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12 Mar 2021

Tenants and landlords in limbo

For some time, real estate practitioners have been aware of the Government's plans to reform leasehold enfranchisement legislation.

In 2020, the Law Commission’s reports highlighted the need for change, following a number of consultations and in January 2021, a Government announcement heralding the advent of the first of the reforms, sadly, begs more questions than it answers.

The headline points are as follows…

  • Extended lease terms with a new right to claim for an additional term of 990 years
  • Peppercorn rent payable under a new lease
  • Capping ground rents when calculating enfranchisement premiums
  • “Abolishing” marriage value as an element in the calculation of such premiums
  • Fixing rates applied in the calculation of such premiums
  • Offering relinquished rights to develop in exchange for avoiding the payment of any development value
  • Online calculator to assist the calculation of premiums
  • Commonhold ownership reinvigoration, introducing a Commonhold Council

There are several aspects which require clarification, but the points with the potential for most significant impact are likely to cause greater uncertainty in the market – namely those concerning valuation and, in particular, the fixing of rates and abolishing marriage value.

The devil is in the detail – the extent to which the reforms might affect a property owner depends upon just how far the reforms go and when they might be implemented. Without clarity, any owner making an enfranchisement claim, or seeking to sell its property with the benefit of such a claim, is left wondering when is the best time to do so.

As Government’s attention is focused on Brexit and combatting COVID, both tenants and landlords (and their respective advisers) are left in limbo wondering just when any of this may be enforced. That cannot be an advisable state, either from the point of view of maintaining market momentum, or of keeping the public properly informed of their rights.

This article first appeared in Property Week in March 2021.