The future of home ownership is set to change
Aug 4, 2020
The Law Commission has proposed replacing leasehold with commonhold as the ‘preferred alternative’ as it outlines long-awaited recommendations for reforming home ownership.
At least 4.3 million homes are thought to be leaseholds in England. The key recommendation involves replacing the leasehold system when it comes to the sale of flats.
Leaseholders only have the right to occupy a building for a given period, and are effectively long-term tenants of freeholders who own properties outright. They experience a ‘wide range of problems’ as their homes are not fully their own, according to the Commission.
The legal body has released three separate reports after an investigation lasting two years. The advice focuses on making it easier for home owners 1) to extend their leasehold or buy the freehold, 2) by reforming the ‘right to manage’ process and 3) by making it easier to create and build a commonhold property.
Recommendations for existing leaseholders
The Commission says a commonhold system would ‘overcome the inherent limitations of leasehold ownership’. Commonhold involves flat buyers owning the freehold to their individual property and forming a company with other residents to manage shared areas, removing the need for freeholders and third-parties.
• It recommends that leaseholders should be able to make a claim to purchase a freehold straightaway, rather than having to wait for the current two years
• There should also be a new right to a lease extension for leaseholders of both houses and flats, for a term of 990 years, in place of shorter extensions of 90 or 50 years under the current law.
• There would be no ongoing ground rent under the extended lease.
The Law Commission also recommends eliminating or controlling leaseholders’ liability to pay their landlord’s costs.
Could commonhold replace leasehold?
Should the government choose to keep the leasehold system, the Commission says ground rents should be reduced to zero and freehold purchases be made available at a reasonable price. The government is already set to ban houses being sold as leasehold in future, except in ‘exceptional circumstances’.
The three Reports recommend reforms to three areas of law and are available here.
1. how home ownership currently works and its problems
2. summary of the key recommendations for reform in the three Reports
3. looking to the future, how the recommended reforms and proposals fit together.
A right-to-manage and a common freehold for all types of property should result in leasehold flats achieving similar values as freehold houses, and this would certainly give lenders greater confidence.
