The Law Commission today publishes three reports proposing reforms to the leasehold system and its complete replacement with a revived commonhold tenure, on the statute book since 2002 but ignored by the commercial interests in the sector.
Coupled with the Government’s commitment to set new ground rents to zero and to ban leasehold houses – awaited for three years now – the proposals demonstrate in compelling detail why the leasehold system needs reform and how it could be done.
It is a blueprint for a government to reform this entire sector, if it so chooses.
Millions of leaseholders to benefit from Law Commission reforms
Package of reforms to transform the future of home ownership in England and Wales Improvements would make it easier and cheaper for homeowners to buy the freehold or extend their lease, and to take control of the management of their block of flats or an estate Reforms would also improve commonhold to ensure it is the preferred alternative to leasehold as a way of owning homes – just as it is around the world The Law Commission of England and Wales has today [21 July 2020] published recommendations to transform home ownership for millions of people in England and Wales.
The reports gives detail of the consultations involved with stakeholders, indicating the considerable efforts of commercialisers in the sector to neuter the process. There will doubtless be more at government level.
The Law Commission deserves huge credit for largely ignoring these pressures, and producing reports that firmly put the consumers first: leaseholders typically own 95% (or more) of the value of a block of flats through long tenancies yet are disempowered by the freeholder, the supposed “building owner” in law, owning the remainder.
Only England and Wales have this system, with the rest of the world using systems of commonhold.
Residential leasehold and commonhold
All three residential leasehold and commonhold reports were published on 21 July 2020. Further details are available on the project-specific pages by following the above links. Summary: The future of home ownership: download our summary of all three residential leasehold and commonhold reports and how they fit with Government’s own reforms. At a glance: the future of home ownership: download our short “at a glance” summary of the future of home ownership.
The reports are a nail in the coffin for predatory commercial interests seeking to exploit the“feudal” leasehold system. They are the most significant proposals for reform in a generation.
But … they depend on Government choosing to bring them in.
Law Commission signals biggest shake-up in home ownership since Thatcher’s right to buy with demise of leaseholding
The biggest shake-up in property ownership since Margaret Thatcher’s right-to-buy reforms 40 years ago has been proposed by the Law Commission with plans to end leaseholds. In a report today commissioned by the Government, it proposes a “cultural change” that would free millions from the control of landlords and give them full ownership of their houses or flats.
While the Law Commission clearly favours commonhold tenure over leasehold, its reforms include proposals to aid existing leaseholders.
Right to manage
The Law Commission report into RTM gives such overwhelming reasons why right to manage should be reformed and made easier that the question arises: why are not all new blocks of flats compelled to have a self-managing company structure in place for the benefit of the leaseholders from the start? After all, it is the leaseholders who own 95% of the value of the block.
In short, not right to manage, but a compelling reason why leaseholders should not enjoy self-management of their homes.
The Law Commission overwhelmingly favours the leaseholders’ argument.
It correctly identifies legal games – and costs – as the prime reason why right to mange applications fail and urges the removal of landlords’ legal costs being passed to leaseholders in the RTM process.
It also urges that the qualifying criteria includes blocks with up to 50% of non-residential space: at present this is capped at 25%. So complex mixed use blocks would be able to enjoy right to manage.
Leasehold houses would also be able to opt for right to manage, removing imposed management by the freeholder. These estate charges – which also apply to many new freehold houses – are the latest monetising wheeze invented by the sector.
Building companies face ban on ‘exploitative’ leasehold contracts
Builders face a ban on selling leasehold homes after the government’s legal advisers called for reforms to stop freeholders exploiting flat owners. The Law Commission publishes a two-year review today which recommends that England and Wales ditch leasehold in favour of “commonhold”.
All new lease extensions would be 990 years, not 90 (flats) and 50 (houses) at present. There would be no ongoing ground rent.
Again the Law Commission identifies the sector’s use of aggressive legal costs to frustrate or monetise the enfranchisement process: extending leases or buying the freehold. Under its reforms, landlords would again not be able to pass on their supposed legal costs during the enfranchisement process.
The reforms would again allow mixed use blocks with up to 50% of non-residential space to qualify for enfranchisement.
| Commonhold central to Law Commission’s proposals for home ownership reform
The Law Commission has unveiled a package of reforms that would transform the future of home ownership in England and Wales – including making commonhold the preferred alternative to leasehold. The proposals also include making it easier and cheaper for existing leasehold homeowners to buy their freehold or extend their lease through enfranchisement, and to take control of management of their estate or block of flats.
“In our commonhold report we have made a number of recommendations that would make commonhold not just a workable alternative to residential leasehold for all involved, but the preferred alternative.”
As the crisis surrounding combustible cladding has made painfully made clear, the one thing worse than having to co-operate with your neighbours and manage your block, is having a commercial freeholder tell you what is going to happen.
Commonhold is far simpler and more efficient than leasehold, but also comes with responsibility, which flat owners will have to deal with.
Commonhold, enfranchisement and right to manage: the Law Commission’s proposed reforms
Property law commissioner Nick Hopkins speaks with EG’s Jess Harrold, outlining the Law Commission’s extensive proposals for the future of home ownership in England and Wales. Hopkins summarises the key reforms put forward across three reports, including how commonhold can become the preferred alternative to leasehold for new homes going forward – and how enfranchisement and right to manage can become easier and cheaper for existing leaseholders.
A good day for leaseholders,A bad day for The Cayman, British Virgin Islands and Guernsey
Seems to be a gap. If an individual cannot persuade his or her fellow residents to go for common hold, s/he might be able to get a better deal on lease extension but can still not make an individual purchase. of the lease. Will there be reform in unit size? At the moment you have to drum up a majority of people in your block, eg 3 out of, 4 out of 6
Is their any hope for people who bought local authority flats under the Right to buy introduced by Margaret Thatcher.
What about the minority in these blocks some now subject to Building Safety Bill
Being able to extend a lease for 990 years (from the current 90 years, when a leaseholders follows the legal lease extension process) may sound great initially, however some caution needs to be applied….as the response has to be, at what increased lease extension cost will be applied for the added 900 years. No doubt a freeholder will claim that 10x the increased lease, should be charged at 10x the previous charge(otherwise they are not being adequately compensated & their human rights are being breached) ……yet, the real value of a lease extension to a leaseholder would not be the proposed increase of 900 years added, but more so with the original lease extension of 90 years. Food for thought.
In calculating the cost of a lease extension a concept called discounting is used. As a consequence extending a lease by 990 years as opposed to 90 years would not be 10 times the price
If a lease had 50 years remaining and was worth say £250k then the additional cost of extending it following the usual 90-year addition (i.e. when the new lease has been raised to 140 years would be just £270 for those additional 900 years
Excellent set of reports. So many recommendations that will be the start of the end for residential leasehold. I will be eternally grateful to the Law Commission for this work. Adoption would change the lives of leaseholders irrevocably. It will be a true test of this Government’s commitment to genuine reform to see if they adopt the recommendations from these reports.
A promising set of recommendations, but so many that the Government will be snowed under and therefore delay new legislation. The biggest omission is the lack of acknowledgement of the crisis facing leaseholders in retirement communities, with the unjustified penal event fees applied by some landlords causing severe hardship and blocking resales.
Can anyone tell me how the breach of freeholders human rights will affect them?
Will it affect them as much as the lone leaseholder?
Is it not the case that the Law Commission have indicated that leasehold is an unfair system and yet the human rights of leaseholders who have suffered over many years paying unfair charges in some cases is completely ignored!
Why are freeholders human rights any better than leaseholders, it is leaseholders who should be getting back their payments made to freeholders, not leaseholders paying the price to have a normal life.
The whole system was set up as a money making scheme by freeholders and is in effect a system of blackmail and extortion with an unknown perpetrator working through middlemen who have their cut of the deal as well, and now they want paying off in order that the person who paid for his home is not set upon by these parasites for all time!.
It seems to me that ordinary people are being unfairly treated again by rich speculators who can affort the best legal and lobbying teams, and with the backing of a flawed legal system.
Much needed to properly regulate in house managing agents of retirement blocks and their mockery towards ‘Codes of practice’ they dishonestly advertise to comply with!