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28 Jan 2022

Leasehold reform: Raising the non-residential limit from 25% to 50% for collective enfranchisement claims

At present, the law provides that, in order for tenants of a building divided into flats to be able to collectively claim the freehold of that building, the proportion of the building given over to non-residential use must be no more than 25% of the floor area of the building as a whole (discounting common parts).

As outlined in my earlier article here, the proposal put forward is to increase that threshold from 25% to 50%.

Each of the proposals in this consultation derive from the Law Commission’s report and one might say that, in fairness to the Commission, its inclusion of this particular provision satisfies its remit to present options which would make enfranchisement easier for tenants. It would certainly have that effect, by virtue of the simple fact that it will necessarily open up more buildings to qualifying for a collective claim than is currently the case.

However, it needs to be borne in mind that the Government also maintains that it wishes to balance this stated aim of making enfranchisement easier (and cheaper) for tenants against a recognition of the legitimate interests of the landlord, and there are many that would question whether that balance is achieved here.

At its source, enfranchisement came about to offer rights to those owning residential homes. In the case of collective claims, the inclusion of a condition that no more than a particular proportion of the building should be given over to non-residential use might be seen as an acknowledgement that the building should be primarily residential. Indeed, the legislation began with the non-residential proportion set at 10%. Opening the availability of such rights to buildings of which 50% is in commercial use could be said to be altering that dynamic significantly.

Against this background, it should be noted that until the publication of the Law Commission’s report, there had seemed to be no appetite, or particular call, for such a change to be made. Very little mention had been made of it in the written consultations or stakeholder forums which the Commission conducted ahead of its report. Indeed, in response to a formal question about such a move (and as is acknowledged in this latest Government consultation), a majority were in favour of keeping the non-residential limit unchanged.

Now that the proposal has seemingly gathered momentum, it is unlikely that many groups of potential tenant claimants might object (although it is worth noting here that they would be well-advised to give some consideration to the practicalities of taking on the management of a building of which as much as 50% may be in commercial use and the legal obligations and burdens which go with that). However, the proposal is surely going to meet with resistance from landlords who have invested in such buildings. The proposed reform would render vulnerable the freehold to a whole class of buildings, and thereby deprive the landlords concerned of their interest in such buildings in a manner which none would have reasonably foreseen prior to the Commission’s report.

This article is the second in four part series and the next can be found below.

Part Three: Introducing a non-residential limit of 50% for individual freehold claims

In part three, Simon reflects on the reform proposal to include a 50% limit for individual freehold claims on non-residential property.

 

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