A year after the Leasehold and Freehold Reform Act (‘LAFRA’) appeared on the Statute Books we surveyed members of ALEP (the Association of Leasehold Enfranchisement Practitioners), whose members include leading barristers, solicitors, project managers and valuers in leasehold enfranchisement.
Our research found that while reform remains welcome in principle, confusion and delay have left leaseholders, freeholders and their advisers in limbo.
Despite the Act’s headline-grabbing provisions – including the removal of marriage value and the proposed cap on ground rents when calculating enfranchisement premiums – the reality is that very little has changed.
One year after Royal Assent, key provisions remain unimplemented. This is in part because of the Human Rights act challenges being brought by freeholders and also because the provisions of the legislation are complex and require consultations and secondary legislation before they can be brought into effect.
Asked whether the process of extending a lease had become easier, ALEP members were largely negative, 67% said that it was not, while 33% saw no change. One practitioner commented that the Act ‘has not become fully enacted and has caused confusion and delay’, while another noted simply, ‘we are all stuck in limbo’.
This was unsurprising, as when we surveyed members a year ago, the vast majority (94%) agreed the Bill had been rushed and that it would have benefited from more time under parliamentary scrutiny. A year on, that view has hardened. Many described the Act as a ‘poisoned chalice’ for the new government, ‘a dog’s dinner’, and ‘terrible’ in its rushed final form.
The fact is that the Act, passed in the ‘wash up’ at the end of the last parliament, just before the election, was passed with too much great haste. The result is exactly what many of us feared – a piecemeal piece of legislation that not only requires extensive secondary legislation and time to enact (as might be anticipated), but also by the government’s own admission needs primary legislation to fix fundamental flaws in the valuation mechanism before it can be made ‘live’. The market is now caught in a state of indecision, and both leaseholders and their advisers need clarity.
We also asked members about their ability to advise clients on whether to proceed with leasehold claims under the current legal framework. Responses were cautious. While many said they can offer guidance, this is tempered with caveats: ‘the advice varies with the client’s circumstances’; ‘we can only give options’; ‘it depends on whether marriage value is abolished and on changes in deferment rates’. In many cases, advisers admitted that recommendations rely on ‘guesswork’.
There is clear evidence that this uncertainty is stalling market activity. A significant majority of respondents have noticed a decrease in client work since the Act’s introduction, with one noting: ‘leaseholders are holding off, and freeholders are holding out’. Others report that leaseholders are only proceeding when driven by pressing personal circumstances such as remortgage or bereavement.
Client decision-making has also slowed markedly. Several ALEP members found that work was progressing at a much slower pace than a year ago, with some pointing out that clients seem to be paralysed by the ‘do we, don’t we?’ choice. The result is additional time and costs, but also heightened anxiety for clients already navigating a complex legal and financial process.
A considerable majority of ALEP members (more than 80%) believe that the LAFRA has had unintended consequences, such as stalled lease extensions, and enfranchisements falling transaction volumes and increased costs. A common theme was the sense that the early optimism among leaseholders has given way to frustration.
There is also concern about valuation issues, including potential changes to deferment and capitalisation rates, which could drive premiums up rather than down – the opposite of what many leaseholders expect. Several members identified problems around the treatment of intermediate interests, with one warning that proposed simplifications ‘will likely result in a higher premium’.
Despite these challenges, there is broad consensus within ALEP that reform is both necessary and welcome – but only if it is done thoroughly and transparently, and in consultation with professionals. Several members recognised the need for further primary legislation, which accords with the government’s own objective of introducing a further Leasehold and Commonhold Bill, possibly in the autumn.
While there is no appetite among practitioners to turn back the clock on reform, we must avoid repeating past mistakes. The next stage – whether delivered by secondary legislation or a future Bill, both of which we anticipate – must be built on evidence, engagement and proper scrutiny. We will continue to support the development of a fairer and better functioning system for leaseholders and freeholders alike.
ALEP remains committed to supporting constructive dialogue between government, leaseholders, and professionals in this complex but critical area of property law.
