Leasehold Politics -Where Are We?

Leasehold Politics – Where Are We?

The leasehold system is complex and sometimes costly for homeowners and there has long been an argument to shake up the imbalanced home ownership system where leaseholders and freeholders are involved and increase the use of the lesser known ‘commonhold’ system.

You will have read a lot recently about the abolition of leaseholds, championed by Secretary of State for Levelling Up, Housing and Communities Michael Gove. What is the current state of these proposed changes? 

What is Commonhold?

Commonhold is a type of property ownership available in England and Wales, which was introduced in 2004 as part of the Commonhold and Leasehold Reform Act (CLRA) 2002.

Commonhold is a system of owning ‘freehold units’ within a building or block comprising of separate properties and with all unit-owners having a joint responsibility for the common parts. The units are usually residential properties but commonhold can also apply to commercial premises containing offices and shops. The owners of these ‘freehold units’, which will usually be flats, are often called unit-holders.

What Are the Perceived Benefits of Commonhold?

There are several advantages to commonhold:

·commonhold units do not lose their value over time due to a diminishing lease term;

·there is no landlord and therefore no leases and no landlord and tenant relationship, which in theory should reduce conflict;

·the commonhold documents are in a prescribed format with few exceptions unlike leases which can contain a wide variety of terms; and

·there is only one set of documents for the entire commonhold.

Current Leasehold Reform Proposals   

In early 2023 Michael Gove said he would seek to abolish the leasehold system.

“I don’t believe leasehold is fair in any way,” he told The Sunday Times. “It is an outdated feudal system that needs to go. And we need to move to a better system and to liberate people from it.”

A cynic might say that was a failing government throwing a bone to voters with an overly simplistic solution to a complex problem. It was in my view a drastic proposal, unnecessary and would create more problems than it would solve. Yes, there are certainly problems with the current leasehold system and the cladding scandal has shun a light on these problems but most of the time the current leasehold system works efficiently.

There are of course rogue actors, be they developers, landlords or professionals but this can be the same in every industry. To rip up hundreds of years of legislation that has evolved through statute and case law rather than make nuanced changes to fix the issues in the system (issues which also evolve and change through time) is crazy.      

We now understand the Government has watered down its plans. They are instead expected to bring in laws along the following lines.  

·       A cap on the amount of ground rent freeholders can charge their existing            leaseholders at around 0.1% of the property’s value. 

·       Introduction of new rules around service charge fees

·       Banning the act of adding commission to buildings insurance

·       The power for tenants to choose their own property management company

Where are Labour on Leasehold Reform?

Given the likelihood of a change in government in the next twelve to eighteen months, it is probably useful to look at what Labour are saying on the subject.

Labour Shadow Housing Secretary Lisa Nandy said last month that, if elected, Labour would end leasehold within its first 100 days of power and tabled a parliamentary motion urging the government to ban the sale of new private leasehold houses and introduce a system to replace current private leasehold flats with commonholds. Perhaps if Labour are in Government these proposals will also be watered down?

Throwing the Baby out with the Bathwater - Leasehold Works

From my perspective I believe much of the benefits both are seeking can already be achieved through leasehold reform legislation already in place.

The Lease Extension process allows you to extend your lease by 90 years which if you extend at 100 years you will have a 190-year lease, effectively a freehold interest for all intents and purposes. Once you extend your lease your rent reverts to zero, you will therefore remove any ground rent which appears to be one of the bigger complaints.

If you are not happy with how your freeholder manages the block you could avail of the Right to Manage legislation currently in place. Moreover, if leaseholders in a block come together, they can undertake a collective enfranchisement of the block and force the purchase the freehold interest. In this instance a leaseholder will own a share of the freehold again sorting out a major complaint of many leaseholders. Leaseholders will then grant new leases in an agreed format, term usually 999 years. The leaseholder becomes the landlord.    

Where leaseholders are stuck with a flat they cannot sell because of the cladding on the building, this is obviously a travesty that needs fixing. But if the building is owned under the commonhold system it will still have issues around cladding. If mortgage lenders have an issue with the cladding the legal structure around ownership won’t fix that problem. 

My view is to make regular incremental changes to improve the existing system we have rather than take sledgehammer and bring in a new system that will invariably have its own issues further down the line and not solve the major issues concerning the industry currently.