the immediate landlord is not also the competent landlord.

953

Our provisional proposals about whether a landlord should be entitled to recover his or her non-litigation costs from his or her leaseholders are considered at paras 12.15 to 12.56 below.

954

Where the interests of the split reversioner are being affected, he or she will need to be involved (or his participation dispensed with) if the relevant transaction is to take place.

955

See paras 3.287 to 3.290 and 3.298 above.

956

See paras 4.337 and 4.351 and 5.181 to 5.182 above.

957

See para 8.171(1).

958

See para 8.171(2) above. If a leaseholder wishes to claim rights over other land where such rights are granted separately to the lease, he or she must serve a Claim Notice on that party in order to claim those rights. If the leaseholder does not serve a Claim Notice in this way, the relevant right cannot be claimed.

959

We set out our recommendations in relation to the service of owners of other land bound by property rights benefiting the lease at para 9.171(4) above.

960

CP, Consultation Question 82, para 11.106.

961

  CP, para 11.103.

962

  CP, para 11.106.

963

The Birmingham Law Society referred to our provisional proposals in respect of deemed service (see paras 8.206 to 8.244) and the effect of a failure by the landlord to serve a Response Notice (see paras 9.125 and 9.126 below).

964

See our recommendation at para 8.171 above.

965

Our proposals in relation to the landlord’s ability to recover costs are considered in Ch 12 below.

966

See para 13.45 below.

967

CP, paras 10.16 and 10.78 (which together set out the current law) and 11.106 (which set out our proposals).

968

The same point was made in relation to our provisional proposal that leaseholders need only serve the Claim Notice on their competent landlord. See para 8.158 above.

969

See para 8.161 above.

970

See para 8.254 below.

971

See para 12.56 below.

972

See para 12.111 below.

973

We have also recommended that terms of a lease or collateral agreement that purports to allow a landlord to recover its litigation or non-litigation costs arising out of an enfranchisement claim should be unenforceable: see para 12.204 below. This would prevent a landlord from relying on any provisions of the lease which require the leaseholder to pay the landlord’s costs of serving copies of the Claim Notice.

974

We discuss the protections for an intermediate landlord in the course of the claim at paras 13.21 to 13.45 below.

975

See para 8.158 above.

976

See para 9.95 below.

977

See para 9.5 to 9.38 below.

978

CP, para 11.9(2).

979

CP, paras 11.74 to 11.78.

980

CP, paras 11.79 to 11.81.

981

CP, Consultation Question 79, para 11.82.

982

See para 8.7 above.

983

See paras 8.109 to 8.117 above.

984

CP, para 11.63.

985

CP, Consultation Question 79, para 11.82(1).

986

CP, paras 11.68 to 11.70 and CP, Consultation Question 79, para 11.82(1).

987

As noted at para 8.203(1) above, a leaseholder who serves his or her landlord at a Group A address is described as using Service Route A. A leaseholder who is only able to serve his or her landlord at a Group B address is described as using Service Route B.

988

CP, paras 11.83 to 11.94 and Consultation Question 80, para 11.95. See also paras 8.255 and following below.

989

The text in this Report is a summary of material in the CP. See CP, paras 11.69 to 11.70.

990

HM Land Registry data suggests that around 86% of the land mass of England and Wales has been registered. That figure will increase over time because unregistered land must be registered when certain events occur, for example, when it is sold. The Land Registration Rules 2003 (SI 2003 No 1417), r 198 requires that the registered proprietor of a registered estate must give to the registrar an address for service of notices and other communications by the registrar.

991

The Companies Act 2006, s 86 provides that a “company must at all times have a registered office to which all communications and notices may be addressed” (see the Companies Act 2006, s 1 for the definition of a “company” in this context). A similar provision applies to limited liability partnerships because of the Limited Liability Partnerships (Application of Companies Act 2006) Regulations (SI 2009 No 1804), reg 16.

992

Addresses taken from HM Land Registry’s records may be useful to verify a Group A or B address, or be used to supplement the service on a Group B address (which would only be necessary where there is no Group A address).

993

The concept of a “current address” is one that features elsewhere, see the Civil Procedure Rules, r 6.9(3).

994

See para 8.238 and following.

995

CP, para 11.78.

996

The Landlord and Tenant Act 1927, s 23, as amended by the Recorded Delivery Service Act 1962, s 1, refers to the use of “registered post or recorded delivery”. However, Royal Mail currently offers two levels of service above standard first-class and second-class delivery - “Royal Mail Signed For” and “Special Delivery Guaranteed” - both of which can provide proof of delivery. A “Certificate of Posting”, which is date stamped and signed by Post Office staff, is evidence that the item has been accepted into the postal network.

997

We also note that using the Signed For service would increase leaseholders’ costs of service, albeit by a modest amount.

998

See the Valuation Report.

999

For our recommendations about the circumstances in which a landlord should be able to set aside a determination of the Tribunal that had been made in the absence of the landlord, see paras 9.127 to 9.151 below.

1000

See para 8.210 above.

1001

See para 8.242(1) below.

1002

See para 8.222 above.

1003

It is possible that the last known address of the landlord (being a Group B address) might be the same as the address held at HM Land Registry. However, we do not think the address given for the competent landlord as registered proprietor at HM Land Registry can be used as the sole basis for the landlord’s last known address.

1004

See our recommendation at para 8.332 below.

1005

CP, paras 11.79 to 11.81; Consultation Question 79, para 11.82.

1006

Criticisms of the current power are set out at para 8.13 above.

1007

Pre-service checks are considered at paras 8.255 and following below.

1008

We anticipate that the circumstances in which the No Service Route is appropriate will be rare. In almost all cases, we would expect leaseholders to have, at the very least, a last known address (in other words, a Group B address) at which to serve the landlord.

1009

See para 8.255 below.

1010

See paras 8.142 to 8.144 above. Our recommendation departs from our provisional proposal that a statement of truth should be included within the Claim Notice itself: see CP, para 11.23.

1011

See the CP, para 11.83 and following and CP, Consultation Question 80, para 11.95.

1012

See CP, Consultation Question 80, para 11.95.

1013

As noted at para 8.203(1) above, a leaseholder who serves his or her landlord at a designated address falling within Group A is described as using Service Route A. A leaseholder who serves his or her landlord at a designated address falling within Group B is described as using Service Route B. Together, these routes are referred to as the “Service Routes”.

1014

We refer below to a search of probate records, rather than the probate register. That language more closely reflects language used on the Government’s website which explains the procedure for England and Wales. See https://www.gov.uk/search-will-probate.

1015

It is likely, in such a case, that the problem will be identified. That might happen because the bankrupt individual passes the Claim Notice to his or her trustee in bankruptcy, and either the bankrupt landlord, or his or her trustee in bankruptcy highlights the issue to the leaseholder, or because the leaseholder undertakes a search of the individual insolvency register following service of the Claim Notice, but before attending the Tribunal. In that case, the leaseholder would need to start his or her claim again. However, if the leaseholder remained unaware of the issue and the matter proceeded to the Tribunal (because no Response Notice was received), then there is the potential for an order for determination to be obtained. In that case, the trustee would have to rely on our recommendations allowing the landlord to apply to set aside the order of the Tribunal under certain circumstances. See para 9.151 below.

1016

We consider this point at paras 8.218 to 8.224.

1017

See para 8.250 above.

1018

The criteria referred to are that the leaseholders: (a) do not know the identity of their landlord; or (b) do not have a designated address for a known landlord falling within either Group A or B.

1019

CP, para 11.81.

1020

Provided the Tribunal is satisfied that the address served is a Group A address or, (where there is no Group A address) a Group B address, then the Tribunal will not be assessing whether the Claim Notice was, in fact, received. A Claim Notice should be deemed to be served in the circumstances set out at para 8.218 and following above.

1021

At paras 8.294 and 8.327 below, we recommend that regulations may be set to establish what weight is to be given to the results of pre-service checks.

1022

We do not suggest a specific requirement that applications be made in good faith. We use the phrase “good faith” here to indicate that the applicant leaseholder has drawn a conclusion without any intention to mislead the Tribunal, or to avoid the landlord becoming aware of the enfranchisement claim.

1023

See para 8.322 and following below.

1024

See para 8.259 above.

1025

See https://www.gov.uk/search-bankruptcy-insolvency-register.

1026

In most cases, the checks we have suggested below can be undertaken to reveal historic information. For example, Companies House (https://beta.companieshouse.gov.uk/) allows for the filing history in respect of a company to be viewed, enabling details such as changes in registered office and the appointment of administrators to be identified. Online searches for probate records in England and Wales are currently undertaken by name and year (https://www.gov.uk/search-will-probate). HM Land Registry has a facility to provide an historic copy of the register of title (https://www.gov.uk/government/publications/historical-registertitle-plan-registration-hc1). However, the individual insolvency register maintained in England and Wales currently has details of bankruptcies removed within three months of them ending (https://www.gov.uk/search-bankruptcy-insolvency-register). However, if the circumstances of an application to the Tribunal are such that a search of the Individual Insolvency Register will not then reveal whether the landlord was bankrupt at the time of service of the Claim Notice (which can lead to a question of whether the correct person was served at the correct address) then we anticipate the Tribunal would issue directions to ensure that it is satisfied as to that risk. For example, the Tribunal may be satisfied by receiving the result of a search of material published in the London Gazette (see https://www.thegazette.co.uk/insolvency).

1027

An example might be where a search is made of the register of title to land at HM Land Registry (which verifies the legal owner of the landlord’s property is a company registered under the Companies Act 2006) and a check of Companies House makes clear the registered address of that company, which is a Group A address (see para 8.224 above). In those cases, we think that the results of the checks could be determinative of both identity and address.

1028

See para 8.218 and following above.

1029

See para 8.297 above.

1030

The potential for an order to be set aside is not unlimited. For details of our recommendations as to when a landlord may make an application for the Tribunal’s determination to be set aside, see para 9.151 below.

1031

CP, Consultation Question 80, para 11.95.

1032

See para 8.273 above for what is meant by “good faith” in this context.

1033

We have explained previously that the address(es) at HM Land Registry should not be the only basis on which a leaseholder concludes it holds a current or last known address for the landlord.

1034

We explained previously that the Companies Act 2006, s 86 and the Limited Liability Partnerships (Application of Companies Act 2006) Regulations (SI 2009 No 1804), reg 16 requires companies and limited liability partnerships that are subject to those regimes to have a registered office at all times. We explain at para 8.224 above that the registered office address will be a Group A address for such landlords.

1035

Where it is known that the landlord is a corporate body whose details are held by Companies House then the No Service Route is unlikely to be appropriate.

1036

Probate is granted to executors who deal with the deceased’s estate where the deceased left a will. Letters of administration are granted to the person(s) who deal with the deceased’s estate in cases where the deceased did not leave a will.

1037

We considered the Tribunal’s power to set aside a determination at CP, paras 11.130 to 11.131 and Consultation Question 83, para 11.132. Our analysis of consultation responses received, and final recommendations are set out at paras 9.127 to 9.151 below.

1038

Once a bankruptcy order has been made, the bankrupt’s assets vest in their trustee in bankruptcy and are realised and distributed in accordance with the Insolvency Act 1986 and the Insolvency (England and Wales) Rules 2016 (SI 2016 No 1024).

1039

There are some limited circumstances in which the Claim Notice might be better served on the Duchy of Cornwall, or the Duchy of Lancaster. Our recommendation refers to the Treasury Solicitor for simplicity, but we anticipate this point would become relevant at the time our recommendations are implemented.

1040

See paras 8.307 to 8.308 and 8.311 above.

1041

See para 8.262(3) above.

1042

CP, para 11.93.

1043

 See para 8.293 above.

1044

 See para 8.171 above.

1045

 See para 8.201 above.

1046

In this context, we use the term “other leaseholders” to refer to other groups of leaseholders who may wish to bring a collective freehold acquisition claim in relation to the same premises.

1047

See CP, Consultation Question 77, paras 11.48 to 11.52, and para 9.6 below.

1048

See CP, paras 11.49(4) to 11.50.

1049

See CP, para 11.121.

1050

The effect of a failure to serve a Response Notice is considered at paras 9.110 to 9.126 below.

1051

The ability of a landlord to challenge the validity of a Claim Notice is considered at paras 9.39 to 9.69 below.

1052

See CP, paras 5.28 to 5.30.

1053

Estate management schemes were discussed in the CP, at paras 5.11 to 5.14, and paras 6.27 to 6.32. The existence of an estate management scheme is also relevant to our provisional proposals in the CP, paras 5.56 and 5.66 (in respect of individual freehold acquisitions) and paras 6.124 and 6.127 (in respect of collective freehold acquisitions). These two sets of provisional proposals are considered in Ch 4 and Ch 5.

1054

See CP, para 5.30.

1055

See CP, para 5.54 and 5.56.

1056

See CP, para 11.161.

1057

See CP, paras 13.96 to 13.98. Our final recommendation about security for costs is set out at paras 12.145 to 12.146.

1058

See the Valuation Report at paras 6.180 to 6.204.

1059

We set out our recommendation in relation to the use of contracts in enfranchisement claims at paras 10.27 to 10.28 below.

1060

The time within which a Response Notice should be served is considered at para 9.81 below.

1061

See paras 3.45 to 3.47, paras 4.34 to 4.37 and paras 12.145 to 12.146.

1062

See para 6.202 of the Valuation Report.

1063

The Valuation Report set out options for Government in respect of valuation in enfranchisement claims. One of the options included drawing a distinction between leases held by resident occupiers and those held by non-resident investors for the purposes of valuation.

1064

See para 9.12 above.

1065

The “freehold vacant possession value” is the amount that a property would be worth if held on a freehold basis and not subject to any leasehold interests. See para 2.32 of the Valuation Report.

1066

See CP, paras 11.74 to 11.78, and paras 8.206 to 8.244 above.

1067

  Landlord and Tenant Act 1987, s 48. See CP, para 10.20.

1068

  CP, para 11.50. An “official copy” is produced by HM Land Registry and sets out the entries on the

registered title of a property, together with the date and time of issue. When we refer to obtaining official copies in this Report, the reference is to obtaining an official copy of a registered title and the corresponding title plan.

1069

See para 8.253 above.

1070

  The current cost of obtaining an official copy of the registered title and corresponding title plan is £6.

1071

  See para 12.111. We discuss the service of copies of the Claim Notice on other landlords at paras 8.172 to

8.201 below.

1072

An epitome of title is a list of relevant title documents that prove ownership of unregistered land.

1073

See paras 8.162 and 8.189.

1074

In Ch 11, we recommend that all disputes and issues arising in an enfranchisement claim should - with limited exceptions - be dealt with by the Tribunal: see paras 11.29 to 11.32. The Tribunal should therefore not be limited to determining the broad terms of acquisition (as under the current law), but will be able to go on to determine the terms of a transfer or lease extension if those are also in dispute: see para 11.21(8) below.

1075

For example, our recommendation that the Claim Notice should specify the leaseholder’s proposed terms for a lease extension: see para 8.116 above.

1076

See paras 12.27 to 12.56 below. We recommend that if Government chooses a broadly market-value based valuation methodology, leaseholders should not generally be required to contribute to their landlord’s nonlitigation costs; but if the valuation methodology chosen is not broadly market-value based, a fixed contribution to the landlord’s non-litigation costs would be required.

1077

See paras 9.82 to 9.91 below.

1078

This request should be included in the Claim Notice: see the text box following 8.109 above.

1079

See CP, paras 11.9(6) to (7) and paras 11.116 to 11.119. See also paras 8.212 to 8.227 of the RTM Report for further discussion of the general law regarding non-compliance with statutory duties.

1080

See CP, para 11.9(8).

1081

See para 8.139 above.

1082

See RTM CP, paras 6.86 to 6.87.

1083

See RTM CP, para. 6.61.

1084

RTM CP, para 6.96 and 6.97.

1085

RTM CP, para 6.94.

1086

As recognised by the Court of Appeal at Elim Court RTM Co Ltd v Avon Freeholds Ltd [2017] EWCA Civ 89, [2018] QB 571 at [77] by Lewison LJ.

1087

See paras 8.238 to 8.262 of the RTM Report.

1088

See paras 8.73 to 8.74.

1089

See para 8.258 of the RTM Report.

1090

But the Response Notice should not be invalid because there are other grounds of opposition that have been, or could have been, raised by the landlord prior to the service of the notice but that have not been included in the notice. Equally, a landlord’s subsequent application to add to the grounds on which he relies by amending his or her Response Notice (see para 9.54 below) will not make the original notice invalid.

1091

See CP, paras 11.9(8) and 11.118.

1092

See para 9.47 to 9.48 above.

1093

Waiver occurs where a defect in a notice that would normally make that notice invalid is ignored, and the notice is treated as if it were valid. Amendment occurs where a notice that is valid (or is treated as valid as a result of any defect being waived) is altered (whether to correct a defect or otherwise).

1094

However, see para 8.67, where we recommend that parties should have limited rights to challenge the validity of enfranchisement notices on the basis that the prescribed form has not been used. Unless a party challenges the defect within the relevant time periods set out in Chapter 8, that defect should automatically be waived.

1095

We expect that this waiver of the defect by agreement to operate to prevent the parties from challenging the validity of the notice before the Tribunal.

1096

The waiver of the relevant defect should have effect from the date of service of the notice. The Tribunal’s order should therefore have no effect on the valuation date for the purpose of the enfranchisement claim.

1097

RTM Report, para 8.254 to 8.262. This was reflected in our proposals in the RTM CP that the Tribunal’s power to waive or amend a defect in the court-notice should be restricted to where the landlord has made a genuine mistake or other exceptional criteria are met: see RTM CP, para 6.97.

1098

See paras 9.49 to 9.51 above and paras 9.63 to 9.65 below.

1099

See RTM CP, para 6.94.

1100

See para 9.59 above and paras 12.185 and 12.188(4) below.

1101

See CP, Consultation Question 85, paras 11.144 to 11.146. The timetable for claims under the current law is set out in the CP, at paras 10.109 and 10.162.

1102

See para 8.201 above.

1103

Our recommended power for intermediate landlords to take over conduct of the claim from the competent landlord, whether by agreement or on application to the Tribunal thereafter, is set out at paras 9.105 to 9.106 and 9.108 below.

1104

See CP, para 11.105 and paras 8.197 to 8.201.

1105

  See paras 8.192 and 8.201(2) above.

1106

See para 8.109 above and para 9.95 below. The date set out in the Claim Notice should be not less than two months after the date on which the Claim Notice is deemed to be served on the competent landlord. But the Claim Notice will also contain a saving provision that will allow the competent landlord two months to respond in the event that the date specified by the leaseholder does not allow two months after service is deemed to occur.

1107

See our suggestion to Government at para 3.188 above.

1108

Leasebacks are considered in Ch 5 at paras 5.152 to 5.172.

1109

Some consultees wrongly interpreted our provisional proposal as the deadline by which any application to the Tribunal should be made. Unsurprisingly, they considered 21 days to be too short for such purposes.

1110

We are recommending that landlords should be able to apply to strike out a claim upon written notice to the leaseholder: see para 9.177 below.

1111

The point at which this becomes unreasonable conduct is a matter for the Tribunal to consider: see CP, paras 13.111 to 13.114 and paras 12.189 to 12.196 below.

1112

See para 8.171. We explain at para 8.164 that, provided one split reversioner has been served with a copy of the Claim Notice, a failure to serve another split reversioner would not invalidate a claim. The Tribunal could then give directions relating to future participation of the split reversioner who had not been served.

1113

  See para 13.45.

1114

  See para 8.171.

1115

See para 9.95.

1116

See CP, para 11.129.

1117

  1993 Act, s 25 and s 49. See also CP, para 10.103 (in respect of lease extension claims) and para 10.154

(in respect of collective enfranchisement claims). The 1967 Act contains no equivalent provisions.

1118

See CP, Consultation Question 81, paras 11.96 to 11.101. We proposed that the Tribunal should make its own assessment of the claim based on the evidence produced (and it should not be bound by the terms of the leaseholder’s Claim Notice).

1119

The power to set aside a determination already made, and the timing of any such application is considered at paras 9.127 to 9.151 below.

1120

We note, however, that a sizeable proportion of those consultees misunderstood our provisional proposal as suggesting that a landlord should not be required to transfer the freehold or grant a lease at all if he or she fails to serve a Response Notice.

1121

The discount proposed was 25%.

1122

See para 9.112 above.

1123

If a determination has been made, the landlord may apply to set aside that determination: see para 9.151 below.

1124

The scope of these power is considered at paras 9.127 to 9.151 below.

1125

See para 12.188 below.

1126

See CP, Consultation Question 83, paras 11.130 to 11.132.

1127

See CP, para 11.131. Our recommendations in relation to deemed service are set out at paras 8.242 to 8.244 above.

1128

For the most part, consultees understood that our consultation question focussed on applications to set aside made by landlords who did not receive the Claim Notice, or did so but did not respond. A few consultees, however, addressed the question of whether landlords who did respond to a claim should be able to set aside a decision reached in their absence. We believe that the powers of the Tribunal in such cases, and the terms on which it might be exercised, are matters best governed by the Tribunal’s own procedure rules.

1129

See paras 9.110 to 9.125 above.

1130

Groups representing professionals were almost all in favour of a power to set aside. But professionals’ firms were more divided. Most solicitors’ firms favoured such a power, whereas a majority of surveyors’ firms were against. Curiously, however, individual surveyors were all in favour of a power, and most individual solicitors were against.

1131

See paras 8.202 to 8.238 above.

1132

See CP, paras 11.84 and 11.97, and our recommendation at para 9.125 above.

1133

Reference was made to both the power to set aside a default judgment, Civil Procedure Rules, r. 13.3 and an application for relief from sanctions, Civil Procedure Rules, r. 3.9.

1134

See paras 8.242 to 8.244 and 8.254 above.

1135

  See para 8.337 above.

1136

  CP, para 11.131.

1137

  Many consultees have raised concerns about the time allowed to serve a Response Notice. The period for

doing so is considered at paras 9.82 to 9.91. But we think a landlord who is struggling, for example, to

prepare draft documents to accompany the Response Notice in time, would nevertheless be able to serve a Response Notice either within time but without those documents, or with those documents after the deadline has passed together with an application for permission to join in the claim before any determination is made: see para 9.126.

1138

Civil Procedure Rules, r 13.3 and r 39.5 respectively.

1139

Civil Procedure Rules, r 52.21(3(a).

1140

See para 8.334 above.

1141

See para 9.142 above.

1142

See para 9.145 above.

1143

See CP, Consultation Question 86, para 11.153.

1144

See CP, paras 11.148 to 11.150.

1145

See CP, para 11.151.

1146

See CP, paras 11.151 and 11.152.

1147

Pursuant to s 54 of the 1993 Act, a tenant’s notice (in respect of a lease extension) is suspended upon service of a notice of claim in respect of a collective enfranchisement claim.

1148

However, we are recommending the introduction of enfranchisement restraint orders where repeated unmeritorious or vexatious claims are made: see para 12.166 to 12.167.

1149

See paras 12.128 and 12.129 in respect of non-litigation costs and para 12.188(3) in respect of litigation costs.

1150

We discuss our proposal for service of the Response Notice prior to an application for striking out at para 9.174 below.

1151

1993 Act, s 54 provides that a tenant’s notice is suspended during the currency of a collective enfranchisement claim relating to premises containing the tenant’s flat.

1152

See para 10.81.

1153

Paras 8.33 to 8.40 above.

1154

Recommendations 6, 16 and 22 (at (respectively) paras 3.240, 4.404 and 5.195 above).

1155

Recommendations 12 (paras 4.217 to 4.218 above). See also paras 3.335 and 5.173 to 5.182 above.

1156

See CP at paras 10.22 and 10.40 (in respect of lease extensions of a house), 10.52 and 10.60 (in respect of acquiring the freehold of a house), and 10.84 and 10.104 to 10.105 (in respect of lease extensions of a flat).

1157

See CP at paras 10.127 and 10.155.

1158

Consultation Question 76: see CP at paras 11.46 and 11.47.

1159

Regulations made under the 1967 and 1993 Acts seek to control the process by which the parties negotiate and agree the terms of any lease extension or transfer. See CP at paras 11.39 to 11.42.

1160

Consultation Question 84: see CP at para 11.143.

1161

See CP at paras 11.120 to 11.122.

1162

See para 10.7 above.

1163

It should be noted that some consultees who expressed support for our proposal misinterpreted our question. A few consultees thought we were asking whether there is a need for any kind of conveyancing process at all. Most of these consultees considered that any such process was unnecessary, and simply increased costs. Some other consultees thought we were asking whether it should be necessary for lawyers to be engaged to carry out any conveyancing. Most believed the process should be simple enough that this was not necessary. And a few others believed we were asking about the control of the other terms on which a lease might be extended, or a freehold be transferred. Those consultees considered that such control was necessary.

1164

Recommendation 67, para 9.37(1) above.

1165

The enforcement of a contract by the parties is considered at paras 11.22 to 11.32 below.

1166

Recommendation 29, para 6.131 above.

1167

  1967 Act, s 5(2); 1993 Act, s 43(3).

1168

Consultation Question 87, CP, paras 11.157 to 11.158.

1169

CP, para 11.155.

1170

Irwin Mitchell LLP, who agreed with the Assignment Proposal; Fieldfisher LPP and Shoosmiths LLP, who expressed other views; and Bryan Cave Leighton Paisner LLP, who did not directly answer Consultation Question 87.

1171

See paras 12.130 to 12.146 below.

1172

CP, para 11.156.

1173

See in particular the Civil Procedure Rules, r 6.9.

1174

CP, para 11.163.

1175

  1967 Act, s 5(5); 1993 Act, s 97(1).

1176

CP, para 11.167.

1177

Consultation Question 88 in the CP mistakenly referred to an application to register a Claim Notice being made “not less than 14 days after” the service of the notice. It should have said “not more than”.

Nevertheless, consultees appear to have understood what we meant.

1178

CP, para 11.169.

1179

One consultee (Hamlins LLP, solicitors), however, said the opposite: in its experience, “there are no incidences of landlords hurriedly selling their property on receiving notices of claim” and so our provisional proposal is addressing a problem that does not exist.

1180

CP, para 11.169.

1181

A point raised by the PBA, the PLA, and Mark Chick.

1182

A point raised by David Hinchliffe and Xuxax Ltd, a landlord.

1183

The confidential consultee suggested that landlords, when selling their properties, should be required to disclose that a notice of claim has been served and the purchaser should then be bound by the claim

1184

Recommendation 74, para 10.27 above.

1185

Recommendation 29, para 6.131 above.

1186

See XL Fisheries Ltd v Leeds Corporation [1955] 2 QB 636, 646. It appears that defences available to the new landlord may be limited by the conduct of or concessions made by the previous landlord: Piper v Muggleton [1956] 2 QB 569, 578.

1187

  Recommendation 73, para 9.177 above.

1188

Recommendation 68, specifically paras 9.66 to 9.69 above.

1189

Recommendation 6, paras 3.240(2)(a) above.

1190

  1967 Act, s 14(5); 1993 Act, s 58(3).

1191

  CP, para 11.173.

1192

  CP, para 11.171.

1193

Some consultees made a similar suggestion in answer to Consultation Questions 5, 14 and 27 (CP, paras 4.54, 5.34 to 5.35, and 6.107 to 6.108).

1194

See 1967 Act, ss 12(2) and 13.

1195

Recommendation 16, para 4.404 above.

1196

Recommendation 6, para 3.240(2)(b) above.

1197

CP, para 11.171. A mortgagee would also be notified by HM Land Registry if a leaseholder applies to remove a restriction in favour of the mortgagee registered against the landlord’s title.

1198

CP, para 11.176.

1199

  1967 Act, s 14(6); 1993 Act, s 58(5).

1200

Recommendation 6, at para 3.240(1) above.

1201

Paras 3.36, 3.177 to 3.179 and 3.209 above.

1202

CP, para 11.176.

1203

Recommendation 16, para 4.404 above.

1204

A similar problem could arise if the leaseholder funds the freehold acquisition not by obtaining a further advance from his or her own mortgagee but by obtaining a further mortgage from a third party. A commercial lender is unlikely to lend in these circumstances, but it is not impossible that, for example, a family member or friend might offer funding in exchange for a mortgage over the freehold.

1205

See the discussion at para 10.181 below.

1206

  CP, para 10.183(2).

1207

  CP, para 11.179.

1208

We discuss what should happen to third-party interests that affect a lease when it is extended at paras 3.291 to 3.296 and 3.303 to 3.312 above. We discuss what should happen to these interests if the leaseholder acquires the freehold and merges the title at paras 10.123 to 10.149 above.

1209

See in particular our discussion of contractual obligations on the landlord in relation to individual freehold acquisitions at paras 4.174 to 4.230 above.

1210

It is quite rare for restrictions requiring consent to be entered in relation to trusts of land. See para 10.181 below.

1211

Land Registration Act 2002, sch 4 and sch 8.

1212

See Recommendations 6, 8, 9, 11, 12 and 22 (paras 3.240, 3.321(2), 3.333, 4.171 to 4.173, 4.217 to 4.218 and 5.195 above) and the additional discussion at paras 3.335 and 5.173 to 5.182 above.

1213

Paras 4.404 and 5.195 above.

1214

  1967 Act, s 14(4); 1993 Act, s 58(1).

1215

HM Land Registry, Practice guide 27: the leasehold reform legislation (March 2018) para 9.3.

1216

The landlord may still be in breach of the mortgage by granting a lease without authorisation in the first place.

1217

HM Land Registry, Practice guide 19: notices, restrictions and the protection of third-party interests in the register (April 2020), para 3.4.4.

1218

Recommendation 11 (paras 4.172(3) and 4.173). See also the discussion at paras 5.173 to 5.182 above in relation to collective freehold acquisitions.

1219

Recommendation 11, paras 4.172(4). See also the discussion at paras 5.173 to 5.182 above.

1220

Recommendation 9, para 3.333 above.

1221

  (2018) Law Com No 380, Ch 10, especially paras 10.14 to 10.15.

1222

Para 4.177 above.

1223

Recommendation 12, para 4.217 above.

1224

  Paras 4.186 to 4.195 above.

1225

  Paras 4.196 to 4.215.

1226

 (2011) Law Com No 327.

1227

Paras 5.173 to 5.182 above.

1228

Submitting a response on behalf of Dame Alice Owen’s Foundation, the Charity of Richard Cloudesley and the Dulwich Estate (all charity landlords).

1229

See paras 10.106 and 10.122 above.

1230

CP, para 11.182.

1231

We discuss restrictions on future dealings with the freehold title in the CP from paras 6.133 to 6.137. These sections refer to our proposals to introduce a new right to participate, where we have concluded that further work would be needed before we could recommend the introduction of such a right. We explain that conclusion in full in paras 5.222 to 5.246 above.

1232

  1993 Act, ss 34(10) and 57(11).

1233

See Ch 14 for further discussion of these issues.

1234

HM Land Registry, Practice guide 27: the leasehold reform legislation (March 2018) para 4.1.

1235

The First-tier Tribunal (Property Chamber) in England or the Leasehold Valuation Tribunal in Wales.

1236

The High Court also has residual inherent jurisdiction to hear certain disputes. See para 11.20 below.

1237

See CP, paras 12.9 to 12.23, for a detailed account of the current law.

1238

  See CP, para 12.25.

1239

  See CP, para 12.26.

1240

Non-litigation costs are considered in Ch 12.

1241

See CP, Consultation Question 94, para 12.60.

1242

See CP, paras 12.58 to 12.59.

1243

County Courts Act 1984, s 38.

1244

We discussed Government’s plans to consult on the creation of a new Housing Court in the CP at paras 12.48 to 12.50. The call for evidence is at

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/755326/C onsidering_the_case_for_a_housing_court.pdf.

1245

The project was discussed by Holgate J and Judge Hodge QC in Avon Ground Rents Ltd v Child [2018] UKUT (LC) at [1] to [4].

1246

See CP, paras 12.33 to 12.45.

1247

Civil Justice Council, Report on the property chamber deployment project: proposal and recommendation (October 2018), para 1.

1248

Civil Justice Council, Report on the property chamber deployment project: proposal and recommendation (October 2018), paras 9 to 10.

1249

See CP, paras 12.33 to 12.47.

1250

We note also that the High Court has a general power under s 41 of the County Courts Act 1984 to order the transfer of any county court proceedings into the High Court if it considers it desirable for those proceedings to be heard in the High Court instead. The High Court also has a limited jurisdiction over certain other matters under the 1967 Act: see paras 12.15 to 12.16 of the CP.

1251

This would not, however, prevent the High Court or the Court of Appeal from performing its current supervisory jurisdiction in respect of the decisions reached by the Tribunal or the Upper Tribunal.

1252

  See para 8.89.

1253

  See para 8.254.

1254

  See para 9.125.

1255

  See para 9.126.

1256

  See para 13.45.

1257

See paras 9.108 to 9.109.

1258

See paras 9.177.

1259

See paras 9.95 and (in relation to the terms of Aggio leases), paras 3.203 and 3.210. This would include any dispute as to whether the leaseholder was entitled to enfranchise, or as to the validity of the claim made.

The number of challenges that could be made to the validity of an enfranchisement notice would, however, be much reduced: see paras 9.63 to 9.69.

1260

See para 9.151.

1261

See paras 14.70 to 14.76 and 14.99 to 14.103.

1262

  See para 11.25 below.

1263

  See para 7.210.

1264

  See para 12.166.

1265

  See para 12.167.

1266

CP, paras 11.09(12) and 11.125.

1267

We use the term “formal contract” to refer to a contract that meets the formality requirements for a contract for the sale or other disposition of land set out in the Law of Property (Miscellaneous Provisions) Act 1989, s 2.

1268

See para 11.21(8).

1269

We anticipate that the Tribunal would appoint any member of the Tribunal to sign the document.

1270

See para 11.32 below. The equitable remedy of specific performance compels a party to perform its positive obligations under a contract. The remedy is only available in relation to valid enforceable contracts, and various features of the contract may be grounds for refusal of an order for specific performance.

1271

For example, at para 4.404 we recommend that, on an individual freehold acquisition, where the landlord’s estate is subject to a mortgage then the leaseholder may pay the whole of the statutory price or (if less) the sum outstanding under the mortgage into court.

1272

See CP, para 12.65.

1273

CP, Consultation Question 95, paras 12.68.

1274

Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 (SI 2013 No 1168), r 6(3)(i) allows the Tribunal to decide the form of any hearing. There is not an equivalent provision in The Leasehold Valuation Tribunals (Procedure) (Wales) Regulations 2004 (SI 2004 No 681) or The Residential Property Tribunal Procedures and Fees (Wales) Regulations 2016 (SI 2016 No 267).

1275

See paras 12.183 to 12.184.

1276

The Tribunal Procedure Rules (First-tier Tribunal) (Property Chamber) Rules 2013, r 4. There is not an equivalent provision in The Leasehold Valuation Tribunals (Procedure) (Wales) Regulations 2004 (SI 2004 No 681) or The Residential Property Tribunal Procedures and Fees (Wales) Regulations 2016 (SI 2016 No 267).

1277

We note that enfranchisement disputes tend to centre on the acquisition of the relevant right. In the Commonhold Report we are recommending that the new Housing Complaints Resolution Service could perform a role in settling disputes between unit owners and their commonhold association following conversion to commonhold: see paras 16.63 to 16.64 of the Commonhold Report. Given the nature of enfranchisement disputes, we are not making an equivalent suggestion in this Report.

The First-tier Tribunal (Property Chamber) in England or the Leasehold Valuation Tribunal in Wales.

1278

See paras 11.29 to 11.31 above.

1279

See CP, paras 13.16 to 13.28 for a detailed explanation of the current law on non-litigation costs.

1280

A detailed explanation of the current law relating to litigation costs can be found in the CP at paras 13.29 to 13.34.

1281

Civil Procedure Rules, r 44(2) The county court does, however, have a broad discretion as to whether costs should be paid by one party to another, and the amount to be paid. In deciding what order to make, the court will have regard to all the circumstances, including the conduct of the parties, whether a party has succeeded on part of its case, and any offer to settle (which is not an offer falling within the terms of Part 36 of the Civil Procedure Rules): Civil Procedure Rules, r44(4).

1282

Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 (SI 2013 No 1168), r. 13(1).

1283

See the CP at paras 13.40 to 13.43.

1284

In our Valuation Report at paras 3.45 to 3.49 we explained the systemic inequality of arms that exists between landlords and leaseholders

1285

See CP, Consultation Question 98, paras 13.49 to 13.50.

1286

See CP at paras 13.52 and 13.53. The arguments cited against a contribution being made can be summarised as: (1) the inherent unfairness of the sales of house and flats on long leasehold interests, (2) the insufficiency of the compulsion on the landlord to grant a lease extension or transfer the freehold as a reason for altering the allocation of costs found in normal residential property sales, and (3) the fact that most landlords will have acquired their interests knowing of the existence of enfranchisement rights. The arguments cited in favour of a contribution being made can be summarised as: (1) the current landlord may not have been responsible for, or benefited from any unfairness, and (2) the current enfranchisement regime does allow landlords to recover some of their non-litigation costs when the leaseholder exercises his or her enfranchisement rights.

1287

See paras 8.53, 8.111 to 8.114 and 9.44.

1288

The current valuation methodology allows a landlord of a lease with less than 80 years remaining to be paid 50% of the marriage value in addition to the value of the remaining term and the reversion. The marriage value is the difference between the value of the leasehold interest and the value of the leaseholder’s interest once the enfranchisement is complete. It is only realised if the landlord sells his interest to the existing leaseholder rather than to a third party. See the CP, paras 14.53 to 14.66, and paras 2.40 to 2.55 of the Valuation Report.

1289

See para 12.25 above.

1290

A leaseholder is entitled to the security of tenure offered by sch 10 to the Local Government and Housing Act 1989: an assured tenancy.

1291

One of the options for valuation reform we presented in the Valuation Report would lead to the removal of marriage value from the calculation: see Ch 5 of that Report.

1292

Competition and Markets Authority, Leasehold housing - Update report (February 2020), para 24.

1293

The price of a freehold or other reversionary interest sold to someone other than an existing leaseholder will take account to the prospect that the leaseholder will seek to obtain a lease extension in the future (often referred to as hope value). An investor is likely to hope, among other things, to gain by holding an asset that increases in value over time (alongside the remainder of the property market), obtaining an income from ground rent, and making a profit on the hope value paid when a leaseholder decides to obtain a lease extension. See the CP, paras 14.67 to 14.70, and paras 2.51 to 2.53 of the Valuation Report.

1294

See paras 1.41 to 1.48 of the Valuation Report.

1295

See paras 12.27 to 12.29 above.

1296

Counsel assess the risk of a successful challenge to such a policy as Medium Low.

1297

See Ch 15 of the CP.

1298

See paras 15.41 to 15.57 of the CP.

1299

See paras 15.58 to 15.103 of the CP.

1300

See para 12.35 above.

1301

“Bona vacantia” refers to the process by which property that is deemed to be ownerless passes to the Crown. For a fuller explanation, see: https://www.gov.uk/government/organisations/bona-vacantia.

1302

Leaseholders might also argue for a higher premium in order to avoid having to pay any contribution to the landlord’s non-litigation costs. But the costs of running that argument might be a disincentive for a weaker party.

1303

See paras 12.94 to 12.101 below.

1304

See para 12.56.

1305

See CP, Consultation Question 99, paras 13.56 to 13.80.

1306

See CP, para 13.90.

1307

The City of London Corporation also noted that a minimum sum would need to be allowed to accommodate low value claims. Our proposals in respect of the recovery of a landlord’s non-litigation costs in low value claims are set out at para 12.56.

1308

We also accept that the option of widening the categories of non-litigation costs that might be recovered would likely exacerbate the problem for leaseholders. It would also produce results that are likely to be inconsistent with the objectives of reform set out in our Terms of Reference: that is, “reducing or removing the requirements for leaseholders...to pay their landlord’s costs of enfranchisement”.

1309

Counsel assessed the risk of a successful challenge to such a policy as Medium Low.

1310

For example, the Property Litigation Association, and John Stephenson, a solicitor. Other consultees, who had opposed the principle of fixed costs also believed that, if adopted, it should apply equally to collective freehold acquisitions.

1311

See paras 12.86 to 12.89 above.

1312

  See para 12.98(2) below.

1313

  See para 12.97 below.

1314

The disadvantages are highlighted at paras 12.7 to 12.11 above.

1315

See paras 12.97 to 12.98 above.

1316

The contribution to be made by an intermediate landlord is such circumstances is considered at paras 13.42 to 13.45 below.

1317

See CP, Consultation Question 100, paras 13.94 to 13.95.

1318

An issue considered in Consultation Question 98: see paras 12.15 to 12.56 above.

1319

Our proposals are set out in Chs 8 and 9.

1320

See para 12.56 above.

1321

We have also made a recommendation that landlords should be able to apply for an Enfranchisement Restraint Order where a leaseholder makes a series of enfranchisement claims relating to the same premises that are without merit. We do not, however, consider such a power would give landlords sufficient protection from vexatious claims to allow us to recommend that leaseholders should make no contribution to the landlord’s non-litigation costs when a claim completes.

1322

See paras 12.165 to 12.167 below.

1323

See paras 12.07 to 12.11 above.

1324

See paras 12.109 to 12.111 above.

1325

See the CP, paras 13.25 to 13.28.

1326

See paras 12.43 to 12.48 above.

1327

See paras 12.49 to 12.50 above.

1328

See paras 12.128 to 12.129 above.

1329

See para 12.138(1) above.

1330

  See para 12.138(2) above.

1331

  See para 12.138(3) above.

1332

See CP, Consultation Question 102, paras 13.99 to 13.100.

1333

We also recognise that a series of successful freehold acquisition claims may raise issues for both landlords and leaseholders. We discuss our proposed restriction on successive collective freehold acquisition claims at paras 5.206 to 5.221.

1334

Civil Procedure Rules, r. 3.11 and Practice Direction 3C

1335

Civil Procedure Rules, Practice Direction 3C, paras 2 to 4. A limited civil restraint order prevents a party from making further applications within existing proceedings without first obtaining permission (para 2). An extended civil restraint order prevents a party from bringing a claim or making an application concerning any matter relating to existing proceedings without first obtaining permission (para 3). A general civil restraint order prevents a party from bringing any claim or making any application without first obtaining permission (para 4).

1336

R (Grace) v Secretary of State for the Home Department [2014] EWCA Civ 1091, [2014] 1 WLR 342, as considered in R (Wasif) v Secretary of State for the Home Department [2016] EWCA Civ 82, [2016] WLR 2793.

1337

See paras 12.128 to 12.129.

1338

Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 (SI 2013 No 1168), r 9.

1339

Civil Procedure Rules, r 3.4(6) and 23.12.

1340

These powers are sometimes referred to as “costs-shifting powers” since the order shifts the burden of paying litigation costs from the party who has incurred those costs, to the party who is made the subject of the order.

1341

See paras 11.29 to 11.32.

1342

See CP, paras 13.105 to 13.109.

1343

See CP, Consultation Question 103, para 13.110.

1344

Just under a third of consultees chose to neither agree nor disagree with the proposal.

1345

Our recommendation in respect of the power to strike out a Claim Notice is set out at para 9.177.

1346

See paras 11.49 to 11.52 above.

1347

See paras 9.59 and 9.62 above.

1348

Where costs are assessed on an indemnity basis, the court (in this case, the Tribunal) will resolve any doubt about whether the costs were reasonably incurred or reasonable in amount in favour of the party with the benefit of the costs order, and there is no requirement for the costs sought to be proportionate.

1349

See the CP, para 13.111 to 13.113.

1350

See CP, Consultation Question 104, para 13.114.

1351

In Willow Court Management v Ratna Alexander [2016] UKUT 290 (LC) the Upper Tribunal held that in considering the exercise of this power a Tribunal should ask whether (1) there is a reasonable explanation for the conduct complained of, and (2) a reasonable person in that party’s position would have conducted themselves as the party did. See also the CP, para 13.33.

1352

It is, of course, possible for a building to have been divided between separate freehold owners, or for the freehold of any premises to be held jointly by more than one person. But there cannot be more than one freehold interest in respect of any part of a building.

1353

See paras 13.9 to 13.11 and 13.16 to 13.18 below.

1354

CP, para 16.113.

1355

The First-tier Tribunal (Property Chamber) in England, and the Leasehold Valuation Tribunal in Wales.

1356

A flat may, for example, be occupied by tenants under the terms of an assured or other short-term tenancy that does not qualify for enfranchisement rights.

1357

See paras 7.39 to 7.47 above.

1358

However, if the freeholder grants an overriding lease for a term less than any existing sub-lease, then the superior lease will in fact expire before the sub-lease.

1359

   CP, paras 16.106 to 16.114.

1360

   CP, para 16.107.

1361

  CP, paras 16.108 to 16.110.

1362

  CP, para 16.111 and Hague, para 1-50(3)(d)(iii).

1363

  1993 Act, s 2(3) and (4).

1364

  See para 8.201(1)(a) above.

1365

  See para 9.107 above.

1366

  See para 8.201(1)(b) above.

1367

See CP, para 16.84.

1368

See CP, Consultation Question 126, para 16.118.

1369

CP at paras 16.32 and 16.84. See also 1967 Act, sch 1, para 4(4), and 1993 Act, sch 11, para 6(4)

1370

CP, Consultation Question 126, para 16.118.

1371

The authors of Hague consider that any statutory duty under the 1967 and 1993 Acts is implied: see Hague, para 23-12. In Kateb v Howard de Walden Estates Ltd, Accordway Ltd [2016] EWCA Civ 1176, [2017] 1 WLR 1761, the Court of Appeal proceeded on the basis that the provisions of the 1993 Act created a statutory duty.

1372

This may not be the case where there is a relationship between the competent landlord and the leaseholder. For example, the competent landlord may be a leaseholder-owned company, or a company associated with one or more leaseholders.

1373

  1967 Act, sch 1, para 5(5) and 1993 Act, sch 11, para 8(1).

1374

See paras 9.107 to 9.108 above.

1375

See para 12.56.

1376

See para 12.111.

1377

The fixed sum would be determined in accordance with our recommendations in Chapter 12.

1378

  1967 Act, sch 1, para 1(1)(a).

1379

  1993 Act, s 2.

1380

  1967 Act, sch 1, para 10(2) and 1993 Act, sch 11, para 10(1).

1381

  CP, para 16.125.

1382

  See para 5.172 above.

1383

By Philip Rainey QC, see para 5.160 above.

1384

We are recommending out limited exceptions and refinements to this default position in certain circumstances as set out in the remainder of this chapter.

1385

  CP, para 16.108.

1386

  CP, para 16.119 to 16.120

1387

CP, Consultation Question 127, para 16.121.

1388

See para 5.4(4), where we discuss the issues caused by “ping-pong” claims.

1389

See para 5.221 above.

1390

See paras 5.222 to 5.246 above.

1391

CP, para 16.109.

1392

Where a leaseholder holds more than one lease of the same property, he or she may make an application to HM Land Registry merge the leasehold titles so that the sub-lease comes to an end. This means that the leaseholder could make an application to merge his or her original lease and the intermediate lease, so that the leaseholder holds only the intermediate lease.

1393

CP, Consultation Question 128, para 16.123.

1394

That is, leaseholders who qualify for enfranchisement rights (whether or not they are in fact participating in the claim).

1395

CP, para 16.18. As noted at para 13.10 above, a head lease is an intermediate lease where the superior interest is held by the freeholder. A head lease is at the top of a chain of leasehold interests in a building.

1396

See CP, para 7.127 for our discussion of Aggio leases and the circumstances in which they can arise.

1397

  1993 Act, s 2.

1398

CP, Consultation Question 129, para 16.125.

1399

See para 5.172 above.

1400

  See para 13.51 above.

1401

  See para 13.82 above.

1402

See CP, Consultation Question 130, para 16.129.

1403

See CP, para 16.114.

1404

See CP, Consultation Question 131, para 16.133.

1405

  1993 Act, s 2(3).

1406

The T ribunal’s order may include more than one of the options we set out in our proposal - for example, the Tribunal may order that the lease is severed and then varied so that it is fit for purpose in relation to its altered demise.

1407

CP, para 16.114.

1408

The Tribunal may determine any dispute relating to the acquisition of such leases (for example, valuation disputes and variations to the lease) in accordance with our recommendations in Chapter 11.

1409

Valuation Report, paras 6.155 to 6.179. In the Valuation Report we refer to this option as “Sub-option 3”. This option would also be available to leaseholders as part of the valuation of the freehold interest of premises which have development potential.

1410

Under the 1967 Act, a leaseholder of a house whose lease had been extended under that Act has no further right to a lease extension. But under the 1993 Act, the leaseholder whose lease has already been extended would have a right to a further lease extension.

1411

See CP, Consultation Question 132, para 16.137.

1412

See CP, para 16.136.

1413

If the rule were not in place, a leaseholder who had extended a lease of a house would be able to obtain a further extension by granting a sub-lease to a connected party, who would then exercise a right to a lease extension for a further 50 years.

1414

One option for reform set out in our Valuation Report would allow leaseholders, when acquiring the freehold, to impose a restriction on development, which would remove the requirement for them to pay any development value: Valuation Report, para 6.155 to 6.179.

1415

An intermediate lease will have a reversion that is valuable where it includes the right to possession of the property for a lengthy period of time. For example, if the freehold is subject to an intermediate lease with an unexpired term of 90 years, which in turn is subject to a sub-lease with an unexpired term of 40 years, then the intermediate lease has a valuable reversion, namely the right to possession of the property starting in 40 years and ending in 90 years.

1416

  [2015] UKUT 320 (LC).

1417

  [2009] 2 EGLR 151.

1418

The definition of “profit rent” in the context of minor superior tenancies is set out in the 1967 Act, sch 1, para 7A(3): “an amount equal to that of the rent payable under the tenancy on which the minor superior tenancy is in immediate reversion, less that of the rent payable under the minor superior tenancy”. This is a circular definition, and does not cater for future increases or decreases in rent; it has, however, been stated that this should be calculated by weighted average over the period “n” (Nailrile Ltd v Cadogan [2009] 2 EGLR 151), though the authors of Hague disagree and argue that the profit rent would be determined solely “on the basis of the rents payable at the valuation date”: para 11-17.

1419

See para 13.138(2) above.

1420

See paras 3.148 to 3.210, 4.113 to 4.173 and 5.173 to 5.182 above. We also suggest that Government consider publishing guidance on the form of lease extension (see para 3.188 above).

1421

Where the terms of a lease extension or transfer are outside the current statutory enfranchisement regime, we referred to these transactions in the CP as “voluntary transactions” or “outside the statutory scheme”. See paras 14.9 to 14.12 below for an explanation of the terminology used in this chapter.

1422

CP, Consultation Question 7 (paras 4.98 and 4.99), Consultation Question 19 (paras 5.70 and 5.71) and Consultation Question 33 (paras 6.142 and 6.143).

1423

CP, Consultation Question 8, paras 4.101 and 4.102.

1424

See paras 14.9 to 14.13 below for an explanation of the terminology we have adopted in setting out our conclusions, including the terms “individual transfer” and “collective transfer”.

1425

We note that Government will consider our conclusions in the context of its proposed ban on ground rents in leases of flats.

1426

   CP, para 5.70.

1427

   CP, para 6.142.

1428

We considered whether transactions that are consistent with the statutory regime could simply be referred to as “statutory transactions”. But as it is possible to enter into a transaction that is consistent with a statutory regime without having started an enfranchisement claim, or to enter into a transaction that is inconsistent with that regime having done so, we think this again risks confusing process with substance.

1429

For example, the 1993 Act provides that the starting point for the terms of any lease extension will be the terms of the existing lease, and specifies a number of ways in which changes to those terms can be introduced. But those constraints are subject to the ability of the parties to agree other terms. This allows the parties to agree to a lease extension on terms that are radically different from the existing terms of the lease.

1430

  1967 Act, s 23(1) and 1993 Act, s 93.

1431

CP, paras 4.11 and 4.20.

1432

CP, paras 4.95, 5.68 and 6.140.

1433

CP, Consultation Question 8, paras 4.100 to 4.102.

1434

As noted at para 14.12 above, the term “voluntary lease extension” does not distinguish between those agreements which are on terms that are consistent with the statutory regime and those that are not. A voluntary lease extension, which is granted without an enfranchisement claim having been made, may still be on terms that are consistent with the statutory regime.

1435

On behalf of Dame Alice Owen's Foundation, the Charity of Richard Cloudesley and the Dulwich Estate (landlords).

1436

See paras 14.9 to 14.13 above. In this section, we refer to lease extensions that are “not on statutory terms” rather than to “voluntary lease extensions” or to lease extensions that are “outside the statutory regime”.

1437

These benefits could also be present in the case of a lease extension that was on statutory terms, but had been entered into without the leaseholder making an enfranchisement claim

1438

This requirement does not apply to a collective enfranchisement claim: see CP, para 7.76.

1439

Valuation Report, paras 1.71 and 3.45.

1440

Our recommendations in relation to our new statutory process are set out in Ch 8 and Ch 9.

1441

  See para 6.131 above.

1442

  See para 3.112(1) above.

1443

  See para 3.112(2) above.

1444

  See para 3.209 above.

1445

  See para 12.56 above.

1446

See paras 10.220 to 10.223 above.

1447

See para 3.188 above.

1448

See para 14.41 above.

1449

We acknowledge that, in the latter case, the Tribunal could be asked both to exercise its power to determine a dispute between the parties as to a term that (on either party’s case) falls within the statutory regime, and to thereafter approve the terms the lease as a whole as a lease that was not on statutory terms.

1450

If the application were made during the course of a hearing before the Tribunal it would be able to satisfy itself about the leaseholder’s understanding and approval at that stage.

1451

See paras 14.54 to 14.62 above.

1452

See para 14.3 above.

1453

In most cases, a peppercorn ground rent will be the only ground rent that is consistent with our statutory regime. However, we have also recommended that, if Government decides not to cap the treatment of ground rent in calculating enfranchisement premiums, leaseholders with an onerous ground rent may elect to maintain the ground rent for the unexpired term of the original lease: see para 3.112 above. A leaseholder who - without obtaining Tribunal approval - entered into a lease extension that was consistent with neither statutory option should be treated as having a peppercorn ground rent, or (where applicable) a ground rent at the level set out in the original lease, depending on which of these options most closely reflected the level of premium paid by the leaseholder for the lease extension.

1454

In more technical language, the inconsistent term would be “voidable at the election of the leaseholder”. For our recommendations on the terms of lease extensions under our new regime (including in relation to Aggio leases), see para 3.148 and 3.210 above.

1455

We also think that the fact that solicitors acting for any proposed purchaser of the landlord’s retained reversionary interest will seek confirmation of Tribunal approval for any such lease extension will also encourage landlords to obtain such approval.

1456

See also CP, Consultation Question 19, paras 5.70 and 5.71.

1457

See paras 14.9 to 14.12 above.

1458

The consultation responses received in respect of lease extensions that are outside the statutory scheme are set out at paras 14.22 to 14.32 above.

1459

In each case the sale price of the freehold on a voluntary basis was higher than would have been payable under statute (by between 5% and just over 20%). The savings were claimed on the basis that valuation evidence would not be obtained by either side, and that both parties’ legal costs would be reduced, in the case of a voluntary transaction. However, the landlord offers to share the benefit of these avoided costs with the leaseholder. As such, while the leaseholder pays less overall, the landlord normally also receives more for his or her asset than would be the case if a statutory claim had been made and pursued. Of course, this saving can be achieved even if the individual transfer that is agreed is on statutory terms.

1460

See paras 14.70 to 14.76 above.

1461

See paras 4.171 to 4.173 and 4.217 to 4.218 above.

1462

See paras 4.337 and 4.351 and 4.369 to 4.370 above.

1463

Details of the proposed application for approval would be as set out in respect of lease extensions at paras 14.63 to 14.68 above. As we set out at para 14.13 above, we would not seek to regulate the extent of the property which is being transferred.

1464

See also CP, Consultation Question 33, paras 6.142 and 6.143.

1465

The consultation responses received in respect of lease extensions that are outside the statutory scheme are set out at paras 14.22 to 14.32 above.

1466

As we noted at para 14.06 above, these costs savings would be available whether or not the terms of the transaction were consistent with the statutory regime.

1467

See paras 14.33 and 14.90 above.

1468

Such savings are not, however, related to whether or not the transfer is on statutory terms.

1469

See para 5.243 above.

1470

See para 1.63(9) above.

1471

These benefits were not, however, reported to us by leaseholders.


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