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13 January 2020

Law Commission publishes report on valuation in enfranchisement

Following the leasehold reform consultation which concluded in January 2019, the Law Commission has recently published its proposals for reducing the price payable for leaseholders seeking to buy their freeholds or extend their leases.

Commenting on the report, John Stephenson, partner in our residential property team, states that the Law Commission had acted with caution:

‘It is clear that the Human Rights Act was at the forefront of The Commission’s mind when making its proposals which resulted in the more radical tenant suggestions, such as a simple multiplier of ground rent or a fixed percentage of freehold value being discarded.

In summary, The Commission looked at the three elements of the current valuation method: capital value of income stream and end of lease reversion (the minimum value considered compatible with human rights law), marriage value and hope value. There is a half-hearted suggestion that the value of the income stream and reversion (and even relativity of leasehold to freehold value) could be fixed by reference to a formula to allow online calculation to be made possible, however there are challenges to this. One likely favourable sub-suggestion is to limit the assumed rental stream to 0.1% of capital value – essentially this will mean that landlords will not benefit from onerous ground rents in the freehold price. The decision of which options (or combination) is chosen lies with Parliament and no recommendation is ventured.’

In the coming months, the Law Commission will publish their recommendations for reforming and improving other aspects of the complicated enfranchisement regime.

Our history with residential leasehold law goes back almost two decades, having successfully served the first ever collective enfranchisement claim notice on the day the 1993 Act came into force in 1994. Find out more here.

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