Law Commission’s recommendations set the tone for fairer enfranchisement valuation legislation – but there’s still room for improvement
Mark Chick, ALEP Director, and Partner and Bishop & Sewell, said:
“The Association of Leasehold Enfranchisement Practitioners (ALEP) has reviewed the Law Commission’s report published today (9th January 2020) which assesses how the process of valuing enfranchisement can be simplified.
“The report examines ways to reduce enfranchisement premiums for leaseholders, whilst ensuring landlords receive sufficient compensation. The document sets out ways in which the current enfranchisement valuation system – which can sometimes be complex, inconsistent and biased – may be improved.
“Other options which form part of the Law Commission’s recommendations for reform include capping ground rents and, prescribing rates and development value. In addition, the introduction of an online calculator is proposed. This would help leaseholders and landlords to ascertain the enfranchisement premium, providing simplicity, accessibility and reducing the scope for disputes, costs or delays to the process. Although how this might be fairly and accurately prescribed, developed and implemented remains to be seen.
“The valuation aspect of leasehold is a complex subject and any future reforms need to ensure the right balance of fairness is struck between leaseholders and freeholders alike. Whilst the recommendations set out in the Law Commission’s report are a step in the right direction, they do not provide a clear-cut way forward. Instead, they present more options for debate at a time when what the sector needs is clarity and consistency.
“ALEP campaigns for integrity and transparency within the sector and it is vital that future reforms to the valuation process are not unnecessarily delayed or hampered by convoluted legislation. Importantly, any reform must work for all parties involved.
“Today’s report forms part of the Law Commission’s wider consultation concerning reforms to existing leasehold legislation and regimes, a consultation in which ALEP members were actively involved in. We eagerly await further reports from the Law Commission which will outline these proposals and help shape the future of the leasehold enfranchisement sector.”
For more information please visit https://www.alep.org.uk/
The Law Commission sets out three main recommendations in the report on improving the valuation system, which include:
- Term and reversion – assume the leaseholder is not (and will never be) in the market at the time the premium is calculated, based on a value of term and reversion only.
- Term, reversion and hope value – assume the leaseholder is not in the market but may be in the future. A premium is calculated based on the value of the term, the reversion and the hope value.
- Term, reversion and marriage value – assume the leaseholder is in the market at the time the premium is calculated. The premium would be based on the value of the term, the reversion and the marriage value. This scheme reflects current legislation, but when combined with other reforms, it could be used as a mechanism to ultimately reduce premiums.