Professor Nick Hopkins, and research assistants Chris Pulman, Rachel Preston and Thomas Nicholls, highlight the property law coming under review by the Law Commission as part of its 13th Programme of Law Reform
On 14 December 2017, the Law Commission published its 13th Programme of Law Reform. Fourteen new areas of law – selected from the ideas proposed by more than 1,300 responses to our open public consultation – will be scrutinised, with the aim of making the law simple, modern and fair.
The projects selected for the 13th Programme are designed to address a wide range of issues. Broadly, the programme aims to:
- boost Global Britain and help enhance the UK’s competitiveness as we leave the EU – smart contracts; electronic signatures; automated vehicles; intermediated securities; and modernising trust law
- improve the way in which the law works for the citizen or businesses – surrogacy; residential leasehold; disposing of the dead; simplifying the Immigration Rules; employment law hearing structures; administrative review; museum collections; and liability for chancel repair.
It is a broad programme, as you can see. In this article, we provide an overview of our work on three areas of particular interest to property lawyers: leasehold enfranchisement and commonhold; chancel repair liability; and trusts law.
It is estimated that there are at least four million leasehold properties in England alone. However, we have been told that the law which applies to leasehold is far from satisfactory.
The UK government has said that leasehold has ‘far too many problems including disproportionate costs to extend leases, poor value property management, and a slow and costly sales process’. The Welsh government has also noted ‘widespread criticism of poor practice in the use of leasehold’.
Furthermore, respondents to the 13th Programme consultation also drew our attention to numerous problems.
As a result, we’ve been tasked with two law reform projects: examining the enfranchisement of residential leases; and the reform of commonhold. We discuss each part of the project below.
Enfranchisement law is spread out in numerous acts, from 1967 to the present, and has been accused of being unduly complex, inconsistent and expensive.
The aim of our project is to review the enfranchisement process to make it simpler, easier, quicker and more cost-effective, and to examine the options to reduce the price payable by leaseholders to enfranchise. This project will have a substantive impact for millions of leaseholders around the country, as well as for other interested persons such as mortgage-lenders and landlords.
‘[Leasehold has] far too many problems including disproportionate costs to extend leases, poor value property management, and a slow and costly sales process’
We will be looking at enfranchisement through three lenses, asking the questions ‘who’, ‘how’, and ‘how much’?
First, who can enfranchise? The criteria which a tenant must satisfy in order to qualify for enfranchisement rights are arguably outdated and difficult to apply. Particular problems arise, for example, over how to treat tenants who use their properties for mixed business and residential use.
Second, how might a tenant enfranchise? This question encompasses the procedural elements of starting a claim, and the associated questions of how and in what form tenants and landlords should serve their notices and counter-notices. We will also consider how disputes might be effectively dealt with by courts and tribunals, and how conveyancing can be made as efficient as possible.
Third, how much should enfranchisement cost? As well as aiming to reduce the overall costs to all parties of the enfranchisement process, we will be considering the actual price that the tenant must pay for the freehold or new lease. With regard to that purchase price, we will provide the government with options for reform. We will publish solutions for residential houses before Summer recess, and a consultation paper in September.
Commonhold is a form of ownership allowing a person to own the freehold of a flat and become a member of a commonhold association managing the communal areas of the building. It has a number of apparent advantages over leasehold, including freehold ownership which, unlike leasehold ownership, does not depreciate in value as the remaining term becomes shorter. It also has standardised rules and regulations which should make conveyancing easier and quicker.
However, property lawyers and academics joke that there are more books on commonhold than commonholds in existence: despite commonhold being introduced in 2004 (when legislation enacted in 2002 came into force), only 16 commonholds have ever been created.
The purpose of our work on commonhold is to establish why there are so few commonholds and, where necessary, to propose reforms to make commonhold a viable alternative to leasehold for both homeowners and the wider property sector. Our work so far has raised a number of issues for consideration, including:
- whether converting to commonhold should be possible without the consent of all of the existing leaseholders with the relevant building;
- if unanimous consent should not be required, what property rights those who refused consent should have
- whether the introduction of layered umbrella / sub-commonholds might make commonhold more suitable for complex mixed-use developments
- how the insolvency of a commonhold association should be addressed.
In February, we published a call for evidence on commonhold, which closed on 19 April. Responses to the call for evidence will greatly inform our commonhold consultation paper, which we will publish later this year.
Chancel repair liability
Chancel repair liability is an obligation to repair the chancel of the local church if required to do so. The obligation attaches to an estate rather than to a particular landowner; if the estate is sold, the liability may move with the estate and bind the new owner. Furthermore, as the obligation is legal rather than equitable, it may be binding regardless of whether the new owner knew or had any way of discovering about the liability.
Chancel repair liability is a historical hangover from the transfer of church land into private hands during the dissolution of the monasteries. In 1985, we recommended its outright abolition, but the recommendation was not taken up.
We will seek to create a legal framework to bring the law regulating the disposal of bodies into line with modern practices
The Land Registration Act 2002 (LRA 2002) (produced through a joint project between the Law Commission and HM Land Registry) sought to limit the extent to which a purchaser of a registered estate could find themselves unexpectedly bound by a chancel repair liability. The act contained a ‘sunset’ provision which provided that, from 13 October 2013 (10 years after the act came into force), chancel repair liability would cease to be an overriding interest. The intention was to ensure that chancel repair liability would only bind on a disposition of the registered estate if it was protected on the register by a notice.
However, the LRA 2002 assumed that chancel repair liability is a type of property right. It has been suggested that chancel repair liability is not in fact a property right, but an interest more akin to council tax liability. If this suggestion is correct, it is unclear whether a chancel repair liability can be caught by the LRA 2002 at all. The consequence would be that purchasers may continue to be bound by chancel repair liabilities that are not noted on the register. Indeed, it remains standard practice for conveyancers to carry out chancel repair liability searches and/or to insure against the risk of liability at the purchaser’s expense.
Our project, which is to be commenced when time and resources allow, would aim to close this loophole and so achieve what was intended to be achieved by the LRA 2002.
The general law of trusts has not been comprehensively reviewed since 1925. In contrast, many other jurisdictions, both ‘onshore’ and ‘offshore’ – including Scotland, Jersey, New Zealand and Singapore – have updated their trust law, and been creative in maintaining a healthy trust market. Our 13th Programme consultees raised a broad range of concerns about the law of trusts, which have led us to consider that an initial scoping project is desirable. The project will be undertaken as and when resources allow. A reform project reviewing the law of trusts would consider an outdated area of the law, with a view to modernising trust law to enhance the competitiveness of this jurisdiction’s trusts services in a global market.
As well as problems with the existing law, consultees have outlined the development of alternative, flexible trust and trust-like structures in other jurisdictions, that are not available in England and Wales, such as Jersey foundations and Cayman star trusts. Not all of these structures may be suitable for this jurisdiction, but there is a strong argument that their advantages and disadvantages should be evaluated.
In addition to the three projects discussed above, two further 13th Programme projects are expected to be of interest to property lawyers.
First, our project on disposal of the dead will seek to create a legal framework to bring the law regulating the disposal of bodies into line with modern practices. As part of our project, we will also be examining the rights to possession that executors or next of kin have in relation to dead bodies (including ashes), and how the law can provide greater certainty that a person’s wishes in respect of what happens to their body following death are respected, while also ensuring that the public interest in this sensitive area of law is properly respected.
Second, our project on museums will consider the problems that arise where the legal title to objects in a museum’s collection is uncertain, or where the owners are unknown or cannot be traced. These problems can arise where records of an acquisition are poor or non-existent, from a time when record-keeping did not meet modern standards. A museum may be unable to continue to display or store the object, but may face a claim in conversion if the object should be sold. The project will also consider the position of local authorities which are responsible for running museums, which face difficulties due to a lack of clarity as to how – at law – such items are held and when they can legitimately (and ethically) be disposed of. Finally, the project will consider the position of certain national museums which require the secretary of state’s consent to a disposal. We intend to review these problems with a view to providing clear legal rules as to how museums may hold and deal with objects in their collections.
Finally, our 12th Programme project on reforming the LRA 2002 is still ongoing but is nearing completion. We plan to publish our report and draft bill in July.
As you can see, property law is high on the agenda for the Law Commission over the next few years. We will be actively seeking the advice and expertise of lawyers in the sector, and would encourage you to engage with our work in these areas.