A solution to leasehold forfeiture

This is not the *only* solution to the issue of leasehold forfeiture in England, but it is *a* solution:

Grant residential long leaseholders the right to "buy out" the forfeiture provisions of their leases.

Forfeiture allows the landlord to regain ownership of the property. Where the rent payments are month-to-month or year-to-year, with no up-front premium or deposit, this is less of a big deal. But in practice, the generality of flats in England are sold on the basis of an un-front premium of hundreds of thousands of pounds, followed by annual rent of *less* than a thousand pounds. To lose ownership of the property is therefore generally to lose hundreds of thousands of pounds.

This is *not* like a mortgageee repossessing a property, as under those circumstances the debtor gets the balance of the value of the property when it is sold. Under forfeiture, the debtor gets nothing.

There are dozens of provisions in land law which turn on whether a lease or freehold has any kind of "re-entry" or forfeiture provision, which would complicate the valuation of the option to unilaterally rescind these provisions. But nevertheless, a scheme could be provided for *a* market valuation of forfeiture rights. It is hard to imagine that they are worth more than a couple of hundred pounds per flat.

Landlords can always take out credit default swaps on their portfolio of lessees. That could even be made mandatory, albeit with some difficulty in dealing with potential lessees with a lot of liquid assets and bad credit history.

A long residential lease is similar to a secured loan except that when a loan goes bad, it is the *creditor* who is usually left out of pocket. But with forfeiture, the landlord/creditor gets a *windfall* rather than a loss. This is therefore of some monetary value. It should be something that long leaseholders should have a right to get out of if they compensate the landlord appropriately.

Addenda

There is a Law Commission report, including draft legislation, for abolishing forfeiture across the whole of the landlord-tenant arena rather than just long leasehold. My mandatory buy-out scheme proposal could be adopted as well as or instead of the Law Commission proposals.

I blogged about forfeiture some time ago, too: