The journey begins….destination : commonhold

Following proposals by the Law Commission in July 2020, which contemplated the biggest shake-up of home ownership in history, the residential sector has been awaiting the Government’s response.

Commonhold

The Government issued a press release on 7 January 2021, which has demonstrated the Government’s clear intention to continue down the Law Commission’s proposed path; moving away from the current leasehold system and towards commonhold.

The Government proposes to establish a Commonhold Council made up of leasehold stakeholders with a view to preparing homeowners and the residential market for greater utilisation of commonhold.  The Law Commission’s report on commonhold contained 121 proposals to overhaul commonhold so there is still quite a lot of work to be done here.  In a commonhold structure, homeowners will be required to have more involvement in the management of their building than they may currently be used to which will include responsibility for issues such as building safety (something which Parliament will be looking at during 2021 with the Draft Building Safety Bill likely to be introduced).

Enfranchisement

The press release also indicates that the Government intends to create a new right for leaseholders to extend a lease of a flat or a house by 990 years.  Currently existing leaseholders are able under statute to extend their leases by 90 years for a flat or 50 years for a house, although the landlord and leaseholder can agree longer extensions outside of the statutory procedure.  The current statutory regime provides that the ground rent in the new extended lease is reduced to zero which the Government will also adopt with the new 990 year extension term.  The Government has also announced that marriage value will be abolished and that calculation rates will be set.  Further details on how a lease extension will be valued are awaited following the Law Commission’s report in January 2020 containing a menu of options and sub-options on enfranchisement valuation issues.  From the press release it is not clear precisely which combination of proposals the Government intends to adopt.  For more on the Law Commission’s recommendations on valuation, please click here for our insight.

Timing

The Government has indicated that legislation will be brought forward in the upcoming session of Parliament to set ground rents in new leases of flats to zero.  This is a proposal which the Government announced in June 2019 following its consultation on reforming the residential leasehold system in England together with a ban on the sale of new leasehold houses in all but very limited circumstances.  In addition, the Government plans to produce a further response to the Law Commission’s remaining recommendations.  With the Law Commission’s reports having exceeded 2,000 pages there is likely to be a lot of further detail still to come.  For details of those proposals, please click here for our insights.

Parliament will certainly have its hands full in 2021 with COVID and Brexit issues and building safety is likely to feature but it appears that we can also expect to see legislation on reducing ground rents to zero.  The move towards commonhold may be a little further away but the Government’s direction of travel has been set.

This is an area of fast-paced change so please visit our Essential Residential Hub and our timeline: Changing landscapes in residential leasehold to keep up to date with developments.

Please do not hesitate to contact Lauren Fraser, Laura Bushaway or your usual Charles Russell Speechlys contact if you have any queries.  This insight is not a substitute for legal advice on the specific circumstances of the case.