Reform of Residential Lease Extension Rules and Procedure Set for 2019
The process of claiming a lease extension of a property has often been criticised as costly, complex and time-consuming. During 2018 the Law Commission published proposals for the reform of residential lease extensions of both flats and houses to promote transparency and fairness. The aim of the Law Commission's proposals is to provide a "better deal for leaseholders" whilst ensuring that "sufficient compensation is paid to landlords to reflect their legitimate property interests". The proposals for reform also include a new regime for enfranchisement for tenants who wish to buy their freehold.
The Law Commission published its proposals in its Consultation Paper "Leasehold home ownership: buying your freehold or extending your lease" and undertook a consultation process which closed on 7 January 2019. The Law Commission will now review the responses and publish a final report with recommendations for reform and this is expected during 2019.
So what are the proposals for reform?
The proposals include the following changes to the rules and procedure for claiming a lease extension:
- One single regime to cover both houses and flats, as there are currently two separate regimes, to reduce complexity
- A new prescribed form for claiming a lease extension to be imposed to reduce the likelihood of mistakes
- The possibilities of challenging notices and counter-notices to be limited to prevent the current frequent challenges to validity of notices
- All disputes to be determined by the Tribunal. Currently disputes are split between the Tribunal and County Court. Low value valuation claims may also be decided by a member of the Tribunal as opposed to at a full hearing/ by way of expert evidence
- A variation to the valuation calculation, including proposals for prescribed rates, a simplified formula and an online tool to calculate premiums
- The minimum two year ownership rule to bring a claim for a lease extension to be abolished
- A new procedure to be introduced to deal with missing landlords to save time and costs
- The ability for parties to negotiate terms of a lease extension to be restricted to allow for more certainty
- The potential to extend the lease for a term of 125 or 250 years instead of the current term of 90 years for a flat or 50 years for a house
- Removing the requirement for a tenant to contribute towards the landlord's fees or introducing a fee cap
Will the proposals benefit landlords or tenants?
The current regime for lease extensions is extremely strict and leaves plenty of scope for landlords and tenants to argue that notices are not valid, have not been validly served or that the correct procedure for completing the lease has not been followed and any mistakes can have drastic consequences. The simplification of the procedure to reduce any scope for such any arguments would therefore be welcomed by both landlords and tenants.
The proposal to change the valuation calculation is however worrying for landlords and long-awaited by tenants as premiums could be potentially reduced if prescribed rates are imposed. It will be interesting to see the exact proposals in due course in order to establish whether the proposals will in fact lead to a reduction in premium costs.
The potential changes to legal and valuation fees are also worrying for landlords who may have to pay for their own legal and valuation fees for dealing with lease extensions which could be costly.
How can we help?
Rollits has a specialist and knowledgeable team who deal with lease extensions, on both a voluntary and statutory basis, including dealing with any disputes which arise from such claims.
If you are considering applying for a lease extension or receive a claim for a lease extension from your tenant please get in touch and we would be happy to help.
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.