Law commission reports signal significant changes to home ownership
The Law Commission has today released three reports spanning almost 2000 pages on enfranchisement, right to manage and commonhold. The Law Commission was tasked by the Government to carry out a review of the residential leasehold system with the specific purpose of creating a better deal for leaseholders as consumers. This has resulted in a dramatic recommendation by the Law Commission that the residential leasehold system should be replaced with commonhold. If the Government accepts this recommendation it would represent the biggest shake-up of home ownership in history.
Commonhold has had very low take up since its introduction in 2004 due to its lack of appeal to investors and developers and the difficulties with converting existing leasehold properties to commonhold. The Law Commission has proposed significant changes to the commonhold system to address some of its most unattractive features, but more importantly, it has called on the Government to either incentivise the take up of commonhold or even to make it mandatory.
The Law Commission maintains that commonhold provides greater control for home owners over service charges and major works. They are also unconvinced that professional freeholders provide a significantly higher level of service than that which would be provided by leaseholders themselves. The proposals would allow an existing leasehold building to convert to a commonhold system if just half of the leaseholders agree and without the requirement for consent from the freeholder. This raises an important point that whilst commonhold may provide answers to some of the problems identified by the Law Commission, it acknowledges that it is not a “complete solution” . For example, it won’t remove the possibility of disputes between co-owners.
Alongside the recommendations on commonhold, the Law Commission has made radical and sweeping proposals to reform leasehold enfranchisement and right to manage, by overhauling the procedures to make them quicker, simpler and more accessible to leaseholders. In particular, leaseholders may no longer be required to pay the landlord’s legal costs associated with these claims. This comes on the back of a previous Law Commission report (see our insight here) recommending ways in which the amounts payable by leaseholders for extending their leases or buying the freehold could be reduced.
The proposals will require a significant amount of Government and Parliamentary time before legislation can be introduced and so will have to take their place in the queue behind more pressing matters. There are important political considerations here such as the current housing crisis and urgent need to build more new homes as well as the fact that with an estimated 4.3 million leaseholders in the country, there is significant political capital at play. Nevertheless, the Law Commission has signalled a clear direction of travel for the future of home ownership and we shall be watching developments closely.
For more information and analysis about the Law Commission’s proposals, please click on our insights on our Essential Residential Hub below: