How will Government’s proposed leasehold reform affect landlords on enfranchisement?

The Government announced big changes to the procedure for enfranchisement (buying their freehold). Please see our blog for full details:

How much will it cost leaseholders to buy their freehold or extend their lease under under new Government proposals?

The Government has said: “An online calculator will be introduced to make it simpler for leaseholders to find out how much it will cost them to buy their freehold or extend their lease”. Surveyors are sceptical as to whether that calculator could be sufficiently sophisticated enough to undertake the calculation that surveyors currently calculate under the current legislation, the Leasehold Reform, Urban and Housing Development Act 1993. As part of the current method of calculation, the market value of the flat is calculated and we cannot see how a calculator could opine on that. But who knows? The Government’s announcement is a basic bullet point list of its intention and very little information is given. Perhaps market value will have no bearing on the calculation.

Many of our clients have asked whether this will be retrospective. We simply do not know. Therefore, if you have an ongoing enfranchisement or lease extension claim you are safest to assume that the terms will be as per the current law.

Buying the freehold sometimes means that the tenants have the right to develop in to other areas where those areas are not demised under one of the leases. That is called development value. The Government’s press release says that to avoid having to pay ‘development value’ to the landlord, leaseholders can promise (by way of something called a restrictive covenant) not to develop the building further. If tenants want to buy the freehold to extend outside of their current leasehold demise then this aspect will make no difference to them. We also note that the Government’s announcement does not cover how any release from such a restrictive covenant would be regulated.

Leaseholders who have already begun the process of purchasing their freehold may have already incurred significant costs such as surveyors and legal fees. The expenditure already incurred will be a consideration as to whether to discontinue the claim and progress under a new regime. The press release refers to making this process cheaper but we have no detail on this. Tenants who abandon the process now will have to pay their own and the Landlord’s costs now under the old regime. We do not know what the future costs may be.

Should I continue my enfranchisement process?

Finally, will it be cheaper for tenants if they wait? Possibly, yes. The calculation of the premium for a freehold interest subject to leases with a term of 80 years or less left to run is more expensive. We shan’t explain why here as it is detailed and complicated. If one of the leases in your block has lease terms less than 80 years then it may be cheaper for the tenants to wait for the new rules. However, we cannot say how much cheaper it would be, when the new rules will come in and what those new rules will look like.

If you’re already in the middle of the enfranchisement process the question will be ultimately up to your tenants to withdraw their existing claim.

Any current process will probably be finalised before any new law receives royal asset. There may be pressing reasons for them enfranchising now, for example solving a problem that makes it difficult for them to sell or refinance their flats.

Whether your negotiating position has been weakened by this announcement will be a question for the circumstances including but not limited to: a) whether the tenants will want to incur costs again in the future and have to pay costs now, b) whether there is a pressing need to acquire the freehold now, c) whether marriage value applies at all and d) whether development value applies or is likely to apply.

If you would like to discuss enfranchisement, please contact the Leasehold Property Team: or or call 0207 703 5034.