All Aboard The Leasehold Express To Commonhold

So, as we hurtle down the tracks towards commonhold, it is predicted that draft legislation will be laid before parliament mid to late 2021, with the biggest swathe of leasehold reform since 1925.

However, when we finally arrive at our destination, the swathe may not be as big, or as revolutionary, as we would hope.

Undoubtedly though, there is a cultural and political shift away from the dominance of the landlord towards the emancipation of the tenant.

This has largely been born out of the recent scandals surrounding the sale of leasehold houses and doubling ground rent clauses.

It is clear that considerable change is not only hoped for, but actually envisaged.

Therefore, the legal practitioner would be wise to jump on board the Leasehold Express now and carefully watch the changing scenery if they are going to be best placed to advise their clients in the future.

In January, at the request of the government, the Law Commission set out proposals to reform both the cost and procedures for tenants buying their freehold or extending the terms of their leases, known as leasehold enfranchisement. 

The proposals set out several schemes in calculating the premium to be paid by tenants in exercising their enfranchisement rights, to make the process simpler and to reduce uncertainty and disputes. 

In line with its brief the Commission also set out a range of other options for reform, including prescribed rates in calculating the premium to be paid for acquiring the freehold or lease extension, capping the level of ground rent used to calculate the premium, the creation of an online calculator for determining the premium and not having to pay the landlord a ‘development value’ until the landlord actually undertakes the further development.

In July the Law Commission further reported on leasehold reform, focusing on leasehold enfranchisement, reinvigorating commonhold and the right to manage. 

On leasehold enfranchisement it has proposed:

• a single set of statutory enfranchisement rights for leasehold owners of both flats and houses;
• a new right to extend leases of both flats and houses to a term of 990 years, at a peppercorn rent;
• a new right for leaseholders to ‘buy out’ the ground rent without having to extend the lease term;
• abolishing the 2 year ownership rule before seeking a lease extension;
• creating a single procedure to make an enfranchisement claim; and
• abolishing the obligation on the tenant to pay for the landlord’s costs or to capping those costs.

On commonhold the Commission proposed invigoration, realising that there will have to be a period of transition from leasehold to commonhold. 

It acknowledges that whilst the vast majority of flats are currently sold on a leasehold basis, commonhold should better present itself as an alternative, enabling flat owners to own the freehold to their flats and to participate in the ownership and management of shared spaces.

For differing reasons, commonhold is currently unpopular with homeowners, lenders and developers alike. 

The proposals seek to:

• make it easier for existing groups of leaseholders to convert their building to a commonhold; 
• allow commonholds to be used by developers on complex developments;
• allow shared ownership leases and affordable housing to be included in commonhold;
• make commonholds more efficient by changing the rules to ensure that properties are kept in good repair and properly insured;
• whilst there would be no requirement to pay service charges, the commonhold association can demand commonhold contributions, to cover shared costs and be empowered with enforcement powers and dispute resolution processes; and 
• include built in protection for lenders should the association be wound up.

On the right to manage the Law Commission proposals include:

• removing the requirement for leaseholders to pay the landlord's costs of the right to manage claim;
• relaxing the qualifying criteria;
• permitting leaseholders to acquire the right to manage over multiple buildings or an estate;
• reducing the number of notices that leaseholders must serve;
• giving the Tribunal the power to waive procedural mistakes in claim notices; and
• publishing clearer rules for the management of property.

Times they are a changing in the property world, with electronic signatures, removing restrictions on planning laws and new lease codes, to name but a few. 

As we slowly release ourselves from the enforced lockdown there is a genuine drive to simplify the over complicated, to reduce the expensive to the affordable, to open up what is perceived to be closed and to make accessible what is thought to be out to reach. 

That is exactly what progressive reform should do and it is hoped that this government will be brave enough to embrace it all.

By Lawyers has already bought a window seat on the Leasehold Express and will shortly be publishing its new practical guide on Leasehold Enfranchisement.

With a team of experienced lawyers, the guide will be regularly updated to take on board all and any reforms in this area, as and when they are introduced.