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Leasehold included in Law Commission’s 13th Programme of Law Reform

Today the Law Commission announced 14 new project areas as part of its 13th Programme of Law Reform.

The leasehold projects are:

The residential leasehold project will start by addressing three issues identified as priority areas by the Department for Communities and Local Government (DCLG):

  1. Commonhold; a form of ownership allowing a person to own the freehold of a flat and become a member of a Commonhold association managing the communal areas. The Commission will review why Commonhold has failed and consider what reforms are necessary to the law to enable it to operate successfully.
  2. Enfranchisement; this is the right of a leaseholder to purchase the freehold or a lease extension. The Commission will look at ways to simplify the procedure and make the valuation fairer and more transparent.
  3. Regulation of managing agents; the scope of the Commission’s work will be decided following DCLG’s recent call for evidence.

The project may also include other areas of leasehold law raised by consultees (which we will continue to discuss with DCLG), and will complement DCLG’s own work on leasehold issues.

The purpose of the unfair terms project is to consider whether, each time a lease is assigned, this should be seen as creating a new contract between the landlord and leaseholder for the purposes of unfair terms law. The effect would be that the court could focus on the circumstances that existed when the current leaseholder took the assignment of the lease.

The project reflects feedback to the Commission from stakeholders about many potentially unfair terms in leases, including ground rents which increase exponentially, fixed service charges and fees on assignment of leases. These types of terms in leases are currently unregulated and cannot be challenged by leaseholders under landlord and tenant law. However, it may be possible to use unfair terms law to fill this gap.

Currently, only the original leaseholder can effectively challenge a term under unfair terms law. When the lease is assigned or sold, the subsequent leaseholder cannot effectively challenge the fairness of the term. This is because under section 62(5) of the Consumer Rights Act 2015, whether a term is fair is to be determined by “reference to all the circumstances existing when the term was agreed”.

When considering whether a term is fair, the court may only look at the circumstances surrounding the agreement of the term between the original landlord and original leaseholder. The circumstances surrounding the assignment to the subsequent leaseholder cannot be considered.

More about the other projects in the 13th programme

Previous leasehold–related projects are listed below:

LEASE is governed by a board, appointed as individuals by the Secretary of State for the Ministry of Housing, Communities & Local Government.