Ongoing Ambiguity Surrounding Leasehold Reform – TNT

A year after the Leasehold and Freehold Reform Act (LAFRA) appeared on the Statute Books, the Leasehold and Freehold Reform Bill last year has failed to create greater certainty in the market.

A new survey of property professionals reveals that while reform remains welcome in principle, confusion and delay have left leaseholders, freeholders and their advisers in limbo.

ALEP (the Association of Leasehold Enfranchisement Practitioners), whose members include barristers, solicitors, project managers and valuers in leasehold enfranchisement, reports that the LAFRA has not yet made the process of extending a lease easier.

Despite the Act’s headline-grabbing provisions – including the removal of marriage value and the proposed cap on ground rents when calculating enfranchisement premiums – the reality is that very little has changed.

Asked whether the process of extending a lease had become easier, ALEP members were largely negative, 67% said that it was not, while 33% saw no change.  One practitioner commented that the Act ‘has not become fully enacted and has caused confusion and delay’, while another noted simply, ‘we are all stuck in limbo’.

The survey also asked members about their ability to advise clients on whether to proceed with leasehold claims under the current legal framework. Responses were cautious. While many said they can offer guidance, this is tempered with caveats: ‘the advice varies with the client’s circumstances’; ‘we can only give options’; ‘it depends on whether marriage value is abolished and on changes in deferment rates’. In many cases, advisers admitted that recommendations rely on ‘guesswork’.

ALEP says that there is clear evidence that this uncertainty is stalling market activity. The organisation reports that a significant majority of respondents have noticed a decrease in client work since the Act’s introduction, with one noting: ‘leaseholders are holding off, and freeholders are holding out’. Others report that leaseholders are only proceeding when driven by pressing personal circumstances such as remortgage or bereavement.

Client decision-making has also slowed markedly. Several ALEP members cited a ‘much slower’ pace than a year ago, with one pointing out: ‘most clients seem to be paralysed by the ‘do we, don’t we’ choice’. The result is additional time and costs, but also heightened anxiety for clients already navigating a complex legal and financial process.

More than 80% of members surveyed believe that the LAFRA has had unintended consequences. These include stalled lease extensions, and enfranchisements falling transaction volumes and increased costs. A common theme was the sense that the early optimism among leaseholders has given way to frustration. As one member put it, ‘many leaseholders delayed claims only for life to move on… and premiums to rise in the interim’.

There is also concern about valuation issues, including potential changes to deferment and capitalisation rates, which could drive premiums up rather than down – the opposite of what many leaseholders expect. Several members identified problems around the treatment of intermediate interests, with one warning that proposed simplifications ‘will likely result in a higher premium’.

Despite these challenges, there is broad consensus within ALEP that reform is both necessary and welcome – but only if it is done thoroughly and transparently, and in consultation with professionals. Several members recognised the need for ‘further primary legislation’ – which accords with the government’s own objective of introducing a further Leasehold and Commonhold Bill possibly in the autumn.

Mark Chick, a director of ALEP, said: “There is no appetite among practitioners to turn back the clock on reform. But we must avoid repeating past mistakes. The next stage – whether delivered by secondary legislation or a future Bill, both of which we anticipate – must be built on evidence, engagement and proper scrutiny. We will continue to support the development of a fairer and better functioning system for leaseholders and freeholders alike.

“ALEP remains committed to supporting constructive dialogue between government, leaseholders, and professionals in this complex but critical area of property law.”