Enfranchisement reform - implications for community-led housing
We look at the impact of proposed changes to enfranchisement law – community-led housing (CLH) groups should respond before 7 January 2019.
What is leasehold enfranchisement?
The Law Commission has published a consultation paper on reforming leasehold enfranchisement. Enfranchisement is the process by which the owner of a property on a long lease can apply to extend the lease or buy the freehold. It applies to both flats and houses.
Enfranchisement offers owners of leasehold properties the chance to increase the security their home offers, either by extending the number of years left on their lease or by buying the freehold. If CLH groups are set up with a leasehold structure and one of their tenants buys the freehold of their home, it can have adverse effects on the CLH community.
Effect on community-led housing groups
Most CLH members are unlikely to want to buy the freehold of their home - the original members usually want the community to remain intact for generations and, generally, are not going to undermine that intention by enfranchising. However, people who inherit a property when a member dies may not be so community-minded; banks who enforce their security certainly will not be! In such circumstances, enfranchisement can become a real possibility if it is likely to increase the value of the home or make it more attractive to sell to a third party.
For CLH groups who chose a leasehold ownership structure, the lease itself works with the group's constitution to bind the members. Often the lease contains important provisions, known as covenants, which bind the community and ensure that all residents contribute towards maintenance costs and conform to certain fundamentals of behaviour. The lease will govern who can buy it and could also contain covenants to ensure perpetual affordability or to ensure a proportion of any increase in equity is transferred back to the group on sale.
Opportunity to make your voice heard
The Law Commission is looking to reform the law on enfranchisement and now is a key time to push for an exemption for community-led housing groups. You can read the full consultation paper here or view a shorter summary here. The Law Commission have asked for comments which can be emailed to email@example.com
We set out some proposed wording below:
Consultation question 66:
Yes, there should be a new exemption from enfranchisement rights for community land trusts and other forms of community-led housing.
1) The housing models to which the exemption should apply:
Community-led housing is a flexible concept and can be hard to define. We are aware that the National CLT Network and the UK Cohousing Network have put a lot of work into trying to define community-led housing and we would urge the Law Commission to consult with those bodies, if they have not already done so. (Tom Chance of the National CLT Network and Stephen Hill of the UK Cohousing Network are good contacts).
We think whatever definition is used should be consistent with the exemption that has been proposed (assuming that an exemption is adopted) in the recent consultation on a ban on new leaseholds (see paragraph 2.28 of the government's consultation paper).
However, if that is not possible we would suggest that any definition of community-led housing should be based on the principles of the group being not for material private profit (if it were entirely not for profit, it could prevent the generation of any income to cover expenses!) and being established for the benefit of a community
We think it would be helpful if a non-exhaustive list of the already established forms of community-led housing bodies is expressly included in any exemption, for example:
- Community land trusts (defined in section 79 of the Housing and Regeneration Act 2008) who provide housing.
- Registered societies (defined in section 1 of the Co-operative and Community Benefit Societies Act 2014) who provide housing. This includes co-operative societies and community benefit societies, both of which are popular choices for community-led housing groups.
- Co-operative housing associations (defined in section 2 of the Housing Associations Act 1985). By their nature, co-operative housing associations provide housing.
- Fully mutual housing associations (defined in section 1 Housing Associations Act 1985). This would not necessarily cover all co-housing groups but we feel it would cover most co-housing groups. By their nature, fully mutual housing associations provide housing.
- Community interest companies (being a company complying with Part 2 of the Companies (Audit, Investigations and Community Enterprise) Act 2004) who provide housing.
- Charities (defined in section 1 of the Charities Act 2011) who provide housing.
2) The way in which the exemption should work, and the circumstances in which it would apply:
We agree with the suggestion in paragraph 9.72 of the consultation paper that CLTs should be required to make an express decision. We think this suggestion should be extended to all those who are exempt and that all relevant landlords and tenants should be required to make such an express decision. We believe that this could be done by way of a clause in the lease which would document the decision to make the exemption. Perhaps there could be an exchange of notices along the lines of those prescribed in section 38A of the Landlord and Tenant Act 1954? This is a procedure that is familiar to the property industry and so should be a relatively straightforward process to implement.
3) The enfranchisement rights which should fall within the exemption:
The right of a tenant to acquire the freehold of their lease.
The closing date for responses is 7 January 2019 and we would urge you to submit your response before the New Year to avoid last minute delays.
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