Commonhold was meant to be a shiny new replacement for leasehold, where each flat owner in a block of flats or each house owner on an estate also owned a share of the company which owns the site. A new system supported by all the main political parties throughout the 1990’s. A system which was meant to give transparency. A system which was meant to work in the interests of the building and the owners on the site rather than some third party private “landlord” whose interest is in making a profit – a system that now operates in various forms in almost all other parts of the world.
In practice the legislation introduced as part of the Commonhold and Leasehold Reform Act 2002 in England and Wales has been a total failure. Bluntly put, while the rest of the world has successfully moved away from leasehold officials in our country have overseen what could most politely described as a legislative disaster. A disaster caused by poor drafting and omissions in the law and a lack of oversight by Parliament. What then followed was a complete failure to make Commonhold any part of our housing strategy.
In the 13 years since the 2002 Act only 161 Commonhold homes have been build and of these only 150 have been bought. Of these the largest “block” is a group of 30 mobile homes. All the expenditure made by the private sector to provide systems to support Commonhold have come to nothing.
LKP has now become aware that officials knew from a very early stage that the legislation was fundamentally flawed. Despite this knowledge Ministers were persuaded not to conduct a review in the years that followed. Others had wanted to stay quiet about the problems, in case the few people who had purchased a Commonhold property now felt mislead. Instead Ministry of Justice (MoJ), and many of the bodies who also work in the leasehold sector, continued to hold meetings to understand what had gone wrong. Initially the Housing Department did not even seem to have been part of this “Commonhold Consultative Working Group” which was overseen by MoJ officials, even though the working regularly considered both Commonhold and leasehold issues.
Quite why Commonhold was, and is, a bill overseen by MoJ remains unclear. All logic suggests Commonhold should have been a Housing Department matter. None of the proposed amendments considered by MoJ working group, which might make the legislation work, have been implemented. The government has never offered any incentives for building Commonhold and it has never invested a penny of its own money in building a Commonhold site.
Perhaps officials wondered over the years whether they should tell Ministers how badly they had got things wrong. Or perhaps they felt it was better to create the myth that somehow there was no market demand, or that buyers were not sophisticated enough to even care? In the end it seems someone decided to sweep things under the carpet. Officials stopped speaking about the issue and in 2010 the last bit of very meagre funding for LEASE to offer advice about Commonhold law came to an end. It seems Commonhold was left to quietly die.
Then in June last year LKP organised another of its regular Parliamentary round table meetings on leasehold. Commonhold had been suggested as a topic by a number of professionals in the sector. As well as submissions by managing agents, solicitors, surveyors and academics, two QC’s presented their views of the law. Senior delegates from major developers, MPs, Lords, surveyors, accountants, solicitors and managing agents contributed at the meeting with nobody disagreeing that the law was badly broken.
The elephant in the room has always been what to do about leasehold and those extra profits which developers make from selling under the leasehold system. This is a problem of course for the Housing Department to resolve, not MoJ. The MoJ working group realised that there were a number of issues which impacted the leasehold market: the sale of lease extensions; the sale of the freehold ground rent reversions; the sale of control of a site with its potential for income streams; the strangely discounted service changes which apply in the first few years of a new site. Unfortunately since 2002 these types of fees and income streams have become much more professionalised with companies providing formalised models to help developers to maximise their earnings.
Unsurprisingly some developers are cautious, not wanting a government stick to make leasehold less profitable but perhaps hoping for a carrot to make Commonhold more profitable, or at least remotely workable. It should also be said that some developers who did not attend the round table hold to the view that leasehold is not broken.
The overwhelming message from the round table meeting seemed to be that Commonhold should reviewed and should be moved from MoJ to the Housing Department, so the errors and omissions in the legislation might be corrected.
Officials from both the Housing Department and MoJ then met with LKP again in July. They said they understood this message from the meeting and both departments agreed they would put to Ministers the potential for moving the legislation to the Housing Department. As time went past officials at MoJ gave reason after reason why no proposal had gone to their Minister. They had just not had time to set out their position, they claimed. Christmas came and went and the election loomed with political purdah imminent. We pushed time and again and were told something would happen soon. In the end LKP wrote to both Ministers.
On 2nd April (2 days after election purdah started) the office of the Housing Minister wrote acknowledging that LKP had been to no 10 Downing Street to raise the matter of moving the issue of Commonhold between departments and stated “I recognise there is some interest in Commonhold being transferred to my department” and that “A further meeting of senior officials will be arranged shortly to discuss the feasibility of a transfer”.
Then on 28th April, in response to our letter to the MoJ Minister for Civil Justice, Lord Faulks, an official wrote in his behalf:
“Lord Faulks had met Lord Best and a number of interested peers at a meeting in the House of Lords on the morning of 26 June [2014 – by sheer coincidence the morning of the LKP round table meeting on Commonhold] to discuss Commonhold and leasehold matters. The conclusion at that meeting was broadly that resolving the problems of Commonhold was a longer term project and that reforms to long leasehold tenure should not wait on it.
Due to pressure of other work we were not able to make the progress I would have wished on Commonhold before the election period approached and have therefore not been able to put any proposals for consideration to Ministers. The question of which department should be responsible for Commonhold was only one of the issues that such advice would have addressed. Any discussion of that point would, however, have been against the background that the allocation of responsibility for areas of policy between departments is a matter for the Prime Minister.
It will now be for the new government to decide its policy on these matters and as we are now in the election period it would not be appropriate for me to comment on the substance of that possible policy or which department might be responsible for developing it.”
Readers can probably guess what has happened to Commonhold since the election. Nothing. We assume that Justice Minister Faulks is still misinformed and somehow thinks Commonhold is something to be addressed in the long term and that Housing Minister Lewis and his officials should get on and sort out the problems in leasehold first.
Meanwhile Housing Minister Lewis is still somehow being told by his officials that leasehold is “mostly working well”. LKP is aware that officials have been informed that several sections of leasehold law are fundamentally broken and is perhaps not aware MoJ officials describe the leasehold sector as having an “apparently parlous reputation” and being “a feudal relic”.
It is therefore very disappointing that the Housing Minister has not taken this opportunity to fix a single leasehold problem in the Housing bill.
In our next article we report on LKP’s recent meeting with Australian government officials, and the latest changes in their law. We’ll try and explain how they’ve done so much better a job on housing and how leasehold is disappearing rapidly. In Australia leasehold is viewed as a broken system from the past. Their version of Commonhold, known as Strata title, is now the universal form of tenure on new build blocks.
One last note. Some claim Commonhold is only promoted by a “vociferous minority”. It became clear at the round table meeting last year this was far from the case. The next parliamentary round table meeting in December on leasehold issues will have the President of the Law Society speaking about a range of issues. He proposes to end his talk with “comments welcoming the renewed interest in a review of commonhold.“