of flat-owners who do not wish to participate in the Commonhold process. It is not clear whether, and to what extent, the govern- ment will implement the provisions of LA- FRA regarding lease extensions, as opposed to trying to bring in a new regime under its Commonhold Reform Bill. The Government says it will implement some of the provisions of LAFRA this year, primarily abolishing the “two-year rule” which inhibits flat-owners from extending their leases until they have been the registered owner of their flat for at least two years before claiming a statutory lease extension. Some amendments to the Building Safety Act 2022 contained in LAFRA will also be introduced this year, as will some
This is because at present, the development value cannot be “unlocked” until the Management Company lease ends. However, under LAFRA, intermediate interests, such as a management company lease, are deemed to merge with the freehold on enfranchisement, which means that the development value will be immediately unlocked and more valuable to the Landlord. Oh, and just for good measure, there is at least one challenge to the validity of LAFRA on Human Rights grounds being prepared for submission to the Court at present. In the meantime, the current law, governed by the Leasehold Reform, Housing and Urban Development Act 1993 “(the 1993 Act”), will continue to apply.
measures to tackle perceived unfair management practices by landlords.
However, the key aspects of leasehold reform, i.e simplifying and making cheaper the enfranchisement and lease extension process, are unlikely to be implemented for some time. Whilst the Government expressed the intention of abolishing leaseholds by the end of the current parliamentary term, whether this can be done remains to be seen. Whilst a lease extension under LAFRA, as currently worded, should be on more advantageous terms for the flat-owner than under the current law, LAFRA will not be of practical assistance to anyone needing to extend their lease within the next 12 months, probably longer. LAFRA contains a few potential snags for flat-owners seeking to enfranchise their freehold. Firstly, Part IV of LAFRA will impose stringent management obligations on Landlords, particularly in relation to providing management information to a flat-owner in a timely fashion when a flat is being sold. Failure to comply will result in a hefty fine for the Landlord. Secondly, if the building is subject to an overriding lease, such as a headlease to a Management Company, AND there is “development value” in the building, e.g the potential to build additional flats in the roof space, LAFRA could have the effect of increasing the development value and a higher premium payable to the Landlord.
To sum up:
The 1993 Act applies, although the “two-year rule” is likely to be abolished shortly. I cannot see the statutory basis for lease extensions changing before the end of 2025 at the earliest. Most of LAFRA, and in particular the lease extension and enfranchisement provisions, remains to be implemented, and will need extensive secondary legislation before it can be brought into force. This does not look like happening any time soon. The Commonhold Bill may come into force sometime in the next four years and may mean that all newbuild flats will henceforth be Commonhold rather than leasehold. Whether current leases can be converted to Commonhold without all flat-owners in a building agreeing to this remains to be seen.
Where are we now? Up the creek, and we cannot be sure what the paddle will look like.
andy.finkel@haroldbenjamin.com
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THE LEGAL CORNER MAGAZINE | ISSUE 010 JAN '25 HB
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