9 February 2024 by Haley Packman

Collective Enfranchisement in the new world – are expanded rights really the answer?

The Leasehold and Freehold Reform Bill was introduced into the legislative process in November 2023.  Whilst it is not known precisely when the Bill might pass (and become a legally binding Act of Parliament), to say that it has been met with some scepticism is an understatement.  Following a government review as far back as 2017, the legislation is expected to bring major changes to the leasehold system.  Whilst there is a long journey ahead for the Bill, both landlords and lessees should take some time to familiarise themselves with some of the core proposals.

Under the Leasehold Reform, Housing and Urban Development Act 1993, the right of collective enfranchisement has been clearly defined.  This is a process whereby lessees (of flats) are given the right to purchase the freehold of their building.  The qualifying criteria already established provide generous space for all parties to navigate.  However, government and pressure groups remain of the view that these rights require expansion.  The proposed reforms look to capture this sentiment by bringing forward some practical changes.  Principally, but not exclusively:-

Increase in Non-Residential Space

Under the current legislation, a building would not qualify if more than 25% of the internal floor space (excluding common parts) is used for non-residential purposes.  It is considered that this can be limiting in the exercise of collective enfranchisement rights, particularly where and for instance there may be a parade of shops directly below the building in question.  Not unusual in London.

It has been proposed that the non-residential threshold is increased up to 50% to allow lessees who own homes in buildings which have a higher commercial element, comprising of flats, office spaces and retail units, to buy their freehold.  Whilst this does allow a greater opportunity to consider enfranchisement, questions have been asked about the ability of lessees to manage effectively large mixed use sites.  In the wake of the Grenfell disaster and a difficult to navigate Building Safety Act, these fears feel justified.

It should also be noted that some lessees actually value the ownership function of the landlord and do not want to be involved in enfranchisement, especially if the site is a complex mix of commercial and residential units.  Whilst attractive to the eye, more work is needed here to bring forward change that captures more accurately the complexities of sites such as these but at the same time balances the government’s wish to bring forward meaningful reform.  Government must be mindful to capture also the valuable input here of landlords, whom for many managing such complex sites is a full time job involving a multitude of different professionals and disciplines.

For further information, please contact our Lease Extensions and Property Management team.

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