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Mary-Anne Bowring: Law Commission’s leasehold proposals would harm landlords

Michael Lloyd

January 10, 2020

The Law Commission’s proposals for leasehold reform would be unpopular for landlords according to Mary-Anne Bowring, group managing director at residential property consultancy Ringley.

Bowring is also a member of the RICS Residential Working Group and consultant to Federation of Private Residents Associations.

She said: “Ultimately, any proposals that make leasehold extensions cheaper can devalue the asset which will be very unpopular amongst landlords.

“A leasehold is primarily like a contract, which could have been originally executed many years ago.

“What is being proposed are ‘cash and carry’ lease extensions, which would lead to fewer referrals to the over-worked first-tier tribunal.

“While the legislative change is not retrospective, it would have the retroactive effect of devaluing existing landlords’ interests that arise from the contract for the demise, or in other words the lease.

“All freehold reversionary properties are valued by chartered surveyors on the basis of the lease length and terms and as the RICS definition of ‘market value’ includes hope value in effect the valuation today includes the probability of some lease extension income.

“If this is to be curtailed in law, then the valuation effect is a reduction in the value of the landlord’s asset.

“So, while this proposed change does not alter the lease contract itself, it has two impacts: devaluation of the reversionary freehold interest and reduction in the premium payable to the landlord for each specific lease extension.

“While these reforms would save leaseholders money, the erosion of the benefits of being a freeholder would likely see an increase in non-professionally managed blocks, absentee freeholders and other court processes.

“However, there may be additional upsides for leaseholders by removing the ability of unscrupulous freeholders or their agents to put pressure on leaseholders by refusing to negotiate until the eleventh hour in order to extract more money than would be reasonably expected.”

 


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