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The Leasehold and Freehold Reform Bill Beyond the Headlines: Significant adjustments in legal costs

by | May 13, 2024

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Written by Shabnam Ali-Khan – Partner at Russell-Cooke and a member of the Association of Leasehold Enfranchisement Practitioners (ALEP) 

The Leasehold and Freehold Reform Bill is currently working its way through Parliament. It is proposing some radical leasehold reforms heavily in the leaseholder’s favour. These include significant changes to the landlord’s ability to recover costs when leaseholders exercise their legal rights to enfranchise or extend their leases for flats and houses. 

Leasehold Reform Act 1967 governs the rights of qualifying tenants to acquire the freehold or a 50 year lease extension of their property. But currently under Section 9 of the Act the landlord is entitled to recover their reasonable costs in relation to most aspects of the claim including investigating the right to acquire or extend as well as the conveyancing and the valuation costs. 

 
 

However, the proposed legislation (specifically the revisions to Section 19 of the 1967 Act as detailed under Section 37 of the Bill) seeks to significantly limit the landlord’s ability to recover its costs. 

So what does this mean for the future and for practitioners? Proposing such stringent costs measures will have a huge impact on practitioners when acting for landlords. It is not unlikely that many law firms will opt to use AI and junior lawyers to help with these matters when acting for landlords in an effort to keep costs down. On the face of it this is not an issue as AI is already proving to be a useful way to streamline processes. However, AI is not perfect and there is a risk that things could go wrong. For example, I have submitted questions to Chat GPT and it has referred to the wrong legislation and provided me with an incorrect answer as a result. Surely this means practitioners will need to be checking and reviewing all correspondence to mitigate any potential errors. The same would apply when having junior staff dealing with these matters. Moreover this may result in extra pressure being placed on support staff and their role as part of these matters. We could see a rise in negligence claims which will have a knock on effect on indemnity insurance. 

There is a further concern in that landlords may decide to instruct cheaper law firms who may not necessarily have the requisite experience in dealing with these types of claims. This is a niche field and it is important that landlords instruct competent and experienced legal advisers as well as valuers when seeking assistance. We may see the rise of one stop shops operating on a fixed fee basis. It is hard to deal with these types of matters on a fixed fee basis particularly where matters become protracted or there are technical points to consider. 

 

Whether these proposals come into force is another story. At the time of writing these has been media speculation that the proposed ground rent caps have already been diluted following challenges from pension and investment managers who will lose out. We may see a cap to £250 being offered as a compromise. The new Bill has sparked controversy over potential human rights challenges concerning the proposed valuation reforms. There will no doubt be fierce challenges over the proposed squeeze on landlords’ costs. The pendulum is certainly moving in the leaseholders’ favour. But is this a move too far?

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