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What is commonhold and what are the governments plans for leasehold property

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Mon 27 Jul 2020

What is commonhold and what are the governments plans for leasehold property

The Law Commission recommendations suggest making lease extensions cheaper and easier ways for residents to manage their developments

Martina Lees
The Sunday Times
Proposals include making it cheaper for leaseholders to extend leases and take control of the management of buildings
Proposals include making it cheaper for leaseholders to extend leases and take control of the management of buildings



If your property is leasehold, the biggest legal shake-up in almost 1,000 years could open up a new way to own your home. The plans are among a raft of changes announced last week, which could also leave you with high safety bills and two extra storeys on your roof.

Just before parliament shut for its summer recess on Wednesday, the housing ministry rushed out a string of big policies that will affect the 4.7 million leasehold homes in England and Wales. Here’s what they will mean for you.

Under leasehold law, you do not own your home — only the right to live there, usually for between 99 and 999 years. The real owner is the freeholder, to whom you must pay to extend your lease term, service charges for upkeep, consent fees for any changes and annual ground rent for no benefit at all.

If your lease ends, or is breached, your home goes back to the landlord. This reversion dates from 1066. Today England and Wales are the last countries in the West with this system. After a two-year review of leasehold law, the government’s legal advisers want to change that.

In findings stretching to almost 2,000 pages, the Law Commission recommends ways to make the fairer system of “commonhold” a viable alternative for owning flats. Used for Australia’s strata titles and US condos, commonhold means you own your home outright and common parts jointly with neighbours. There is no third-party landlord, no time limit and no reversion. Contracts are standard, without the complexity that often traps leaseholders paying spiralling costs.

Although commonhold has existed in English law since 2002, fewer than 20 newbuild schemes have used it and no existing ones are thought to have converted from leasehold. That switch requires consent from the freeholder, all leaseholders and all their lenders. Instead, the Law Commission recommends that half of leaseholders must agree.

Ministers must now decide if this will become law, and whether to make commonhold compulsory or incentivised. Without that, it won’t take root, the commission says, because “there is more money to be made from leasehold”.

Lease extensions
The price to extend your lease or buy your freehold, called “enfranchisement”, is a complex calculation involving “relativity graphs”, a parallel universe and lost future ground rents. It gets more expensive once the lease drops below 80 years. You can renew the term only two years after buying or remortgaging the property, and if you use the safer, formal route to do so you must pay the freeholder’s legal fees — which can cost more than the extension itself.

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The Law Commission recommends ways to make enfranchisement cheaper, with no two-year delay, no freeholder legal fees and extensions of 990 years instead of the present 90 or 50. The ground rent would also fall away. People who already have very long leases would get a new right to buy out their ground rent, offering a way out of nasty clauses under which this annual charge rises every few years. Neighbours who club together to buy their freehold would be able to force the freeholder to “leaseback” any flats that don’t take part, so they can pay less.

Building management
Lastly, the Law Commission suggests ways to make it easier to exercise the right to manage your development, which helps residents to keep service charges down. You would no longer have to pay the freeholder’s legal costs when taking over management. Houses would qualify to run their own estates; so would buildings with up to 50 per cent non-residential space.

Safety charges
What the government is bringing in is an uncapped new “building safety charge” under the draft Building Safety Bill, which applies to blocks of 18 metres or six storeys and above. It was prompted by the Grenfell Tower fire, which killed 72 people in 2017. According to the government’s impact assessment, measures that could include fire doors, signage or sprinklers would cost an affected leaseholder £9,000 on average, up to a maximum of £75,000.

Managing agents and freeholders will be legally responsible for a building’s safety, but not the cost of it.

Extra storeys
From August 1, planning rules will fast-track adding two extra storeys of flats on top of blocks with three to eight floors, built between 1948 and 2018. The permitted development right (PDR) applies to sites above 1.46 million flats and would create up to 800 new flats a year, government analysis shows.

This is despite an independent report for the government published on Tuesday, which found less than a quarter of flats created via light-touch PDRs met minimum space standards. There are also implications for leaseholders, who could lose about £9,000 each in inconvenience and reduced value, according to the Leasehold Knowledge Partnership (LKP). But you stand to lose far more if your block qualifies for the PDR: regardless of whether flats ever get built, the fact it could happen pushes up the development value of the freehold. According to LKP, 1.2 million flats would have to pay between £12,000 and £29,000 more to buy their freeholds — or convert to commonhold, if that became law.

Sir Keir Starmer, the Labour leader, tabled a motion against the PDR on Tuesday. If it fails to gain enough support, leaseholders could pay dearly.