The government needs to go “further and faster” on leasehold reform, the Housing, Communities and Local Government (HCLG) Committee says in its report published this week on the proposed Commonhold and Leasehold Reform Bill.
But there are “changes and additions” needed to meet leaseholder expectations, notably around conversion to commonhold, a key part of the Law Commission’s recommendations for reform, without which “the government risks making commonhold an unattainable escape for homeowners trapped in the leasehold system”.
There is also a clear call for the regulation of property management agents, with the committee accusing major firms of “appalling standards of service without consequence”.
The report from the HCLG Committee sets out to “test the draft bill against the government’s stated policy objectives”, rather than debate the merits of reform, with a public bill committee set to consider the final bill clause-by-clause.
Against policy commitments to reinvigorate commonhold tenure, abolish new-build leasehold flats, make it easier to convert leasehold to commonhold, tackle rent charges and cap ground rents, the committee said the draft bill is a “significant step” forward in giving leasehold homeowners greater control of their buildings.
But the it has questioned elements of the bill, including the timescales for implementation, the current proposals to introduce a £250 ground rent cap in 2028 – suggesting this could be brought forward to “late-2027” – and the 40-year transitional period before a change to zero ground rent could be implemented, which the committee says should be halved.
Conveyancers have raised concerns at the proposals to make commonhold the default tenure for shared accommodation. When the draft bill was first published, the Society of Licensed Conveyancers warned there would be a need for extensive sector training to incorporate new title structures and the replacement of leases with commonhold community statements. Automatic Land Registry changes would also be needed, the membership body said, questioning the sector’s preparedness for such adoption at scale.
Providing evidence to the inquiry, the government-funded Leasehold Advisory Service (LEASE), which provides free legal advice on residential leasehold, commonhold and park homes law in England and Wales, said commonhold would provide a “simpler and clear system for home buying which will be easier for conveyancing lawyers to understand.”
Responding to the publication of the report, Dr Kion Ahadi, chief executive of LEASE said: “We welcome the publication of the HCLG Committee’s report on the draft Commonhold and Leasehold Reform Bill, which recognises the scale of change now underway across leasehold and commonhold reform. Any legislative oversight or scrutiny that helps deliver substantial and much-needed change towards a fairer housing system is to be welcomed.
“The draft bill addresses some of the most damaging features of leasehold, including high and escalating ground rents. More fundamentally, it signals a decisive shift away from leasehold as the default form of home ownership. Moving towards commonhold and making it easier to convert existing buildings where leaseholders choose to do so, has the potential to give homeowners genuine control, security and long-term certainty over their homes.
“We support the committee’s recommendations aimed at accelerating the pace of change for leaseholders. However, careful and thoughtful implementation will be essential to ensure practical solutions are found for complex issues.
“We also welcome the report’s call for the regulation of property managing agents, including the establishment of an effective independent regulator.
“The proposed commonhold model of collective responsibility represents a new level of involvement and control for homeowners in the governance of their property. Millions of consumers are looking for clarity, confidence and practical support as the system evolves. Ensuring that all existing leaseholders understand how the system works will therefore be vital to the success of this transition.
“We know from supporting thousands of leaseholders every day that providing consumers with clear, accessible guidance will be essential to building confidence in the new system.”
Matthew Pennycook MP, the minister of state for housing and planning, acknowledged the government would need to “issue guidance on a whole suite of issues relating to commonhold” and said he is working with developers and conveyancer to scope out the necessary changes.
Evidence from lenders suggests they too hold reservations about preparedness for commonhold.
Charles Roe, director of mortgages at UK Finance, said experience to date suggests it may take “a minimum of two years” to train estate agents, valuers, surveyors and conveyancers on the commonhold tenure. The sentiment was echoed by Robert Stevens, head of property risk at Nationwide, who said the building society had experienced “some practical challenges” with delivering commonhold mortgages, including finding qualified conveyancers and valuers who understood the tenure.
The report makes it clear that any reform requires swift modernisation at HMLR to support any move to commonhold. The failure to modernise the organisation’s legacy systems poses a risk to the successful implementation of commonhold and there must be more funding allocated to undertake this work, it notes.
It also calls for greater digitalisation and automation to support HMLR in addressing its backlog of casework and prepare for an increase in commonhold applications.
A recent update to the English Housing Survey has led some to question the need for leasehold reform at all. The Residential Freehold Association said the data showed the vast majority (93%) of leaseholders in flats are satisfied with their tenure.
Ahead of the publication of the committee’s inquiry, the RFA said “plans to “upend the leasehold system by removing the contractual rental income of professional freeholders, who provide third-party oversight over the maintenance and safety of buildings” would leave freeholders at risk of being “plunged into insolvency, leaving buildings in limbo and leaseholders to navigate the disruption and ultimately assume the legal obligations and liabilities of running their buildings, regardless of whether they are happy with their current tenure.”
Responding to the inquiry’s report, a spokesperson for the RFA said: “The committee’s report offers a disappointing interpretation of the evidence, despite having heard from numerous organisations and leaseholders about the unintended consequences of this draft legislation.
“In particular, retrospective interference in legitimate ground rent contracts would have significant implications for leaseholders, undermine confidence among institutional investors, weaken the UK’s reputation as a stable destination for inward investment, and expose taxpayers to potential multi-billion-pound compensation costs, regardless of the length of any transition period.”
The Association of Leasehold Enfranchisement Practitioners (ALEP), which also contributed written evidence to the inquiry, welcomed the report but warned the success of reform will depend on clear communication, practical detail and a realistic timetable for implementation.
Mark Chick, ALEP director and senior partner at Bishop & Sewell LLP, said: ‘The committee is right to welcome the draft bill, but also right to call for greater realism. This is important legislation, but it is not a switch that will turn leasehold off the moment the bill is passed.
“The changes certainly will not be quick. In practice, it may be several years before commonhold is mandated and, across parts of the market, it could be closer to a decade before commonhold is fully embedded and widely understood.
“Customer education and expectation management is vital to avoid consumers opting for commonhold on the basis that it is ‘easy’: leaseholders need to know what the bill will do, what it will not do immediately and what further legislation or regulation may still be needed.
“Homeowners will need to understand not only the advantages of commonhold, but also the responsibilities that come with membership of a commonhold association, collective decision-making and long-term building management.”
The committee has recommended that conversion to commonhold should become the default outcome of collective enfranchisement. ALEP says this could help simplify the route away from leasehold, but only if the bill sets out how the cost of acquiring the freehold and converting to commonhold should be shared fairly between leaseholders who participate from the outset and those who do not.
This was a point raised by Chick in oral evidence to the committee, when he pointed out that although non-consenting leaseholders would have a right to buy out the commonhold of their unit at a later date, it is not yet clear how interests such as development value would be valued. Unless this is addressed, he warned, “conversions could be discouraged if non-consenting leaseholders do not have to contribute anything towards the cost that the collective has endured to buy the freeholding in the first place”.
He added: “We look forward to seeing the government’s strategy and timetable for implementation. That needs to cover both the final Commonhold and Leasehold Reform Bill and the outstanding measures in the Leasehold and Freehold Reform Act.
“Leasehold reform now has strong political momentum. The task for government is to turn that momentum into legislation that practitioners can apply, leaseholders can understand and the market can trust. The detail is not secondary to the policy – it is what determines whether the policy can be delivered.”
