The UK Government have revealed they plan to scrap the current leasehold system before the next general election. So, what does this mean for the sector?
At the beginning of this week, we reported on industry speculation on how the government planned to reform Right to Manage, but now the changes have been made public we can begin to think how this will affect the housing, development and construction sector.
Yesterday, Monday 3rd March, Housing Minister Matthew Pennycook revealed leasehold flats will be banned, which marks ‘the beginning of the end’ for the ‘feudal’ leasehold scheme. The announcement has come with an aim to introduce a ‘commonhold’ programme that will give homeowners more of a say over their flat buildings.
What is the leasehold system?
Leasehold properties within the UK are often made up of flats or apartments. When they are purchased, individuals own the property but not the building or the land they’re built on. As a result, they have to fork out ground rent to a third-party landlord and pay service charges required to maintain the building.
Previous leasehold owners have said they have no control over the costs, which often skyrocket once the property has been bought, thus leaving them in houses they can’t afford.
With these issues in mind, the Labour Government have announced plans to scrap the system altogether – a key pledge that formed part of their manifesto in the snap election last year – and have published details about what will replace it.
The introduction of ‘commonhold’
Ultimately, the commonhold system will better allow for property owners and third-party landlords to own and manage their buildings together, rather than the overall control lie with the latter.
What’s more, the government have also put forward strict rules on how commonhold buildings can be managed in a bid to reassure mortgage lenders that buildings won’t be neglected.
To address financial concerns, under the new proposals members of the commonhold will be able to vote on decisions around building maintenance and service charges. The plans also allow for people to just pay for the amenities that benefit them.
The news has come as a shock, especially considering in 2024 a mere 0.01% of housing stock in the UK was commonhold properties.
Industry reactions
Mark Chick, director of ALEP and a partner at Bishop & Sewell LLP, has remarked that whilst the news is good, a lot of work will be required to make sure commonhold is ‘fit for purpose’.
‘ALEP welcomes the publication of the proposed white paper in relation to commonhold and we note the recognition of the challenges that will need to be overcome to make it work properly for all types of development,’ Mark said. ‘Whilst the announcement signals the proposed moves to amend commonhold, there is a great deal of work to be done to ensure commonhold is made fit for purpose.’
Mark added: ‘[The] announcement signals a proposal that once commonhold has been introduced that the sale of new leasehold flats will be banned. Such a position will of course only be possible if and when all of the necessary reforms to the commonhold system have taken place. We would urge government to be realistic in manging the expectation of the public as to when this is likely to be as, in our estimation, this is likely to take some significant time.’
Against this backdrop, the details announced from the Government’s Commonhold White Paper have come ahead of the draft Leasehold and Commonhold Reform Bill, which is due to be published later this year.
‘ALEP has advised the government on leasehold reform previously and remains available to work with government in relation to the proposed changes,’ Mark continued. ‘In the meantime we welcome [the] progress. We look forward to receiving further details of the proposed Leasehold and Commonhold Reform Bill, consultation and discussions around this – which is where a fuller debate around these issues can take place for the benefit of the property sector as a whole.’
Photo by Ryan Lau via UnSplash
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