This week’s Legal Update looks at the (not so) bed time reading that is the 640 page Law Commission Report snappily titled “Reinvigorating commonhold : the alternative to leasehold ownership” which was published at the end of July 2020. The full report can be found here

As will be no surprise from the title, and as we reported back in January 2019 when the consultation paper was released, the Law Commission are championing commonhold as a solution to what has been a political vote winner of joining the anti leasehold brigade.  In our view there are many benefits to commonhold but there are also a lot of issues with the current drafting, a whole cultural mentality/misunderstanding of what actually commonhold is to be overcome before we will see it extend much beyond the paltry 20 odd developments in the UK currently running as commonhold.

It is said that in England and Wales over 4 million homes are currently leasehold, with that number growing each year. Commonhold has not proved to be popular in part due to a lack of any real marketing by the government, absolutely no incentives provided to developers to take up the “option” of commonhold and a wariness of those buying or lending upon such schemes.  Accordingly, leasehold ownership prevails and, despite the ‘anti’ campaigns, little change is expected in the absence of considerable changes as to how we look at leasehold over commonhold.

The Law Commission report therefore proposes the following.

1.       Compulsory Commonhold?

A necessary consideration is to make commonhold compulsory on all new developments and ban the sale of new leasehold property (flats and houses).  That is of course very drastic but it may take such a measure to move commonhold forward.

The Report recognises that before that happens changes must be made to the current commonhold legislation to make it a better fit for the purpose for which it was intended.  Criticisms include that it does not work in all developments, particularly complex and mixed use developments which are more and more common nowadays as developers seek to maximize urban centre sites.  The report moots perhaps configuring the statute to enable certain flexibilities into how commonhold will work on certain developments.    

2.       Optional Commonhold?

Well, you might say, isn’t that what we currently have? And you would not be wrong, but the Report here suggests that, with amendments as above to make the whole package more exciting to developers and therefore more palatable to both buyers and mortgage lenders, the new commonhold might create its own momentum and spread across the country.  The excitement for the developers will need to be in some form of incentive that addresses current (mainly financial) disincentives that it has over the current leasehold arrangement.

What happens in the meantime and what about existing leasehold property?

All of the above is based upon future developments and does not address those which already exist.   The Law Commission report considers that the current legislation will need to be improved to remove what it says are the perceived issues with the current leasehold regime.

Whilst that current regime provides for leaseholders to, for instance, buy the freehold of their house/block; acquire an extension to their ever decreasing leases or take over the management, the Law Commission take the view that what is provided could be better and suggest the following should be considered:

Enfranchisement

• Could be less complicated and therefore cheaper and quicker with a hand of government in the premium price payable and a removal of the requirement to cover the costs of the landlord.

• The hurdle for leaseholders in mixed use developments which prevents enfranchisement where the commercial part of the development exceeds 25% of the development could be removed (partially) by lifting that limit to 50%.

Right to Manage

• As with enfranchisement there is an argument to make the process cheaper and quicker and also more available by lifting the commercial property element limit to 50% as above.

• Enable multiple units to exercise the right collectively rather than the individual building restriction that currently applies and thus enable leaseholders to manage the entire development as one.

Covert to commonhold

• Subject to the necessary and accepted (considerable) improvements required, it is mooted that existing developments might be enabled to convert to commonhold more easily.

Professor Nick Hopkins, one of the Commissioners of the Report said that “once we have a commonhold that works we do not need leasehold” - a bold statement, and for residential purposes probably not an unfair one.  However those drafting the legislative changes required to make a commonhold that works across all development types is no small task and it will be interesting to see to what extent the government can introduce the hoped for all singing, all dancing commonhold, or whether it has to be imposed alongside a ban on leaseholds.

My view is that commonhold will, in a much improved form, likely have a place in future home ownership in the UK and we may well see a ban on future leaseholds at some point. When that will be and whether that will sound the death knell for all leasehold ownership and the current landlord/tenant regime is something that is unclear.  It is, however, some way off unless this or any future government chooses, or has sufficient incentive, to make it a priority and that, one suspects, will have as much to do with the polls as it does with anything else.

Should you have any questions in relation to the above, then please do not hesitate to contact Kevin Lever, at kevin.lever@kdllaw.com or 01435 897 297.

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