Reform of residential leasehold was the subject of much discussion last year with the widely reported ‘ground rent scandal’ fuelling the debate. This year will hopefully herald the start of actual reform.
The Court of Appeal heard the case of The Trustees of the Sloane Stanley Estate -v- Mundy this week after the Upper Tribunal rejected the Parthenia model of valuation for a lease extension (under the Leasehold Reform Housing and Urban Development Act 1993 (‘the 1993 Act’)) put forward by the representatives of the leaseholder Mr. Mundy. Its decision is eagerly anticipated.
The Parthenia model challenged the current graphs which have been relied upon for the last twenty years to calculate the premiums paid by leaseholders to extend their leases. If implemented, it has been suggested that it could reduce those premiums by up to half in some instances. It could also reduce the premiums payable for freeholds.
This would profoundly impact the revenue generated by freeholders and particularly the great estates in London and out. Some might argue that change is needed not least because the current methodology was commissioned by the Grosvenor estate – London’s largest great estate after that of the Crown.
Despite the Upper Tribunal’s decision to reject the Parthenia model, it also criticised the existing graphs and the subject has caught the attention of the Government as part of its review of leasehold generally. Residential Leasehold is one of the topics included in the Law Commission’s 13th Programme of Law Reform whose recommendations would be welcomed by many as soon as possible.
Leaseholders have long felt aggrieved by the premiums they are obliged to pay to extend their leases which in some cases run into several hundreds of thousands of pounds. Whether the Court of Appeal decides to uphold the Upper Tribunal’s decision or overrule it, it may be that the Government, as part of reform, chooses to legislate changes to the methodology for calculating those premiums in any event. No doubt, the great estates will be preparing themselves for the financial effects of possible reform in the valuation process.
It is generally agreed amongst practitioners of leasehold that the legislation should be amended to correct its irregularities and give greater cohesion to what has become a fractured area of law.
The Government has already begun taking action announcing it will impose a ban all new leasehold houses and new ground rents in long residential leases.
Reform might also include:
Legislation of a single valuation graph for lease extensions and freehold acquisitions updated at regular intervals to avoid protracted disputes resulting from the numerous graphs in use.
Removal of the unnecessary trappings of the 1993 Act. For example, the two years’ ownership requirement for a lease extension (which does not apply to the acquisition of freeholds under the same act).
Abolition of Part 1 of the Landlord and Tenant Act 1987 which obliges a freeholder to offer their interest to leaseholders before selling it to a third party (largely viewed as poorly drafted and redundant given leaseholders’ statutory right to acquire the freehold).
Protection of residential long leases from falling within the definition of ‘assured tenancy’ under the Housing Act 1988 thereby putting them at risk of forfeiture for only two months’ rent arrears.
Re-introduction of Commonhold in an amended and workable form.
The Law Commission’s recommendations will hopefully go some way to resolving the issues and updating an antiquated form of property ownership.
For advice on all aspects of leasehold, please contact Dominic Danvers on 020 7703 5043 or firstname.lastname@example.org
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