Residential Property - Leasehold reform legislation

Question 1

How many primary statutes are that govern leasehold
reform and when were they issued?

Answer 1

There are two primary statutes that govern leasehold
reform.

They are the

Leasehold Reform Act 1967 (the
1967 Act)

and the

Leasehold Reform, Housing and Urban Development Act 1993 (the 1993 Act).

The provisions cover:

• the 1967 Act – enfranchisement and extended leases for houses

and

• the 1993 Act – collective enfranchisement (blocks of
  flats) and new leases for flats.

Question 2

Is the exercise of enfranchisement and the right to a new lease a form of COMPULSORY PURCHASE?

Answer 2

yes

Question 3

What are the 3 main areas that enfranchisement covers?

Answer 3

• houses: enfranchisement and an extended lease
• flats: collective enfranchisement and
• flats: a new lease

Question 4

What is included in the enfranchisement price?

Answer 4

• compensation to the freeholder (or landlord) and to any intermediate leaseholder for their loss (or diminution) in
  the value of their interest
• a 50% share of the marriage value (if applicable)
• compensation payable for the landlord’s other losses (if applicable).

Question 5

What type of properties applied for 1967 Act?

Answer 5

When originally enacted the 1967 Act applied to ‘lower’ value houses and gave tenants the right to take either an extended lease or to enfranchise (buy their freehold interest).

Question 6

What is the principle behind the valuation for enfranchisement?

Answer 6

The principle behind the basis of valuation (section 9(1)) was that the land (the site) belonged to the freeholder, and the building (the house) belonged to the tenant.

Question 7

What are the 5 areas of valuation for the 1967 Act

Answer 7

Following the subsequent amendments there are five areas of valuation:

1. the extended lease (at a modern ground rent)
2. section 9(1) (no marriage value payable)
3. section 9(1A) (marriage value payable)
4. section 9(1C) (like 9(1A) with compensation)
5. section 9(1AA) (vacant possession value, subject to
   assumptions).

Question 8

Explain the extended lease principle.

Answer 8

The right to an extended lease is rarely exercised, but its provisions need to be understood as it is fundamental to the section 9(1) basis of valuation. The extended lease
is for a term of a further 50 years from the original term
date, at a rent assessed in accordance with section 15,
called a ‘modern ground rent’. The modern ground rent
can be extremely onerous on the tenant. There is provision
for a review after 25 years. The modern ground rent is
effective from the start of the new term and is the rent for
the site. It is established by applying an appropriate yield
to decapitalise the ‘site value’. There are three methods of
establishing site value:
* the ‘cleared site’ approach
* the ‘standing house’ approach and
* the ‘new for old’ approach.