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Leasehold and commonhold reform: what further indications have the Government given for 2023?

No sooner had the ink dried on our latest article: A year on from the Government consultation on leasehold and commonhold reform in England and Wales: where are we now?, than Michael Gove made a further announcement on the Government’s intentions to reform leasehold.

He confirmed in an interview with Sky News on 29 January 2023 that the Government wants “to introduce legislation in the final parliamentary session – later this calendar year – in order to change the leasehold system”. He suggested that the Government wanted to remove the leasehold structure entirely.

What was not mentioned in that interview was the alternative structure for the ownership of residential flats: commonhold. Commonhold has been in existence in England and Wales since 2004 but has not seen a huge take-up. The Law Commission in July 2020 recommended a greater move to commonhold as the alternative to the leasehold system but there are a number of legal complexities which the Government will need to consider. This would include, by way of example, the conversion of existing properties held on a leasehold basis to the commonhold regime to avoid a twin-track system of home ownership. Under the commonhold system, properties are owned by unit holders, who remain collectively responsible for the management of a building. They may decide to appoint managing agents who can assist with the management. However, a unit holder will remain liable for their share of the costs of maintaining the building and management fees. This is an area with heavily increasing regulation, particularly around building and fire safety, with greater responsibilities for those owning properties than ever before. The Law Commission recommended that unit holders indemnify the other unit holders for the costs of enforcing a breach of the Commonhold Community Statement but this may ultimately lead to disputes between co-owners.

The Government also wants to make changes to the enfranchisement, right to manage and lease extension procedures including reducing the premiums payable for lease extensions under the Leasehold Reform, Housing and Urban Development Act 1993. This was announced back in January 2021. Those advising landlords and leaseholders may wonder how that impacts claims for lease extensions under the statutory process. However, the Government’s timeline has not been announced which makes that a difficult question to answer. As ever, the devil will be in the detail, and the legislation which the Government intends to introduce is awaited. Those in the property industry have known for sometime that the direction of travel is a move towards commonhold but there remains a lot for the Government to consider in seeking to change the leasehold landscape.

We are tracking developments on our Essential Residential Hub and our timeline: Changing landscapes in residential leasehold.

Please do not hesitate to contact Natalie Deuchar, Laura Bushaway or your usual Charles Russell Speechlys contact if you have any queries.

Gove told Sophy Ridge on Sunday on Sky News: "We want to introduce legislation in the final parliamentary session - later this calendar year - in order to change the leasehold system."

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