In their own words here is the Law Commission’s own summary of the effect of their 242 page report published today, 9th January 2020.
A Range of options to reform valuation of enfranchisement have been provided to Government
• The options will reduce the price of enfranchisement – potentially saving millions of leaseholders money – and simplify the process
• The options fulfill the Government’s objectives to promote transparency and fairness in the residential leasehold sector and provide a better deal for leaseholders
The Law Commission of England and Wales has today 09 January 2020 published a report setting out options to reduce the cost that leaseholders have to pay to buy the freehold or extend the lease of their homes (known as “enfranchisement”). The reforms have the potential to make the process easier and more affordable for millions of leaseholders across England and Wales.
The Law Commission’s report puts forward a range of options to make it cheaper for leaseholders to buy their freehold or extend their lease. As well as reducing the price, these options can clarify and simplify the law, making the process of leasehold enfranchisement easier and less expensive to operate.
The Government asked the Law Commission to review the law of leasehold enfranchisement in order to promote transparency and fairness in the residential leasehold sector and provide a better deal for leaseholders. On valuation, the Law Commission was asked to provide options to reduce the premium (price) payable for existing and future leaseholders to enfranchise their homes, whilst ensuring sufficient compensation is paid to landlords to reflect their legitimate property interests. The report examines the method by which the value of the landlord’s interest is calculated, to identify reforms that could lower premiums without breaching the UK’s human rights legislation that protects the landlord’s property interests.
The options for reform
The report puts forward three key schemes for determining the premium, each of which will make enfranchisement cheaper, saving leaseholders money. Each scheme uses a different method to determine the price of enfranchisement and allow further reforms to make the process simpler and to reduce uncertainty. A detailed explanation of the schemes and the options for reform can be found in the Briefing Document and on the Law Commission website Law Commission site and papers on reforming valuation
The report also explains the role that simple formulae – such as a multiple of ground rent – could play in delivering reforms, while explaining that their wider use is not possible under the UK’s human rights laws.
Alongside the three schemes, the Law Commission has put forward a range of other options for reform. These include:
• Prescribing the rates used in calculating the price, to remove a key source of disputes, and make the process simpler, more certain and predictable.
• Helping leaseholders with onerous ground rents, by capping the level of ground rent used to calculate the premium.
• The creation of an online calculator for determining the premium to make it easier to find out the cost of enfranchisement, and reduce uncertainty around the process.
• Enabling leaseholders who are collectively enfranchising a block of flats to avoid paying “development value” to the landlord unless and until they actually undertake further development.