Matthew Pennycook has unveiled plans to make commonhold the default tenure, though it’s safe to say housing experts haven’t welcomed the decision with open arms.
This article was written by Mark Chick, Director of ALEP and Partner at Bishop & Sewell LLP.
Not only has the minister for housing announced plans to refine the current leasehold system, but a Commonhold white paper has now been published. The document outlines the government’s intentions to ban the sale of new leasehold flats by the time the next general election rolls around. The decision means commonhold will become the default tenure, which will see individuals obtain full ownership of properties and have to pay no ground rent. What’s more, the new system looks to abolish timeframes on how long people can own property for.
On the surface, the new system appears positive however I am mindful of the challenges that will need to be overcome to make it work properly for all types of development.
For example, the decision to ban the sale of new leasehold flats is an extremely complex one and begs the question, does leasehold need to be axed altogether? If it’s broken, can it be fixed, rather than replaced in such a way that will result in considerable upheaval?
My view is that leasehold is not the failure that some have stated, but it’s not perfect either. There are aspects of leasehold which need to change: we recognise that there have been some abuses of the system and we are keen to work with the government to reform leasehold to the benefit of both residents and professionals.
Many of the issues with the current system relate to property management and we believe that the proper regulation and control of the property management sector (managing agents) is long overdue. It is fixing this which is key to success in whatever system – commonhold or leasehold is used as a form of land tenure.
In the circumstances in which residents agree to collective management, the option for commonhold is already available. But the fact that there are currently more books on commonhold than there are instances of it should raise alarm bells.
It is worth considering that flat owners who own their own their freehold through a share in a freehold owing company with a 999 year lease at a nil rent are in as good as or better position than those owning within a commonhold structure. There are a number of good reasons for this:
- Insolvency – the freehold company’s debts are not those of the leaseholders. If the company fails it is possible that another company might replace it and the leaseholders may not automatically have to discharge all debts and liabilities of the company – the same is not true of commonhold.
- Service charges – the current service charge regime does not apply in commonhold. In a freehold scenario the leaseholders will have the right to challenge their service charge budget in the First Tier Tribunal (FTT) and enforcement action cannot be taken against them unless or until service charge debts are admitted or determined to be reasonable by the tribunal. In commonhold, once the Commonhold Association has made a determination, this is binding on all the members. Because the commonhold is a ‘closed loop the unit holders are then liable for their proportion.
- Certainty of lease terms – the law as regards what can and cannot be deviated from away from the original grant is well established. The freeholder cannot make significant variations in its obligations or the obligations of others to each other once the lease has been granted. With a commonhold variations can be made on a majority vote to the Commonhold Community Statement which will then be binding on all.
Importantly too, the legal framework around leasehold is well-established and understood, providing clarity on rights, responsibilities, and dispute resolution mechanisms. The transition to commonhold will require residents and professionals to adapt to a new ownership model.
We all understand the need to build more homes, specifically affordable housing. But to significantly increase housing delivery many new homes will, through necessity, be situated in apartment blocks in high density areas. For the reasons outlined above, leasehold currently the only form of land tenure that can be used in these circumstances.
Leasehold is very much embedded in property law and is effective in most circumstances. With some necessary adaptations, it can continue to remain effective. Leases have the flexibility to be varied, amended and extended during the lifetime of a development. The position can be altered to take account of individual circumstances and this flexibility is a benefit of the current system.
ALEP, like many others, was pleased that the Labour government did not seek to abolish leasehold within 100 days of taking office, as had been suggested previously. With over 5m leases in existence in the UK, this would have caused substantial disruption for millions of residents and professionals, and would have been wholly impractical. As ALEP, we would be pleased to work with government to improve the current system, while also exploring how commonhold can work in some circumstances.
Images from March Chick.
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