Law Commission issues reports making recommendations for reform for Enfranchisement, Right to Manage, and Commonhold

21st July 2020

The Law Commission has today (21^st July) published three reports with an extensive series of proposed legislative changes for leasehold enfranchisement, the right to manage, and commonhold.

The Commission was tasked by the Government to improve consumer choice and provide greater fairness and transparency for leaseholders. The recommendations made in these three reports compliment the ongoing work of the Ministry of Housing, Communities and Local Government and the Welsh Government to reform leasehold ownership.

The Law Commission’s leasehold enfranchisement report’s 102 recommendations included:

1. providing a new right to leaseholders of both houses and flats to a lease extension for a term of 990 years, with no ongoing ground rent under the extended lease;
2. providing a new right for leaseholders to “buy out” the ground rent under their lease without also having to extend the length of their lease;
3. removing the requirement for leaseholders to have owned their leases for two years before exercising enfranchisement rights and allowing flat owners to buy the freehold of a block where up to 50% of the building is commercial space;
4. making it easier and cheaper for leaseholders of flats to enfranchise by providing for groups of flat owners to acquire multiple buildings in one claim and allowing leaseholders to require landlords to take “leasebacks” of units within the building which are not let to leaseholders participating in the claim;
5. ensuring that a leaseholder is protected against the imposition of onerous or unreasonable obligations on acquisition of the freehold title to his or her home;
6. replacing the various procedures for making enfranchisement claims with one, streamlined procedure;
7. providing that all enfranchisement disputes and issues should be decided by the Tribunal; and
8. eliminating or controlling leaseholders’ liability to pay their landlord’s costs, in place of the current requirement for leaseholders to pay their landlord’s uncapped costs, which can equal or exceed the enfranchisement price.

The Law Commission’s Right to Manage (RTM) report’s 101 recommendations included:

1. that RTM should be exercisable in respect of leasehold houses as well as flats;
2. that the non-residential limit be increased to 50%;
3. that the RTM should be exercisable in respect of premises which comprise or contain at least one residential unit held by a qualifying tenant;
4. the removal of the current rule requiring the participation of both qualifying tenants in premises with only two residential units;
5. that shared ownership leases granted for more than 21 years qualify as long leases for the purpose of the RTM legislation, regardless of whether the leaseholder has staircased to 100%;
6. abolish the current exclusion from RTM of premises with a resident landlord and no more than four units should be abolished;
7. that it should be possible for a single RTM company to acquire the RTM in respect of more than one building in a single RTM claim; and
8. That:

a) at least one director of each RTM company should be strongly encouraged to undertake online training; and

b) the fault-based grounds for the appointment of a manager should be expanded to include circumstances where no director of the RTM company has undertaken training, and it is just and convenient to appoint a manager or terminate the RTM.

In its commonhold report, the Law Commission made 121 recommendations, including:

1. that it should be possible to convert to commonhold if either:

(a) the freeholder consents; or

(b) the leaseholders carry out a collective freehold acquisition claim as part of the process of converting to commonhold;

2. that conversion to commonhold should be possible without the unanimous agreement of the leaseholders and through a collective freehold acquisition claim, and convert to commonhold, by following a streamlined “acquire and convert” procedure;
3. that unit owners should have a right to apply to the Tribunal under the Law Commission’s recommended minority protection provisions.

4. that “anti-avoidance” provisions should be introduced to ensure that a developer does not attempt to secure a greater degree of control by:
5. taking powers of attorney from the purchasers of commonhold units (or seeking to control votes in any other way);
6. attempting to control how unit owners vote by inserting terms in the purchase contracts.

Nick Hopkins, Property Law Commissioner, said: “The leasehold system is not working for millions of homeowners in England and Wales. We have heard how the current law leaves them feeling like they don’t truly own their home.

“Our reforms will make a real difference by giving leaseholders greater control over their homes, offering a cheaper and easier route out of leasehold, and establishing commonhold as the preferred alternative system. The reforms will provide a better deal for leaseholders and make our homes work for us, and not somebody else.”

Luke Hall, Minister for rough sleeping and housing, said: “This government is determined to improve transparency and fairness in the residential leasehold market to help thousands of leasehold homeowners up and down the country, as well as future homebuyers.

“We are clear that the current system needs reform, which is why we asked the Law Commission to carry out this important work. We will carefully consider the Law Commission’s recommendations, which are a significant milestone in our reform programme, as we create a better deal for homeowners.”

Julie James, Welsh Housing Minister, said: “These comprehensive and much-anticipated reports mark a significant step towards much-needed reform. It is clear that the current leasehold system often fails resident leaseholders and these reports will give us a better understanding of the issues involved; we now need to take the time to consider them carefully.

“The Law Commission has undertaken a mammoth task in unpicking the current law, engaging widely on the options for change, and putting forward comprehensive recommendations and I’m grateful to them for their excellent work.”

For more information on the Law Commission’s report please click here