How home ownership could change as leasehold law faces shake up

Tom Belger
·Finance and policy reporter
Blocks of flats in Leeds, England. Photo: PA
Blocks of flats in Leeds, England. Photo: PA

Millions of homeowners could gain new rights over leasehold properties, as the UK government vowed to press on with reform after experts said the leasehold regime was “not working.”

A series of reports for the government by the Law Commission this week set out a package of potential reforms for England and Wales, which would give leaseholders more control over their homes.

At least 4.3 million homes are thought to be leaseholds in England. 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.

Proposals include making it easier and cheaper for leaseholders to extend leases, buy freeholds, and take control of the management of buildings.

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The government has been promising reforms for several years. Housing secretary Robert Jenrick promised draft legislation “shortly” in January, but it has not materialised since and parliament will soon break for the summer.

Some campaigners have called for more urgency. “We’ve been given empty promises for so many years now and we’re still no further forward,” Katie Kendrick, founder of the National Leasehold Campaign (NLC), told PA. “I’m kind of losing faith that any legislation is going to happen any time soon.”

Yahoo Finance UK understands that the government remains committed to reform, with the demands of dealing with the coronavirus and related legislation blamed for delays. Officials hope to bring a bill forward as soon as parliamentary time allows, and once they have had time to consider the Law Commission’s proposals.

More freehold or ‘commonhold’ flats

Part of the government’s approach will include stopping new properties being sold as leasehold in the first place. “If a new home can be sold as freehold, then it will be,” prime minister Boris Johnson’s administration promised in its legislative agenda set out in the Queen’s Speech.

But leases will still be allowed in as-yet-unspecified “exceptional circumstances,” so it remains unclear how many new properties may still be built and sold on a leasehold basis.

The Law Commission’s reports also raise the prospect that the government may not “go as far as to ban leasehold” on new properties, instead merely incentivising alternatives.

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One alternative form of ownership is ‘commonhold,’ which was introduced in 2002 to allow freehold flat ownership. Shared areas are typically managed through a company, no ground rent is paid and commonholders have more freedom over use and alteration of their properties than leaseholders.

But commonhold has “failed to take off,” with only 20 developments using commonhold ever built, according to the commission.

It says developers have resisted not only as there is no income beyond initial sale from charges on leaseholders, but also as they say commonhold law is unsuited to more complex developments. The commission recommends tweaking the law so it can be more “tailored” to specific kinds of development, and making it easier for existing leaseholders to convert to commonhold.

A better deal for existing leaseholders

Leasehold flats are common in Britain. Graphic: Law Commission
Leasehold flats are common in Britain. Graphic: Law Commission

Professor Nick Hopkins, leading the commission, said the current system was “not working for millions of homeowners” with existing leases.

Such leases will continue but a range of measures are expected to give leaseholders a “better deal,” according to Hopkins.

Reforms backed by the commission include making lease extensions far longer, making them last 990 years and effectively eliminating ground rent. “Procedural traps” in trying to extend or convert leases should be removed, making it easier, cheaper and quicker to do so. Leaseholders should no longer have to cover freeholders’ legal costs.

Leaseholders cannot currently take over the management of a block or together buy it as freeholders if more than a quarter of the block is commercial property. The commission recommends softening this restriction, moving it to 50% of a block.

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Taking over management or ownership would give more leaseholders control of services, repairs, maintenance, improvements and insurance, according to the body.

“It is now for government to decide whether to take forward our recommendations,” said one of the commission’s reports.

Luke Hall, minister for rough sleeping and housing, said earlier this week the government was “determined to improve transparency and fairness” in the leasehold market.

“We are clear that the current system needs reform, which is why we asked the Law Commission to carry out this important work. We will carefully consider the Law Commission’s recommendations, which are a significant milestone in our reform programme, as we create a better deal for homeowners.”

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