THE COMMONHOLD AND LEASEHOLD REFORM BILL

FACT SHEET No 4 – LEASE RENEWALS FOR FLATS

The right for leaseholders of flats to acquire a new lease, which adds 90 years to the term remaining on the original lease, is an individual right. It provides a useful alternative to the right of collective enfranchisement in cases where (for example) there are insufficient qualifying tenants in the block or there is insufficient support for enfranchisement. In such circumstances, this right is the only available answer to the problem that the lease is a wasting asset.

Existing Regime

The Government believes that the current rules for acquiring a new lease are too restrictive. For example, to qualify for the right to buy a new lease a leaseholder has to have occupied their flat as their only or main home for the last three years, or periods that add up to three years in the last ten. This contrasts with the current residency rule for collective enfranchisement, which is that the flat has only to be occupied for one year or three years in the last ten. The rules for acquiring a new lease exclude from the right, for example, those who occupy a flat as a second home or who sub-let their flat.

In addition, personal representatives of deceased leaseholders who take over responsibility for leasehold flats with a short remaining term are often placed in a difficult position. They are unable to sell the flat (or at least, get a reasonable price for it) and are unable to qualify for a new lease because of the residence test. This provides an opportunity for landlords to demand an unreasonable price for renewal or extension of the term.

Revised Regime

The Commonhold and Leasehold Reform Bill will amend the rules for leaseholders of flats who wish to renew their leases under the statutory provisions of the Leasehold Reform, Housing and Urban Development Act 1993. The Bill:

Removes the low rent test where it applies;

Abolish the residence test, which would benefit leaseholders who occupy their flat as a second home or sub-let it. However, Ministers are concerned to prevent the possibility of short-term windfall gains for speculators. The Government therefore intends that a tenant should be a long leaseholder for a period of two years before being able to exercise the right;

Provides that any marriage value be shared equally between landlord and leaseholder; and to presume that there is no marriage value where the existing lease has more than 80 years to run;

Helps representatives of deceased leaseholders by allowing them to qualify for the right where the deceased qualified immediately before they died. The right would be exercisable for a period of 6 months starting from the date of the grant of probate or letters of administration.