A package of measures aimed at making it easier and cheaper for leaseholders to buy their property outright or extend their lease has been proposed by the government’s legal advisory body.
The recommendations follow last year’s announcement that leasehold ownership - which is time-limited and where the landlord has ultimate control over the property - for all new build houses would be banned and ground rents reduced to zero. However, existing leaseholders still face “high and escalating ground rents” and excessive service charges levied by some landlords, as well as legal and financial obstacles in securing the freehold.
Leaseholders of both houses and flats should have the right to a lease extension for a term of 990 years, in place of the current shorter extensions of 90 or 50 years, the Law Commission has said. There would be no ongoing ground rent under the extended lease, and landlords could not use the extension process “to impose new, onerous obligations”, it recommended.
Leaseholders with very long leases would also have the right to “buy out” the ground rent under their lease without also having to extend the length of their lease, under the proposals.
The commission has also recommended that commonhold becomes the primary method of owning a flat, where residents of a block own the freehold of their individual apartment and together with their neighbours, appoint a company to manage the common areas. This gives homeowners greater control over their property and means they do not have to pay ground rent.
A new regime should remove the requirement that conversion to commonhold needs the unanimous agreement of leaseholders and others with particular interests in the building and reforming legislation so that commonholds can be tailored to suit the individual requirements of mixed-use or complex developments.
These proposals would allow "compartmentalisation of the commonhold", said Osborne Clarke legal director, Matt Ashley. For instance, residents of one block of flats would fall under one commonhold but could also be included within another commonhold arrangement covering a shared outdoor space, he added.
In February, the Competition and Markets Authority said it was planning enforcement action against housebuilders after uncovering “troubling evidence of potential mis-selling and unfair contract terms” in the leasehold market. The watchdog opened an investigation into the sector in 2017 after the “leasehold prisoner” scandal that revealed many leaseholders were unable to sell their properties due to provisions such as ground rents, some of which doubled every 10 years.
The existence of the ground rent itself is not a problem for residents, but the size and value is, said Mr Ashley. “If the payments on that become too high then it becomes unassailable for them,” he said. That makes the property more difficult to sell not only because rising costs make it less attractive for potential buyers, but it can also make a home “unmortgageable”, he added, because of the risk lenders perceive to the resale value of the property if they need to repossess it.
The length of a lease remaining has also been an issue to flat owners trying to sell, said Burges Salmon head of residential real estate, Zoë Longman. Many lenders will not lend on properties with leases that have less than 80 years remaining, and buyers will not buy the lease unless the lease is extended, she said.
"Lease extension under the current legislation is an expensive and complex procedure which many lessees do not want to undertake or [are] not in the financial position to do so," she said.
In a bid to make it easier for leaseholders to take over the management of their building without buying the freehold, the Law Commission has also proposed scrapping the requirement that leaseholders pay the landlord’s costs of a right-to-manage (RTM) claim and relaxing the qualifying criteria, including claiming RTM in respect of leasehold houses and buildings with up to 50 per cent commercial space.
