Is Law Commission wobbly over 25% commercial exclusion to collective enfranchisement? (Let’s hope so)

If you have strong views – we have! – over the 25% commercial exclusion to collective enfranchisement on mixed use sites, the Law Commission wants to hear from you.

This point could not have been more forcibly made by Law Commissioner Nicholas Hopkins at the LKP-organised meeting last Saturday at the Law Society, in central London.

The 25% commercial property in a block stops leaseholders taking control of their sites, and is a major frustration in prime London blocks.

Two prime sites in Canary Wharf – West India Quay and Canary Riverside – have been in near continuous battle with their freeholder, Monaco-based, self-proclaimed property billionaire John Christodoulou.

Mr Christodoulou has been named in the Commons:

Billionaire John Christodoulou and his lawyer David Marsden accused of ‘little short of harassment’ of court-appointed managing agent

Both sites are stuck and unable to enfranchise because of the 25% rule.

“Our provisional view is to retain the 25% rule,” said Professor Hopkins. “But if you feel strongly about this issue please tell us.”

This was the repeated mantra of the meeting: the Law Commission wants to hear from leaseholders, even if you only answer one of the consultation questions and are enmired in other leasehold issues. After all, enfranchisement is the golden key to get tiresome and pointless third-party freeholders out of your lives.

Developers have, of course, long built at just over 25% commercial specifically to exclude the enfranchisement rights of leaseholders.

But there is no reason why leaseholders should not run their blocks with a headlease created for the commercial leases retained by the landlord.

Indeed, “lease back” is being considered as a recommendation by the Law Commission, although as a means by which leaseholders lease back part of the building to the former freehold owner in order to mitigate the costs of the process. In short, the freeholder becomes a minority shareholder.

The LKP meeting of around 50 on a Saturday afternoon was small in number, but high in calibre: many being highly motivated.

The Law Commission explained its ambitions to harmonise enfranchisement of leasehold houses and flats (covered differently in the 1967 and 1993 Acts); introduce the “right to participate” in existing enfranchised sites; and cut out the nonsense in enfranchisement.

“We want to take out the tactical gaming: when a claim to enfranchise is made by leaseholders, is likely to be agreed and then everything falls through at the last minute,” said Professor Hopkins.

“We believe that an enfranchisement claim should be made on a prescribed form, perhaps on line, in a simplified procedure.”

The Law Commission also wants to keep enfranchisement issues in the property tribunal, without involving other courts and racked up costs.

In calculating the costs of enfranchisement, it appears the Law Commission is favouring the current process, rather than simple valuations of ground rent.

Some properties that are high value have low ground rents, while newer, more modest leasehold properties have high ground rents as developers have reaped this form of payola (with Help To Buy assistance and not quite believing their luck).

The Law Commission appears to be favouring the criteria that go into there current price of an enfranchisement, but reform the methodology.

One suggestion is to cap ground rent multiples at only one review: ie with doubling ground rents, after only one doubling rather than the five or so which have been sneaked into recent leases in the doubling ground rent scandal.

For some reason, not quite understood by simpler minds here, this does not infringe their human rights while a fixed multiple of say 10x annual ground rent a-la-Justin-Madders-MP does, indeed, cause violation of Human Rights, even in entities where rich private equity speculators are hiding their punt in people’s homes behind nominee directors.

Perhaps, there are Human Rights abuses of greater consequence, such as this for example:

China’s hidden camps

China is accused of locking up hundreds of thousands of Muslims without trial in its western region of Xinjiang. The government denies the claims, saying people willingly attend special “vocational schools” which combat “terrorism and religious extremism”. Now a BBC investigation has found important new evidence of the reality.

The leaseholders offered interesting contributions:

Leaseholder 1: My freehold was sold on through a company structure, so we did not have the right of first refusal to buy the freehold.

Leaseholder 2: “Over 30 years my freeholder has tried to trap me many times. Caveat emptor should not apply to property. Our homes should not be someone else’s financial investment, loading misery on us to get the best return.

“Freeholders always ALWAYS find loopholes in the laws and exploit the naivety of leaseholders, or divisions. My life has been blighted by efforts to entrap me.”

Leaseholder 3: Lived in a complex, upmarket mixed use site, where the offshore freeholder has been subsidising his commercial tenants – ie the residents paid for the electricity usage of a five-star hotel out of inflated service charges.

“We are hearing a lot of similar stories about mixed use sites,” replied Professor Hopkins.

Leaseholder 4: The property tribunal is not working properly and appears not to be accountable to anyone.

Leaseholder 5: Shared ownership leaseholder asked whether they could be included in enfranchisement: this is not entirely logical, but asked a lot by those keen to be shot of their housing association freeholder and management: when the two are one and the same, the potential for abusive management is great.

Leaseholder 6: Retirement flats should not be excluded from the ban on ground rents which are for no defined service whatsoever. A good point, but not one covered by the Law Commission reforming enfranchisement.

Leaseholder 7: What about my human rights? Leaseholder is a ten-year doubling ground rent victim who was told he could buy the freehold for £5,800. It was sold to a ground rent speculator (Adriatic Land), and the cost is now five times this price. Why? And why did taxpayers help me “buy” my home – in fact, a leasehold tenancy?

Leaseholder 8: “I own a leasehold flat in London and a strata title in Australia. My God what a difference! Leasehold is living hell compared with strata.”

The meeting was also addressed by barrister Amanda Gourlay, addressing costs in the tribunal, and Professor Susan Bright, discussing legal options for leaseholders facing cladding bills.

The Law Commissions presentation slides can be see here
181102 – slides for leaseholder events – final version (no notes)

Amanda Gourlay’s presentation slides can be see here
Amanda Gourlay, NLC LKP event, 10 Nov 18, final

Professor Bright’s presentation slides can be see here
private blocks LKP event 10Nov2018