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Cost-cutting measures for leaseholders buying freehold revealed by Law Commission

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  • 09/01/2020
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Cost-cutting measures for leaseholders buying freehold revealed by Law Commission
The Law Commission has outlined a handful of measures which could reduce the cost for leaseholders looking to extend their lease or purchase the freehold of their homes.

The formal name for this process is enfranchisement.

The Law Commission was tasked with reviewing the enfranchisement process by the government.

It has suggested three key schemes for determining the premium ‒ the sum paid by leaseholders when enfranchising the property ‒ which will make that figure more affordable, while still ensuring landlords are paid what it classes a sufficient amount. 

For example, under the current system part of the premium is calculated in part using the ‘marriage value’ ‒ reflecting the fact that owning the freehold outright is worth more than the sum of the freehold and leasehold interests if owned separately ‒ and the ‘hope value’, which is a deferred form of the marriage value.

The three models suggested by the Law Commission involve removing either the hope value, marriage value or both from the calculation of the enfranchisement premium.

In addition to the three reform models, the Law Commission has outlined a handful of other options for revamping the system.

These include capping the level of ground rent which can be used when calculating the premium, creating an online calculator to help people work out what the cost of enfranchisement is likely to be for them, and to enable those looking to collectively enfranchise a block of flats to avoid having to pay a ‘development value’ to the landlord unless they actually do embark on further development.

Professor Nicholas Hopkins, property law commissioner, said: “We were asked to provide options for reform that save leaseholders money when buying their freehold or extending their lease, while ensuring that sufficient compensation is paid to landlords. This is what we’ve done.

“We are ready to help the government in implementing whichever options for reform they choose.”

The government has said it will now consider the proposals and set out how it wants to proceed.

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