Whilst a lease extension under LAFRA, as currently worded, should be on more advantageous terms for the flatowner than under the current law, LAFRA will not be of practical assistance to anyone needing to extend their lease within the next 12 months, possibly longer. In the meantime, the current law, governed by the Leasehold Reform, Housing and Urban Development Act 1993, will continue to apply.

LAFRA contains a few potential snags for flatowners 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 flatowner 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. 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, is 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.

The current government has published a draft Commonhold bill as a consultation document. The idea of Commonhold is that leases in the building are converted to indefinite Commonhold instead of enfranchisement followed by lease extensions. There is a Commonhold Association (i.e a Limited Company whose members are the flatowners) and a Commonhold Statement, which is a constitution which will contain some prescribed provisions but which can be added to by majority vote of the Commonholders.  Commonhold has existed in England and Wales since 2002, but has been largely rejected by property owners.  At present, it requires 100% acceptance by flatowners and their mortgage lenders to be effective.  The current proposals do not address some of the practical problems of commonhold; in particular, who will pay the landlord for the share of flatowners who do not wish to participate in the Commonhold process.

Where are we now? I think we need a crystal ball rather than a map to answer that one at the present time.  (If you find out, please let me know).

For more information please contact Andy Finked at Andy.finkel@harolbenjamin.com