Leasehold Reforms To Shake Up Sector
This morning the Law Commission will publish reforms regarding the leasehold sector.
The reforms will alter the way estate agents describe, manage and sell leasehold properties.
The Commission’s report separates and deals with key areas of property ownership. In the section covering leasehold enfranchisement, the right to manage and commonhold, outlines the reforms that could be implemented to the leasehold system, replacing it with a revived commonhold tenure.
Professor Nick Hopkins, Commissioner for Property Law, says:
“The leasehold system is not working for millions of homeowners in England and Wales. We have heard how the current law leaves them feeling like they don’t truly own their own home.”
Suggested reforms would make it easier and cheaper for homeowners to buy the freehold or extend their lease. It’ll also be easier for them to take control of the management of their block of flats or an estate.
Simon Davis, President of the Law Society of England and Wales, said:
“Leasehold reform is a complex and important task with many different interests at stake.
“The issues of unfair leaseholds, enfranchisement, commonhold and the right to manage are interrelated, so it is important the government takes an appropriately comprehensive view when considering the changes proposed.
“We are supportive of the proposals to relax the qualifying criteria for right to manage and to make the enfranchisement process easier, quicker and cheaper.
“We share the Law Commission’s belief that its suggested reforms should deliver real benefit for homeowners, and that its recommendations will provide the flexibility for commonhold to develop as an alternative to leasehold, if incentivised further by government.”
Katie Kendrick, Founder of the National Leasehold Campaign, said:
“The NLC is delighted that the Law Commission’s reports recognise how badly the current leasehold system is stacked against leaseholders and is recommending adoption of commonhold, and informed and practical routes for existing leaseholders to escape from the nightmares created by this feudal system. We need Government to act on these recommendations now. They must not be lost in a sea of endless consultations, further consideration and drift “until Parliamentary time allows”. Leaseholders’ lives are on hold and urgent action is needed.”
Commenting on the proposals, Guy Osborn, Head of Commercial Property and Leasehold Reform at Osbornes Law says:
“This is a radical step that would change the face of the housing market. The key to the success of all of the proposals however, will be the promotion of the commonhold tenure, which will provide a viable alternative to leasehold.
“If it is not made either compulsory or significantly more attractive to housebuilders, they are unlikely to take it up and will stick with the traditional leasehold model. Commonhold has been around since 2002 but there are little more than a handful of commonhold properties in the UK at present, because for developers it simply doesn’t make financial sense.
“The leasehold model allows for both the sale of individual flats and the property’s freehold whereas the commonhold model deprives developers of a valuable, saleable asset. If government is really serious about reforming the housing market they will need to provide developers with a financial incentive, or ban new builds from being sold as leasehold altogether.”
Mark Hayward, Chief Executive, NAEA Propertymark comments:
“We have long called for action to be taken to help leaseholders who have been misled and treated unfairly so it is really positive to see the law commissions report today. For too long, housebuilders and developers have not been transparent enough about what it actually means to buy a leasehold property, which in turn has meant many owners have been faced with escalating ground rents and unreasonable fees, leading them into financial difficulty. In 2017 we argued for leasehold reform through our ‘Leasehold: A Life Sentence?’ report which found that 93 per cent of respondents wouldn’t purchase another leasehold property.
“It’s vital that the proposals laid out in today’s report lead to actions as soon as possible to give some hope to those who are currently trapped in leasehold properties with no easy route out.”
Hema Anand, Residential Property Partner at BDB Pitmans:
“Leasehold ownership has been toxic in the press and in Parliament for many years now. The reforms proposed by the Law Commission address inconsistent legislative requirements, streamline processes, reduce corresponding costs, grant greater protection to poorly advised leaseholders and help to keep unscrupulous landlords in check.
“Whether or not the reforms revive Commonhold remains to be seen, but ‘Commonhold 2.0’ is expected to be much less cumbersome than its unsuccessful predecessor.”
Natasha Rees, Partner and Head of Property Litigation at Forsters, comments:
“It is encouraging to see the Law Commission addressing all three areas of leasehold law in such a cohesive way given the problems highlighted during the lengthy consultation process. These proposals follow on from the valuation proposals that were published earlier in the year and set out ways to make enfranchisement and right to manage easier and cheaper for leaseholders. They also recognise the fact that there needs to be a viable alternative which is attractive to developers and investors. With a take up of only 20 Commonholds since the Commonhold and Leasehold Reform Act 2002 came into force almost twenty years ago this will be a challenge. The Government is, however, clearly planning to re-focus their energy on the residential leasehold reform and hopefully these proposals will give them food for thought.”
Janet Armstrong-Fox, Head of Private Client Property at Collyer Bristow:
“Since its introduction in 2002, Commonhold has struggled to gain any degree of acceptance, particularly among lenders – with fewer than 20 Commonhold developments created during that time.
“Recently there have been signs of lenders growing less wary, but until lenders generally are more comfortable with Commonhold and have a better understanding of it, the perceived limited availability of mortgage finance for commonhold homebuyers could be the biggest stumbling block to Commonhold taking off as a popular form of home ownership.”
Tom Allfree, Head of Residential Property, Wedlake Bell said:
“The Government is clearly minded to have another go at getting the Commonhold system to work.
“In principal, and from the perspective of homeowners, it is a good idea – there is no third-party landlord with the owners (together) owning the building in which their flat is situated, with no lease terms to worry about.
“Commonhold tenure has existed in England and Wales since 2004. It has, however, been largely ignored, with the Law Commission reporting fewer than 20 properties using commonhold to date.
“The Law Commission has worked hard to identify the issues that have prevented developers from being able to embrace the tenure It will be interesting to see whether the recommendations, if implemented, lead to greater take up of commonhold by developers; an increased willingness by lenders to lend on commonhold units, and a greater demand from home owners.”
Adam Colenso, Partner, Wedlake Bell:
“These are long awaited recommendations for reform from the Law Commission. The over-arching principles about bringing an end to those aspects of leasehold ownership that have come in for criticism in recent years is laudable. However, very careful legislative drafting would be needed to ensure that the well-paved road of good intentions does not lead to a destination that is worse than the status quo ante.
“As the report makes clear, the commonhold system will not take root unless there is some motivation given to developers to apply it (because it is mandatory or there is a financial inducement).
“It will be interesting to see what steps the government is prepared to take in this regard when it is trying to encourage the building of many more new homes during what is likely to be a substantial period of recession.”
Katie Cohen, property lawyer who specialises in leasehold enfranchisement at Keystone Law:
“The leasehold reforms announced by the Law Commission may be revolutionary for leaseholders if the reforms are adopted. Leaseholders have long been calling for a reformation to the leasehold system to improve transparency and fairness. The proposal focuses on flipping the priority from leaseholders to freeholders on many aspects of the process to initiate their claim to extent their leases or buy their freeholders and making it a lot easier for them to exercise their rights to do so. This includes an extension of the lease to 990 years from their current 90 years, a one size fits all notice for both a collective enfranchisement and statutory lease extension to initiate claims with the onus being very much on the freeholder to serve copies of those notices on the appropriate landlords and third parties, in addition to make it easier for leaseholders to buy their freehold and reducing the costs associated with doing so. The landlord has always sought to recover their costs from the leaseholder. The law seeks to readdress the balance and overcome the net of notoriously high ground rents that leaseholders often find themselves caught in without seeing any value in their property.
“The recommendation to reduce the two year ownership criteria for leaseholders requesting a lease extension to an automatic right from day one, is perhaps one of the biggest game changes for leaseholders in the report. But, of course, it remain to be seen what recommendations, taken alongside the proposed valuation changes contained in the previously published report earlier this year, will be adopted by the government and any such changes will likely take some years to implement.”
The Government tasked the Commission to study the sector which it said, “has far too many problems including disproportionate costs to extend leases; poor value property management; and a slow and costly sales process”.
Housing Minister Luke Hall commented:
“We will carefully consider the Commission’s recommendations, which are a significant milestone in our reform programme, as we create a better deal for homeowners.”