Millions of leaseholders to benefit from Law Commission reforms
- Package of reforms to transform the future of home ownership in England and Wales
- Improvements would make it easier and cheaper for homeowners to buy the freehold or extend their lease, and to take control of the management of their block of flats or an estate
- Reforms would also improve commonhold to ensure it is the preferred alternative to leasehold as a way of owning homes – just as it is around the world
The Law Commission of England and Wales has today [21 July 2020] published recommendations to transform home ownership for millions of people in England and Wales. It has been estimated there are at least 4.3 million leasehold homes in England alone. If enacted our reforms would help those owners and pave the way for a system where flats are sold with freehold title (as part of a commonhold).
These reforms – laid out in three reports – work in tandem with planned changes from the Government to create fit-for-purpose home ownership across England and Wales. The Commission’s reforms will lay the foundations for future home ownership to be freehold and tackle some key issues that existing leaseholders currently face.
This would be done by:
- Reinvigorating commonhold – which allows people to own a flat forever, with a freehold title and no landlord – as an option to replace leasehold for newly-built flats. Recommended reforms would also give leaseholders a route out of leasehold by making it easier to convert to commonhold.
- Improving the current system for existing leaseholders by:
- Improving the process by which leaseholders can buy the freehold or extend their lease (“enfranchisement”). Our recommendations would create an improved enfranchisement regime that would be simpler and cheaper for leaseholders in flats and houses.
- Making it easier and cheaper for leaseholders to take over the management of their building without buying the freehold, by exercising the right to manage (“RTM”). The RTM lets leaseholders take control of services, repairs, maintenance, improvements, and insurance.
During our projects we have heard from leaseholders about a wide range of problems they have experienced with the current law. Our terms of reference are focused on specific areas of the law and on their own cannot tackle every issue that leaseholders face. But they would combine with work from the Government (for example banning the use of leasehold for most houses) to make home ownership fit-for-purpose.
Professor Nick Hopkins, Commissioner for property law said:
“The leasehold system is not working for millions of homeowners in England and Wales. We have heard how the current law leaves them feeling like they don’t truly own their home.
“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. The reforms will provide a better deal for leaseholders and make our homes work for us, and not somebody else.”
Luke Hall, Minister for Rough Sleeping and Housing, said:
“This Government is determined to improve transparency and fairness in the residential leasehold market to help thousands of leasehold homeowners up and down the country as well as future homebuyers.
“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.”
Julie James MS, Minister for Housing and Local Government, Welsh Government:
“These comprehensive and much anticipated reports mark a significant step towards much needed reform. It is clear that the current leasehold system often fails resident leaseholders and these reports will give us a better understanding of the issues involved; we now need to take the time to consider them carefully.
“The Law Commission have undertaken a mammoth task in unpicking the current law, engaging widely on the options for change, and putting forward comprehensive recommendations and I’m grateful to them for their excellent work.”
Recommendations in each report
Enfranchisement report
In our enfranchisement report, we are recommending changes to make the scheme of enfranchisement rights work more smoothly and efficiently, whilst also introducing reforms that shift the balance of power in favour of leaseholders. Key recommendations include:
- Transforming the scope of enfranchisement so more leaseholders can benefit from a route out of leasehold:
- buildings with up to 50% non-residential space would qualify (rather than 25%, as is currently the case)
- leaseholders would be able to make a claim straightaway, rather than having to wait for two years
- the price to purchase a block would be reduced by allowing leaseholders to compel landlords to take “leasebacks” of some flats
- leaseholders would be able to buy the freehold of multiple buildings at once (for example, several buildings on an estate) rather than having to do it block-by-block.
- Creating 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. We also recommend that leaseholders who already have a very long lease should be able to buy out the ground rent without extending their lease.
- Protecting leaseholders from procedural traps and ensuring they cannot be forced to accept new obligations to make unnecessary or unreasonable ongoing payments.
- Eliminating or controlling leaseholders’ liability to pay their landlord’s costs. At the moment, leaseholders are required to pay their landlord’s uncapped costs, which can equal or exceed the enfranchisement price.
Find out more about the enfranchisement report here.
Right to Manage report
In our Right to Manage (RTM) report, we have made a number of recommendations that are designed to reform the RTM regime to the benefit of leaseholders, by making the process cheaper and more attainable for leaseholders. Our recommendations include:
- Removing the existing obligation on leaseholders to pay the landlord’s costs of the RTM process, including of any Tribunal action. This will give leaseholders more control over costs, and make the process more affordable and predictable.
- Relaxing the qualifying criteria, so that leasehold houses, and buildings with up to 50% non-residential space, can qualify for the RTM, and so that leaseholders can claim the RTM over more than one building at a time (for example, several buildings on an estate).
- Making the RTM claims process easier by reducing the number of notices that leaseholders must serve, and giving the Tribunal the power to waive minor procedural mistakes in the process.
- Improving the information and training available to RTM companies and their directors, so that leaseholders can make more informed decisions about the RTM and prepare for an effective and efficient handover of management responsibilities.
Find out more about the Right to Manage report here.
Commonhold report
In our commonhold report we have made a number of recommendations that would make commonhold not just a workable alternative to residential leasehold for all involved, but the preferred alternative. The recommendations include:
- Making it much simpler, quicker and cheaper for existing leaseholders to convert from leasehold to commonhold by:
- placing leaseholders in control of the conversion process
- preventing those who are opposed and who currently have a veto from wrecking the process
- enabling conversion to commonhold without the agreement of every person, with safeguards to protect those who have not agreed.
- Introducing flexibility into the way commonholds can be built and managed, enabling their use for developments of all types and sizes – moving away from a “one size fits all” approach that makes the current scheme too inflexible for many developments.
- Creating a robust regime for financing commonholds:
- giving owners a greater say on setting the commonhold costs,
- requiring a fund for future repairs, so enabling major works to be budgeted for,
- providing greater certainty to lenders that their interests will be protected.
- Improving the day-to-day operation of commonholds, enhancing the experience of the homeowners living within them. For example, ensuring that commonholds are kept in good repair and are properly insured.
Allowing shared ownership leases to be granted in commonholds, ensuring that as many people as possible are able to access commonhold ownership.
These reforms would overcome the legal problems with commonhold that are undermining its use.
Our recommendations provide the blueprint for a workable commonhold regime, but cannot on their own lead to its widespread adoption. It is now for Government to decide whether it should be compulsory (in all or some circumstances), incentivised, or left optional.