The Chancellor, Alistair Darling, has announced that legislation will be introduced in the Finance Bill 2009 which will amend the rules on Stamp Duty Land Tax (SDLT) relief for leasehold enfranchisement.

Leasehold Enfranchisement

The Leasehold Reform, Housing and Urban Development Act 1993 was introduced to give the leasehold owners of flats the right to come together to purchase the freehold of the block of flats in which their property is situated. Under the legislation, it was intended that the actual purchase of the freehold would be made by a nominated purchaser, which would typically be a company owned by the tenants participating in the enfranchisement and set up specifically to make the purchase. No provisions were made in the initial legislation for how the nominated purchaser company should be set up.

The law in this area was reformed by the Commonhold and Leasehold Reform Act 2002 which had the intention to help more leaseholders qualify for the right to enfranchisement. The Act provided that a claim for enfranchisement would have to be made by a “Right to Enfranchisement” (RTE) company, set up by the leaseholders.

However, whilst the Act set out the requirements for how an RTE company should be set up, the statutory provisions for RTE companies under the Commonhold and Leasehold Reform Act 2002  have never been brought into force. This has meant that whilst leaseholders have exercised their statutory rights to enfranchisement, they have not done so using an RTE company as defined by legislation.

The Current Position in respect of SDLT

At present, under the Finance Act 2003, relief from SDLT relief can be claimed for leasehold enfranchisement. However, the relief can only be claimed by an RTE company, as defined by the Commonhold and Leasehold Reform Act 2002. Since the statutory provisions for RTE companies under the Commonhold and Leasehold Reform Act 2002 have never been introduced, RTE companies have not technically been formed according to statute and it has not been possible to claim the relief.

This was tested in Elizabeth Court (Bournemouth) Ltd v Revenue and Customs Commissioners [2008] All ER (D) 188. A group of leaseholders set up a company to purchase the freehold of the block of flats and followed the requirements for an RTE company as set out in the Commonhold and Leasehold Reform Act 2002. They then claimed relief from SDLT under the Finance Act 2003. The House of Lords held that only an RTE Company as defined by the Commonhold and Leasehold Reform Act 2002 could claim relief and since the relevant provisions of that Act had not been given Royal Assent.

Reform by the Finance Bill 2009

It is proposed that the Finance Bill 2009 will reform the provisions for SDLT relief on leasehold enfranchisement by removing the reference to RTE companies. This will allow relief to be claimed by any nominee company acquiring the freehold of a block of flats on behalf of qualifying leaseholders.

This will allow the relief to be claimed as had originally been intended.

For further information please contact Ann Ebberson or the Partner with whom you usually deal.