• news-banner

    Expert Insights

Law Commission valuation proposals for leasehold enfranchisement: A fair deal?

The Law Commission was tasked by the Government with examining the options to reduce the premiums payable by leaseholders in England and Wales seeking statutory lease extensions or making claims to collectively acquire the freehold of their buildings and launched a consultation in September 2018 which closed in January 2019. The valuation aspects of the consultation appeared to be the most contentious leading to much debate between landlords and tenants.

The Law Commission has today published its report and its proposals do not, at first sight, appear to be as radical as anticipated.

The report headlines are:

1. The Law Commission obtained Counsel’s Opinion on the Human Rights aspects which confirmed that the requirement for leaseholders to pay a premium to extend their lease or purchase the freehold does not violate the European Convention on Human Rights (“ECHR”). However, Counsel concluded that the right to compulsorily acquire the freehold or extend the lease of a house or flat interferes with a landlord’s property rights under the ECHR and will only be lawful if a landlord is sufficiently compensated to justify interference with those property rights. 

2. Three schemes of valuation are proposed (which are proposed by the Law Commission on the basis that they consider the schemes to sufficiently compensate the landlord):

  • Scheme 1 - assumes that the leaseholder is never in the market and there is no marriage or hope value payable;
  • Scheme 2 - assumes that the leaseholder may be in the market in the future so hope but not marriage value is payable; and
  • Scheme 3 (the current system) - assumes the leaseholder is in the market and marriage value is payable.

3. There is then a menu of sub-proposals which the Law Commission invites the Government to consider and which could be added to any of the three schemes:

  • A proposal to fix the rates for elements of the calculation such as the capitalisation rate, deferment rate and relativity rate;
  • Capping the ground rents to be taken into account when valuing the term;
  • Providing a mechanism for leaseholders to agree not to develop the building in the future so that they do not have to pay development value with a proviso that the former landlord would receive development value if there were to be development in the future;
  • Considering applying different rules to owner-occupiers to pay reduced premiums but not commercial investors.

Ultimately, it will be for the Government and Parliament to decide which of the schemes and menu of sub-proposals will be adopted and to determine other details such as how the various rates would be fixed and at what levels. Only at that stage will it be possible to assess the full impact of the reforms, but what is confirmed by the report is that the final valuation method must sufficiently compensate the landlord for interference with its property rights.

The Law Commission is also reviewing the processes of enfranchisement, right to manage and commonhold and reports on those areas are expected in Spring 2020.

This article was written by Laura Bushaway. For more information please contact Laura via laura.bushaway@crsblaw.com or on +44 (0)20 7438 2261.

Our thinking

  • Mental Health Management

    Nick Hurley


  • James Souter writes for City AM on Meta pulling out of its London office

    James Souter

    In the Press

  • Charles Russell Speechlys advises Puma Private Equity on its £3.5 million investment into TravelLocal

    David Coates


  • China Daily, and other titles, quote Silvia On on trends affecting Chinese HNWIs

    Silvia On

    In the Press

  • The Evening Standard quotes Rose Carey on the increase in visa fees

    Rose Carey

    In the Press

  • Charles Russell Speechlys advises Zenzero’s management team on its majority acquisition by Macquarie Capital

    Mark Howard


  • David Savage writes for Construction News on the upcoming building-control overhaul

    David Savage

    In the Press

  • Updates and points to note in relation to buy-to-let residential properties

    Twiggy Ho


  • Felicity Chapman writes for Insider Media on alternatives to court for divorcing business owners

    Felicity Chapman

    In the Press

  • Investment Week quotes Julia Cox on the proposed scrapping of inheritance tax

    Julia Cox

    In the Press

  • Charles Russell Speechlys expands commercial offering with the appointment of Rebecca Steer

    Rebecca Steer


  • The Times quotes Gareth Mills on the CMA’s preliminary approval of the Activision Blizzard-Microsoft deal

    Gareth Mills

    In the Press

  • Heritage property and conditional exemption

    Sarah Wray


  • Property Week quotes Cara Imbrailo on Rishi Sunak scrapping MEES requirements for residential landlords

    Cara Imbrailo

    In the Press

  • The Financial Times quotes Emma Humphreys on UK rental costs

    Emma Humphreys

    In the Press

  • Stamp Duty Refund - New Impetus To Eligible Incoming Talents

    Ian Devereux


  • City AM quotes Gareth Mills on the CMA’s new set of principles for regulating AI

    Gareth Mills

    In the Press

  • Hamish Perry and Mike Barrington write for The Evening Standard on whether a merger between the CBI and Make UK can work

    Hamish Perry

    In the Press

  • Silicon quotes Gareth Mills on the UK consumer lawsuit against Google

    Gareth Mills

    In the Press

  • Common construction claims in Bahrain

    Mazin Al Mardhi


Back to top