Home owners need cheaper and easier route out of leasehold, says Law Commission

Reforms to make it easier and cheaper for leaseholders in England and Wales to take control of their homes have been recommended by the Law Commission.

This would strengthen the powers available to leaseholders, while at the same time reinvigorating the system of commonhold as an alternative to leasehold.

The Commission said the leasehold system is not working for millions of home owners.

The system, which has been described as “medieval”, has attracted controversy amid concerns about leaseholders paying high and unfair charges and being faced with further costs if they want to change their situation.

We’re concerned that leasehold homeowners have been unfairly treated and misled by certain housing developers.

Our concerns include:

📈 Increasing ground rents📄 Misleading information💷 Unreasonable fees

Read more: https://t.co/i1dyMmTwXP pic.twitter.com/KkQwnhQXsY

— Competition & Markets Authority (@CMAgovUK) February 28, 2020

With a leasehold home, people own their property, often a flat, for the length of their lease agreement with the freeholder. The leaseholder does not own the land the property is on and may be charged ground rent.

When the lease ends, ownership returns to the freeholder, unless the lease can be extended – an option which may be expensive. A property with a short lease remaining could also be hard to sell on.

The Competition and Markets Authority (CMA) has recently raised concerns about leasehold home owners having been unfairly treated.

Its concerns included home owners having to pay escalating ground rents, which in some cases can double every 10 years. People can struggle to sell their homes and find themselves trapped, the CMA said previously.

It has been estimated there are at least 4.3 million leasehold homes in England alone.

The Law Commission said that if enacted, its reforms would reinvigorate commonhold – which allows people to own a flat with a freehold title, no landlord and no lease to expire – as an option to replace leasehold for newly-built flats.

Its recommendations would also give leaseholders a route out of leasehold by making it easier to convert to commonhold.

Conversions to commonhold would not need the agreement of every person, although there would be safeguards to protect those who have not agreed. This would prevent those who are opposed and who currently have a veto from wrecking the process.

The Commission also suggested 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”. This right would allow leaseholders take control of services, repairs, maintenance, improvements, and insurance.

It also said there should be 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 current law. There would be no ongoing ground rent under the extended lease. It also recommended that leaseholders who already have a very long lease should be able to buy out the ground rent without extending their lease.

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 Commission said its proposals would work in tandem with planned Government changes to create fit-for-purpose home ownership across England and Wales.

Professor Nick Hopkins, commissioner for property law, said: “The leasehold system is not working for millions of home owners 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 home buyers.

“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 home owners.”

Mike Amesbury, Labour’s shadow housing and planning minister, said: “Home buyers don’t need another consultation, they need action: the Government needs to come forward with legislation and finally end this medieval injustice.”

Julie James, Minister for Housing and Local Government, Welsh Government, said: “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.”