Why leasehold enfranchisement and Right to Manage recommendations must be enacted

Article by Katherine Simpson, Partner at Edwin Coe LLP

The objectives of the Draft Leasehold and Commonhold Reform Bill involve enacting the remaining Law Commission recommendations on leasehold enfranchisement and Right to Manage.

What issues will this present to professionals and their clients?

In July 2020 the Law Commission published three reports containing over 100 recommendations to enhance leaseholders’ rights to extend their leases, buy their freeholds and take over the management of their buildings.

24 May 2024 in the pre-election wash-up, a somewhat modest number of the Law Commission’s recommendations were enacted by the Leasehold and Freehold Reform Act 2024 (LAFRA).

In July 2024 the Government announced that it would further reform the leasehold system including enacting the remaining recommendations relating to leasehold enfranchisement and Right to Manage, essentially to make enfranchisement easier and cheaper, and is expected to publish a draft Leasehold and Commonhold Reform Bill imminently.

“Cheaper” relates to the valuation methodology and costs, which feature in LAFRA but which are the subject of a landlord driven challenge.

“Easier” relates to the qualifying criteria and the process, which have not been addressed, save for the abolition of the two-year ownership requirement for extended lease and freehold house claims, and the increase to 50% of the 25% limit on commercial parts for Right to Manage claims.

Criteria changes were absent

Changes to the qualifying criteria for collective enfranchisement claims were conspicuous by their absence.

The Law Commission recommended that the qualifying criteria for such claims should be relaxed, enabling more groups of leaseholders to get together to acquire the freehold interest in their building.

The recommendations included increasing the 25% limit on commercial parts to 50%, and so consistent with Right to Manage claims, and that, also in line with Right to Manage claims, there should no longer be a two flat limit to enable a leaseholder to qualify.

The two flat limit was originally enacted to prevent investors from qualifying for a collective claim, the thrust of the initial legislation being to protect homeowners as opposed to investors.

The unintended consequence of that limit meant that homeowners were effectively deprived of their rights.

Furthermore, it was recommended that everyone should have the right to participate and so avoiding disputes between groups of leaseholders who deliberately left fellow leaseholders out of the party, the objective being to make collective enfranchisement a collaborative process and avoid those with deeper pockets taking advantage of others.

Make the procedure easier

The Law Commission also identified the need to make the procedure easier and made a number of recommendations with that in mind.

In particular, claimants are often at the receiving end of “cat and mouse games” driven by landlords seeking to defeat claims on technicalities, increasing costs, and the attendant delays resulting in higher valuations.

It was accordingly recommended that there should be a prescribed form of notice and response, with the Tribunal having greater powers to remedy disputes.

In the same vein, assignments of the benefit of enfranchisement claims were recommended to be automatic, avoiding the potential for disputes as to the validity of an assignment.

This was identified as another area of the process that frequently provoked tactical displays by landlords at the expense of claimants both in terms of costs and valuation outcome.

The effect of the procedural amendments may well be that claimants can avoid having to instruct solicitors with specialist enfranchisement expertise, instead instructing solicitors with general leasehold expertise and at a lower cost.

Only if these recommendations are enacted will the Government have achieved their aim of making enfranchisement cheaper and easier.

Katherine Simpson is a Partner at Edwin Coe LLP and a member of the Association of Leasehold Enfranchisement Practitioners (ALEP).