In the Law Commission’s recent paper, Leasehold Enfranchisement: A summary of proposed solutions for leaseholders of houses, published as part of the Commission’s 13th programme of law reform, many suggestions were made for a radical overhaul of the current system in place allowing leaseholders of houses to extend their leases and buy their freeholds. Amongst the more intriguing suggestions put forward was the idea that the qualification criteria for buying your freehold will be drastically simplified to the point that we would no longer distinguish between a house and a flat, but would look for a ‘residential unit’.
At first blush, this seems like a great idea. When taken along with the proposals to eliminate two-year ownership periods and low rent tests, not to mention the eradication of reference to elusive rateable values, the proposed scheme throws the doors open to quite exciting possibilities. Those of us who practice in the field will no longer have to look to Hosebay, Lexgorge, and Jewelcraft when trying to convince landlords that they will be losing their freeholds. Depending on the extent of the definitions, mixed-use dwellings that include non-residential spaces such as artists’ studios will become easier to exercise rights over. Most excitingly, leaseholders on mixed estates of houses and flats could collectively buy the freehold of their buildings and grounds together without having to worry about their landlord retaining surrounding premises or keeping up with estate charges.
Some caution should be exercised, however, before we leap into this brave new world. It is not immediately clear, for example, how a joint definition of ‘residential unit’, applicable to both houses and flats, would work in practice. At present, a flat is a dwelling in a building separated by a horizontal divide (as defined in Section 101(1) of the Leasehold Reform, Housing and Urban Development Act 1993), whereas the definition of a house is a little more difficult to pin down. The Leasehold Reform Act 1967 tells us at Section 2(1) that a:
“…’house’ includes any building designed or adapted for living in and reasonably so called, notwithstanding that the building is not structurally detached, or was not or is not solely designed or adapted for living in, or is divided horizontally into flats or maisonettes....”
The triumvirate of cases mentioned above have given clarity to the definition so that we now know it will include the traditional standalone detached, semi-detached or terraced house as well as a dwelling above a commercial premises, but the body of case law on this point has produced some intriguing decisions.
This brings us to the rights of enfranchisement as they stand currently. Leaseholders of flats in a block who meet certain qualifying criteria are entitled to make a collective claim, providing they number 50% of flats in the building or more, from which they can compulsorily purchase the freehold of their building. Any flat-owners who do not participate will become the tenants of their neighbours (or their neighbours’ company, as is most likely). Leaseholders of houses, on the other hand, have an individual right to purchase the freehold of their own house after two years ownership, again providing they meet certain qualification criteria.
There would appear to be two hard problems to overcome with the concept of a ‘residential unit’ encompassing both flats and houses. First, there is presently no clear, statutory definition of a house under which we can be certain a claim to buy the freehold will qualify. Trying to include all residential leasehold dwellings in one category of ‘residential unit’ would involve jettisoning half-a-century of knotty case law on the topic and creating a codified definition of what exactly a house is.
Second, and following on from above, we have no concept of horizontal division of title in English law. Unless the government is planning on introducing strata title or its equivalent into its upcoming law reform in this area, it is difficult to see how the single definition of a ‘residential unit’ could exist without giving leaseholders of flats the right to buy the freehold of a single flat. This would be, in no uncertain terms, the single biggest reform in English property law for a century.
It would seem, therefore, that the concept of a ‘residential unit’ would be largely unworkable unless it was subject to two significant qualifications:
- A well-drafted statutory instrument giving clear guidance of when a dwelling will be considered a ‘residential unit’; and
- A distinction drawn between a standalone ‘residential unit’, which we would currently know as a ‘house’, and a ‘residential unit’ with other units above or below, which we would currently know as a flat.
Whilst some hard clarity on what we can and cannot call a house for these purposes would be very welcome, given that the purpose behind the reforms is to simplify the law in this field, the need for a distinction to be drawn between types of ‘residential unit’ would render it somewhat redundant.
Written by Associate Solicitor, Chris Last