Following promises to reform the ‘feudal’ tenure system the Government have unveiled plans to introduce commonhold as the default tenure for new flats in a move that could ultimately see leasehold phased out over time.
The white paper, launched this week, proposes a new code of practice which will set our how costs would be apportioned aimed, say the government, at providing ‘transparency and clarity.’ Draft legislation will be published under the guise of the Leasehold and Commonhold Reform Bill setting out the legal framework for how commonhold would work. A ban on a new leasehold flats is also proposed with a consultation later in the year to explore the practicalities and how a plan to deliver a ban on leasehold houses could be implemented.
Elsewhere the white paper outlines details how plans to strengthen the regulation of managing agents which ‘as a minimum… should include mandatory professional qualifications which set a new basic standard that managing agents will be required to meet’ says the white paper. A consultation on managing agent regulation will follow later this year.
Rules that will extend the ability of developers to deliver different types of property within a commonhold framework will be introduced with more flexible rights about how to build and sell a commonhold including permitting shared ownership and home purchase plans; currently prohibited under commonhold.
The white paper includes proposals to give mortgage lenders ‘greater assurance… to protect their stake in buildings and protect the solvency of commonholds – such as mandatory public liability insurance and reserve funds.’ And
Commonhold has already been established through the Commonhold and Leasehold Reform Act 2002, but, says Housing Minister Matthew Pennycook, has failed for a ‘variety of reasons’ and is now out of date.
“Having learnt the lessons of that false dawn, it is now time to finish the job.”
The government point to successful commonhold tenures elsewhere in the world including in North America, Australia, New Zealand, Scotland and across Europe.
Announcing the white paper Housing and Planning Minister Matthew Pennycook said:
“This government promised not only to provide immediate relief to leaseholders suffering now but to do what is necessary to bring the feudal leasehold system to an end – and that is precisely what we are doing. By taking decisive steps to reinvigorate commonhold and make it the default tenure, we will ensure that it is homeowners, not third-party landlords, who will own the buildings they live in and have a greater say in how their home is managed and the bills they pay.
“These reforms mark the beginning of the end for a system that has seen millions of homeowners subject to unfair practices and unreasonable costs at the hands of their landlords and build on our Plan for Change commitments to drive up living standards and create a housing system fit for the twenty-first century.”
Pennycook adds the reforms will work alongside the existing reforms to leasehold introduced in recent months including removing the two year wait for leaseholder’s right to extend their lease or buy their freehold.
The white paper has been welcomed by campaign bodies who say commonhold provides a way out for those who are constrained by the ‘inequitable’ leasehold system. The National Leasehold Campaign says it is ‘delighted’ to see ‘decisive steps’ towards making Commonhold the default tenure for flats with founder and spokeswoman Katie Kendrick, saying
“There are over 5 million leaseholders in England and Wales, many of whom live in flats and apartments. Today’s White Paper is a significant step forward and is the beginning of the end for the feudal leasehold system. While focusing on preventing future leasehold abuses is crucial, it’s equally vital to address the plight of existing leaseholders currently bound by the inequitable leasehold system. Commonhold conversion mechanisms are essential to offer an escape route for those trapped, alongside tackling issues like existing ground rents, reforming the valuation process for enfranchisement and regulating managing agents. Ensuring these existing issues are resolved alongside the move to Commonhold will ensure a fairer and more equitable housing landscape for all flat owners.”
Practitioners have welcomed news of reform but warn the introduction of commonhold could lead to a two-tier system of both commonhold and leasehold wherein it could lead to leasehold properties diminishing in value as a buyer’s preference would be commonhold tenure said Linz Darlington of Homehold.
“While a move to Commonhold is a genuinely laudable aim it will create a “two-tier” system of flats in the UK. New properties under the new style of ownership and management will be preferred by buyers to existing leasehold properties. This news will be received with exasperation for those people already trapped in leasehold properties with escalating ground rents, high service charges and fire safety issues – preventing many from selling or re-mortgaging their properties.
The Leasehold and Freehold Reform Act 2024 was passed by the last Conservative Government, but is largely not yet in force. If implemented swiftly, it has the potential to help the estimated 5 million existing leaseholders in England and Wales by making it cheaper for those with high ground rents or leases below 80 years to resolve these issues.”
Fuller implementation of the Freehold and Leasehold Reform Act 2024 would be more worthwhile, before embarking on wholescale changes to the current system.
“What we need now is to prioritise delivering existing leasehold reform for existing properties and existing leaseholders – not rushing into ambitious new promises that will distract from doing this.”
he concludes. It’s a sentiment shared by the Association of Leasehold Enfranchisement Practitioners (ALEP) whose director Mark Chick, Partner at Bishop & Sewell LLP added
“If there is a proposal to prevent the sale of leasehold flats in the future, we would urge caution around this, as there are (and will remain) many existing leasehold properties. In our view both the government and the wider media need to be careful not to talk down existing leasehold structures to the detriment of existing flat owners.”
Helen Hutchison, partner at Irwin Mitchell, said:
“Whilst we strongly agree there is a need to makes changes to the current leasehold regime, a rush to abolish leasehold ownership, without a clear plan will be risky and could potentially bring the market for leasehold flats to a halt. The sheer enormity of such a transition needs to be considered with input from those in the sector to put in place a staged process with a view to minimising risk. We await further proposals with interest and will of course be monitoring the situation closely.”
Ensuring the current regulatory system is robust is top of the concerns raised by Scott Goldstein, Partner at Payne Hicks Beach, who said
“Commonhold has never caught on. Today’s announcement is the latest in a series of initiatives introduced since 2002 to try to spread the use of commonhold. The concern is to make sure that the system is ready to cope. Lenders must be encouraged to give mortgages to purchase flats held on commonhold.
There must be robust financial controls in place to ensure commonhold blocks have the resources they need to manage their properties. Finally, as commonhold blocks are always run by property owners, many more of us will be involved in property management. The Government needs to provide easy to follow resources to educate and train all of us about the rights and responsibilities of commonhold.”
And the Residential Freehold Association, a trade body representing some of the largest freeholders said the debate should not be between what type of tenure is best and instead called for reform of leasehold, rather than wholesale change, indicating research shows little appetite for commonhold.
“We welcome any measure that improves consumer choice, but this should not be seen as a trade-off between leasehold and commonhold. As the Government’s own data shows, millions of leaseholders across the country are perfectly content with the tenure and we firmly believe that leasehold is the most effective way of managing large complex apartment buildings.”
said Natalie Chambers, Director of the Residential Freehold Association (RFA).
“In the absence of the leasehold system, residents would face greater financial and legal responsibilities for block maintenance and management – which the previous government’s own research suggests a majority of leaseholders are unlikely to be in favour of.
“The RFA has long called for responsible and proportionate reform of the leasehold sector, which is the most effective way of helping leaseholders and providing more good quality affordable and professionally managed housing. This includes introducing mandatory regulation of managing agents, as recommended by Lord Best in 2019, which will drive up standards for homeowners.”
The Government’s Commonhold White Paper is available to review here.
2 responses
And who is going to do the legal work for these? I assume a lot of Conveyancers are not going to touch Leasehold/Commonhold with a barge pole for a long time. What on earth are lenders going to make of it? A lot of Conveyancers currently do not touch Leasehold now so how out of touch are we all anyway? Even if Conveyancers wanted to deal with it, I see fees trebling if not more.
I am hearing little to nothing as to how this will help current Leaseholders. It’s bad enough that they changed the ground rent for new flats to £0 whilst leaving existing leaseholders in a whole and creating a two tiered system. I reckon unless something is done with current Leasehold properties, we are going to end up with hundreds of thousands of unsaleable leasehold dwellings.
There are a huge number of conveyancers who still can’t get their heads around leasehold transactions. So now how can we possibly expect those people to cope with a new tenure?
Unless AI and technology are the answer of course?
Expect even longer delays to transactions.