Its report, Reforming valuation in leasehold enfranchisement, published this week, follows a consultation with leaseholders, landlords and investors. It sets out three options to make it cheaper for homeowners to buy their freehold or extend their lease―a process known as enfranchisement. Each option uses a different method to calculate the value of the leasehold and therefore the premium the occupant should pay.
The elements of an enfranchisement premium are the term (value of ground rent over the remaining years of the lease), the reversion (value for the landlord of getting the property back at the end of the lease), the marriage value (extra value gained when landlord’s and leaseholder’s interests are joined) and the hope value (a slice of the marriage value).
The three options for calculating the premium are: term and reversion (marriage value is ignored); term, reversion and hope value; and term, reversion and marriage value.
The Commission also suggests a range of other reforms, including: prescribing the rates used in calculating the price, to eliminate a potential source of argument; helping leaseholders with onerous ground rents by capping the level used to calculate the price; creating an online calculator; and enabling groups of leaseholders collectively enfranchising a block of flats to avoid paying development value unless development has been undertaken.
Professor Nicholas Hopkins, Property Law Commissioner, said: ‘We were asked to provide options for reform that save leaseholders money when buying their freehold or extending their lease, while ensuring that sufficient compensation is paid to landlords. This is what we’ve done.’
