Retail Compass Summer edition 2019

Law Commission to propose changes to enfranchisement

Published on 04 July 2019

On 7 January 2019 the Law Commission closed its consultation on its proposals for the reform of the tenant rights of leasehold enfranchisement. It intends to publish its final report and recommendations later this year.

What is happening?

Enfranchisement rights allow for tenants with long leaseholds in residential properties to extend their leases or acquire the freeholds to their houses, flats or buildings, either individually or as part of a group of tenants.

Currently this is a very costly and administratively burdensome process. The objective of the proposals is to make it cheaper for tenants to bring a claim and to make such claims quicker, easier and more likely to succeed.

Why does it matter?

Making the enfranchisement process more accessible to tenants will have a significant impact on retailers and landlords in mixed use schemes.

Some of the proposed changes include:

  • introducing a new, single enfranchisement regime to replace the two existing regimes for leasehold owners of flats and houses,
  • introducing standard forms for making and responding to claims,
  • broadening the rules around effective service of notices in order to prevent landlords from deeming them to have been improperly served,
  • removing barriers to enfranchisement such as the “low rent” test and the requirement for at least two years of leasehold ownership, and
  • creating rights for “estate enfranchisement” to allow leaseholders in a single block of flats that forms part of an estate to acquire the freehold of the entire estate.

Retailers in mixed use buildings will be wary of increasing attempts by inexperienced residential tenants to exercise their rights of enfranchisement, resulting in them acquiring the freehold interest in retailers’ properties.

There may well also be a shift to more commercial use in mixed use schemes as a result of the extension of the existing limit on commercial use. The reform will extend the application of the limit of 25% to all claims brought by tenants rather than to collective claims by multiple tenants alone.

The Law Commission will issue its final report on these proposals later this year, following which the Government will decide whether or not to implement them into law. It is not certain as to exactly what changes will be made. It is likely that we will see a simplification of the law in this area in favour of residential tenants with an increasing number of them seeking to acquire the freehold interests in retailers’ properties.

What action should you take?

  1. Take note and consider the growing risks posed by owning or occupying premises shared with residential tenants.