Law Commission recommends exemptions for CLH developments from freehold acquisition claims.
The Law Commission recently published this report on leasehold enfranchisement, in which they recommend that there should be an exemption available from freehold acquisition (or 'leasehold enfranchisement') claims for CLH developments. We have been working with the Law Commission to persuade them of this for several months and are delighted with the news.
What does this mean?
Leasehold enfranchisement is a right enjoyed by long leaseholders, which gives them the ability to force the owner of their freehold to sell it to them. For community-led housing ("CLH") groups, this could be very disruptive and even lead to the breakdown of a community. It potentially means a long leaseholder could force a cohousing group or community land trust to sell them the freehold of their property. You can see an earlier article we wrote about this here.
Why do community-led housing groups use leasehold structures?
The leasehold structure is used by CLH groups for lots of good reasons: the lease sets out the rights and obligations of both the leaseholder and the freeholder and it is generally easier to enforce than in a freehold structure.
For cohousing groups, it means that residents are bound into the community structure and ethos, with obligations to look after common areas and (in some cases) to have to seek approval from the community before selling their property on. For community land trusts, it offers a way to build in obligations which help ensure the properties remain affordable in the long term.
Many CLH residents already having a voice in how their homes are managed, as members of the organisation which owns their freehold (i.e. the cohousing group or CLT). As members of this organisation, they would also usually have an ownership stake in the freehold already.
For these reasons, we have been working with the Law Commission for the last couple of years to persuade them that CLH groups should be exempt from the right to enfranchise.
Latest (good!) news from the Law Commission
The Law Commission issued their report to Parliament this week, in which they recommend that there should be an exemption available from freehold acquisition claims for CLH developments. This is on the basis that such claims would "pose a threat to the integrity of CLH developments". In coming to their recommendations, the Law Commission welcomed Wrigleys' knowledge and experience.
How will the exemption work?
The report proposes that the exemption should not apply automatically to all CLH developments. Instead, each CLH group will have to decide whether to claim the exemption for each development, depending on their objectives and the local circumstances. Individual CLH groups would then have to apply to the First-Tier Tribunal (in England) for a declaration that the development in question will be exempt. We are concerned that this could be an administrative burden for CLH groups and will be interested to see more details about what this process entails.
Is there a legal definition of CLH in sight?
It is not always obvious that a housing development is community-led and we agree with the Law Commission's call for a statutory definition of community-led housing. We have been working with the Ministry of Housing, Communities and Local Government on developing this statutory definition and eagerly await the final result.
The benefit of having a statutory definition would be to bring certainty to the sector, and we would hope it could then be used for future exemptions from legislation which causes some CLH groups particular difficulties, such as the SDLT double charge and the annual tax on enveloped dwellings (see here).
If CLH is recognised as a separate legal term, then it becomes much easier to plead the cause when CLH groups are adversely affected by laws aimed at commercial companies or to help individuals with no control over management of their homes. This could be a real break-through moment for the sector.
Originally published 27 July 2020.
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