What has been described as 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.
The plans could give new rights and greater clarity to 4.3 million leaseholders in the UK – but there is no timetable other than “as soon as parliamentary time allows”.
The Law Commission published three reports on 21 July 2020:
- Leasehold home ownership: buying your freehold or extending your lease Summary
- Reinvigorating commonhold: the alternative to leasehold ownership”)
- Leasehold home ownership: exercising the right to manage
Residential leasehold was one of 14 topics the commission, an independent body set up by Parliament to advise ministers, announced it would explore in December 2017.
Following a public consultation process, the Commission has now unveiled its blueprint for the future of home ownership – including a further reform of leasehold and a reboot of Commonhold – nearly two decades after that concept was introduced by the Commonhold and Leasehold Reform Act (2002)
The new proposals would make it easier for leaseholders to purchase their freehold and extend their lease for nearly 1000 years, instead of the shorter extensions of 90 or 50 years under the current law, and eliminate ground rents.
At the moment, leaseholders are required to pay their landlord’s uncapped costs, when they buy the freehold or extend their lease, the Commission said. It recommended that leaseholders’ liability to pay their landlord’s costs should be eliminated or controlled.
The Law Commission also recommended a new right for leaseholders with existing very long leases to ‘buy out’ the ground rent under their lease.
It also proposes that leaseholders can extend their lease or buy their freehold immediately after buying their home rather than having to wait two years as they do now.
On top of this, the Commission recommended that the law is changed so that the current requirement for leaseholders to pay their landlord’s costs of dealing with an enfranchisement claim should be ‘eliminated or controlled’.
Streamlined Right to Manage
If the new proposals become law, there would be an overhaul of the “right to manage” (RTM) that allows leaseholders to take control of services, repairs, maintenance, improvements, and insurance.
The report recommendations will reduce the costs of making an RTM claim, and give leaseholders more control over those costs and make the process of claiming the RTM less complicated and less likely to be frustrated because of mistakes in the process.
There would be an end to the requirement that leaseholders pay the landlord’s costs of an RTM claim, including in any Tribunal proceedings. In many cases, leaseholders will seek to claim the RTM because they are not in a position to pay the enfranchisement price. This will give leaseholders significantly more control and certainty over the costs they will incur, bringing the RTM within reach of more leaseholders.
Commonhold system should also be extended to help flat owners
The Law Commission has also proposed a massive expansion to the commonhold system, which was introduced to enable residents of a building to own the freehold of their individual flat and to manage the shared areas through a company.
Under the new proposals a flat owner could convert to commonhold from leasehold without needing the agreement of other parties who have interests in the building, for example the freeholder. And conversion to commonhold would not need the agreement of every flat owner, but there would be safeguards to protect those who have not agreed.
It also proposes that shared ownership flats be available as commonhold, something that is not currently the case. The Commission says this would help to encourage more flats being built as commonhold rather than leasehold.
The Commission says the Government should consider changing the law to make commonhold compulsory for all newly-built flats or introduce tax or other incentives so it is preferred alternative to leasehold for developers.
Professor Nick Hopkins, Law Commissioner and an author of the report, said: “Our reforms will make a real difference by giving leaseholders greater control over their homes, offering a cheaper and easier route out of leasehold, and establishing commonhold as the preferred alternative system.”
Have we heard all this before with the 2000 Act which also offered to improve leasehold and introduce commonhold? Only time will tell.