In the penultimate of our regular series from ALEP, lease extension and enfranchisement specialist Shabnam Ali-Khan explains why the majority of ownership structures work – and how to improve those that don’t.
More than a year on from the Leasehold and Freehold Reform Act (LAFRA), there is a feeling in the leasehold enfranchisement sector of progress, but also anticipation and some frustration. There is relief that progress has been made after years of debate, frustration that many of the LAFRA’s provisions remain unimplemented and anticipation as we await secondary legislation. The Draft Commonhold and Leasehold Reform Bill has finally been published, but questions about whether it will make it onto the Statute Book this Parliament add to the uncertainty.
And although the High Court has rejected the freeholders’ challenges to the proposed valuation reforms as being a breach of human rights, it is not yet clear whether this means those reforms will now move to the implementation stage. It is likely the freeholders will seek to challenge the ruling and appeal the decision. This could mean a further delay pending the outcome of the next stages, and we may see a repeat of legal action in relation to the government’s decision to cap ground rents at £250 per annum.
The public and political narrative has been dominated by the desire to ‘end feudalism’. The phrase may resonate with voters, but it misrepresents reality. The vast majority of England and Wales’ five million leaseholders live in properties that are well managed and function as intended. Only a small minority question the status quo, typically because of poor communication, mismanagement or opaque service charges. They are far from representative.
To call leasehold ‘feudal’ is to mistake rhetoric for fact. Feudalism was abolished centuries ago. Leasehold is a modern form of property ownership rooted in commercial law and refined in the twentieth century to provide certainty in multi-occupancy buildings. It is not perfect and reform is needed, but it is far from unworkable.
Where leasehold works
Most leasehold structures deliver what they are designed to: management of communal areas such as communal gardens, communal hallways, lifts and other common parts. When management is professional and carried out properly and when accounts are transparent and communication is clear, leaseholders generally experience stability and satisfaction.
Many flat owners can exercise rights to take over the management of their buildings through the Right to Manage (RTM) or collectively acquiring the freehold of their building. With this comes more control and rights for leaseholders.
Within the existing framework there is an opportunity for leaseholders to challenge service charge budgets, particularly where major works are concerned at the First-tier Tribunal and, generally, service charges cannot be enforced unless determined as reasonably incurred.
The stability of lease terms is another strength. Once granted, leases cannot be unilaterally varied except in limited circumstances via the tribunal.
Where it fails
Not every building runs smoothly. Poor management, lack of transparency and weak communication can erode trust. Many leaseholders remain unsure what they are paying for or misunderstand their responsibilities. Clearer information, both at the point of purchase and throughout ownership, is essential.
Rebuilding confidence requires practical change, not wholesale replacement. Even if the government bans new leasehold flats, millions of existing flats will remain as leasehold. Therefore, what we need is a focus on how to make the current system work better for all. This involves education and information.
The knowledge gap in leasehold reform will need to be addressed, enabling consumers to understand the difference between commonhold and leasehold but also in other increasingly popular forms of tenure, specifically Right to Manage and collective enfranchisement.
My experience is that where issues arise, they usually stem from poor practice, lack of engagement and education rather than structural flaws. The government’s intention to professionalise managing agents through mandatory qualifications and a Code of Practice is therefore welcome. Done well, it would raise standards, ensure accountability and reduce disputes. And many leaseholders prefer a competent managing agent to the burden of self-management.
The LAFRA and the next phase
The LAFRA aims to make it cheaper and easier for leaseholders to extend leases or buy freeholds while improving transparency and fairness. Banning new leasehold houses and extending standard lease terms to 990 years are seen as positive steps, but these provisions along with many others remains in limbo pending secondary legislation and further clarification.
Delays stem from complex issues such as the proposed abolition of marriage value, which had prompted Human Rights challenges. Until this is resolved (it could mean a further delay pending the outcome of the next stages), uncertainty will persist, slowing transactions and leaving professionals advising on hypotheticals. The priority should be implementing existing measures where appropriate alongside introducing new legislation. Rushed reform creates confusion, while careful reform builds confidence and provides clarity.
Commonhold – potential and pragmatism
Commonhold is being promoted by the government as the long-term replacement for leasehold, promising democratic management and transparency. In reality, however, major obstacles remain. Lenders are cautious, many developers remain unconvinced and consumers are unfamiliar with the model. Questions also persist around mixed-use blocks (specifically in relation to shared ownership and retirement housing), arrears, insolvency and the lack of tribunal oversight for commonhold disputes.
As proposed in the recent draft legislation, a phased approach is the only realistic route: to test commonhold on selected new developments, refine it and scale gradually. Also continued engagement with existing commonhold models where it is working well. Abolishing leasehold before its replacement is proven would be reckless. With nearly five million existing leasehold homes, policymakers must avoid undermining property values or market stability in pursuit of a rash political pledge.
Reforming the existing system
Leasehold is not broken, but it needs refining. The LAFRA’s emphasis on transparency, clearer information and regulation of service charges is a step in the right direction. Mandatory qualifications for managing agents, better consumer education and use of technology (including AI for routine queries and document access) could materially improve the leasehold experience.
About the author
Shabnam Ali-Khan is a partner at Russell-Cooke and member ALEP. She specialises in lease extension and enfranchisement matters, primarily under the Leasehold Reform Housing and Urban Development Act 1993 working with a variety of clients ranging from high-net-worth individuals and companies to individual leaseholders and investor landlords. Shabnam has carved out a niche in right of first refusal matters pursuant to the Landlord and Tenant Act 1987. Shabnam advises on a wide range of other landlord and tenant matters including advising residents’ freehold and management companies on various issues including block management, service charges and consultation requirements and rights for major works as well the Right to Manage. She is also a qualified mediator.
