Property law is a complicated subject, covering everything from leaseholds and mortgages to divorce settlements and tenants. Mark Chick, Partner, Bishop & Sewell, Head of Landlord and Tenant explains some of the complexities
What legal changes can we expect from the Leasehold and Freehold Reform Bill?
The Leasehold and Freehold Reform Bill was introduced to parliament in November 2023. The Bill is making quick progress through the legislative process, signalling this government’s commitment and intentions. At the time of writing (January 2024) it remains to be seen what (if anything) will be enacted before the general election expected this year, nor what approach a potential labour government may take.
For freeholders, the overall impact of the reforms will reduce both income and capital value where reversions are subject to marriage value, which might be open to a Human Rights challenge.
The government has indicated that it “would not expect to compensate freeholders for lost revenue, nor do we expect freeholders would be able to capitalise this lost income stream through other means” (i.e. service charge).
However, this is a key area of concern for freeholders and institutional investors, and these considerations may impact on the final content of the Bill. In setting out the options for reform, the Law Commission was cautious about how any valuation reform would be compatible with Article 1 Protocol 1 of the First Protocol to the European Convention on Human Rights (ECHR), which provides for the peaceful enjoyment of property.
The sums in question might prompt some stakeholders to consider challenging the proposed constraints on ground rents in existing leases, including challenges under Human Rights law. The Residential Freehold Association has said pension holders, charities and other institutions that receive ground rent income from their investments in freeholds would seek compensation from the Government.
Should I extend my lease now or wait for reform?
The facts are specific to each case, so it’s difficult to give general advice. Obtaining specific legal advice about the particularities of your case is essential when planning your next steps. Of course, leaseholders with a pressing need to enfranchise can choose to wait and see when the reforms take effect, but they should be clear that they do so at their own risk.
Given that collective enfranchisement claims can also take upwards of 12 months to arrange, leaseholders in this position who would be able to exercise the right thanks to the proposed legislation may want to start getting their ‘ducks in a row’ in order to be able to swiftly move forward with completing their claim once the new thresholds become law.
What is involved in conveyancing and why do I need legal help to carry it out?
Conveyancing is the process involved when legal ownership of a property is transferred from the seller to the buyer. It can start when your offer is accepted, up until after the sale is completed.
The conveyancing solicitor will investigate the legal title, draft contract packs, carry out ID checks and necessary searches and produce property reports. Most lenders will require the buyer to appoint a solicitor if they are taking out a mortgage on the property. For cash buyers, it is possible to do the conveyancing yourself, however, the complexity and inherent risks of the conveyancing process should not be underestimated and legal advice is highly advisable.
What are the major legal issues facing buyers and sellers of residential property?
There are a great many issues that can crop up to derail a residential property transaction. For example, property searches or surveys may show up something that makes the potential buyer pull out of the deal or reconsider the purchase price. Until contracts have been exchanged, either party can walk away at any time, and in some cases the seller may accept a higher offer from another buyer during the process (gazumping) or, in some instances, the buyer may decide to try to renegotiate for a lower price (gazundering). However, once contracts have been exchanged people cannot pull out of the sale without a financial penalty.
What are the major legal issues that could arise between freeholders and leaseholders?
Common disputes between freeholders and leaseholders (also known as landlords and tenants) include service charge disputes, forfeiture, recovery of ground rent, enforcement of lease covenants and breach of lease disputes. There can be disagreements about the extent of the property owned or who has the responsibility to repair certain items. It is therefore critical to have the right advice when reviewing the lease and deciding to purchase and to carry out due diligence on the freeholder and its managing agent to see what sort of reputation they have. The answers to a few short questions before purchase can save a lot a time, trouble, effort (and money!) later on.
How can bridging finance help me with a property purchase and what are the pitfalls to avoid?
A bridging loan is a short-term loan (usually 12 months or less) that can be used by individuals for any purpose until permanent funding becomes available, or they sell a property. It provides borrowers with quick access to cash which they may have been unable to secure elsewhere within a short period of time. Bridging loans are secured against collateral, such as a property.
When you secure a loan against your property, you are taking a risk. Bridging loans often have high interest rates, so there is the risk of falling into payment arrears or breaching the lender’s terms. You must consider all options before taking the loan.
Has the ‘no-fault’ divorce made the process easier?
No fault divorce (which came into effect in April 2022) makes it simpler and less traumatic for couples to go their separate ways, enabling couples to end a marriage with a statement of irretrievable breakdown rather than assigning blame. An online divorce portal was also launched to help reduce costs. However, claims over finances still need to be settled by a financial order approved by a court, and for those opting to take a DIY approach to divorce, there is a clear risk that they lack knowledge and specialist advice to protect themselves from exploitation. Removing the potential for unnecessary conflict can make it easier for couples to work together on issues such as the division of finances and arrangements for children. However, while the legal process has changed, this does not change the requirement for good legal advice.
Could Bishop & Sewell take over a case from an existing lawyer?
If you have lost faith or confidence in your lawyer to represent you, you have the right to change counsel. However, you should bear in mind that you may need to pay the initial lawyer for any work they have done already, and that the new lawyer will need to get up to speed on the case which may also cost you some more time and/or money. As such, switching legal firm is often a last resort when things between you and your current legal team just can’t be resolved.
What’s the story behind Bishop & Sewell?
Bishop & Sewell was established in 1979 and was originally known for its strong property and commercial reputation. Since then, it has steadily expanded into a full-service firm, covering Residential & Commercial Property, Private Client, Corporate & Commercial, Employment, Family & Divorce, and Dispute Resolution. The firm acts regularly for entrepreneurs, businesses and families and prides itself on providing beautifully straightforward legal advice.
Where can I find out more about Bishop and Sewell?
You can keep up to date with all Leasehold Reform news via our Landlord & Tenant pages :
You can visit our website for information about our services and staff members, https://www.bishopandsewell.co.uk/
You can also read reviews in independent legal guides, such as the Legal 500: https://www.legal500.com/firms/350-bishop-sewell-llp/4225-london-england/
Email Mark chick at leasehold@bishopandsewell.co.uk
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