In Matthew Pennycook’s speech on the Leasehold and Commonhold Reform Bill, he said the government’s commitment to bring the leasehold system to an end did not mean immediately getting rid of the system.
He said that those advocating for this could not answer how it would be lawful, how to manage the impact on the mortgage market, or how the Land Registry would delete the leasehold and freehold titles and replace them with commonhold ones overnight. He also said this approach would not consider how to establish millions of commonhold associations or the consequences for buildings already enfranchised or that have exercised the Right to Manage.
Pennycook said: “They can’t answer these questions because abolishing leasehold outright is a glib soundbite rather than a serious policy proposition.”
He said bringing the leasehold system to an end meant “preventing the system from perpetuating itself”, while “empowering existing leaseholders” to gain control of their buildings and exit the system if they wish to.
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A slow move to commonhold
The government will legislate to make commonhold the default tenure, with Pennycook saying this was not just an alternative to leasehold but a “radical improvement”.
“At the heart of the commonhold model is a simple principle: the people who should own buildings, and who should exercise control over their management, shared facilities and related costs are not third-party landlords but the people who live in flats within them and who have a direct stake in their upkeep.
“Commonhold ensures that the interests of homeowners are preserved in perpetuity,” he said.
He said once the bill passes, new leaseholds would “cease to exist other than in exceptional circumstances”.
The government has pledged to improve the commonhold conversion process to align with wider enfranchisement processes to make conversion possible if at least 50% of qualifying leaseholders agree. It will also make the process cheaper and easier.
Further, it will consult on capitalisation and deferment rates so it can introduce a new valuation process that removes the need for marriage value to be paid, and caps ground rents at 0.1% of the freehold value.
It will also introduce mandatory leasebacks to ensure enfranchising leaseholders are not made to buy expensive commercial units or non-participating leases.
Pennycook added: “This will not be without its challenges. The existence of development value as a barrier to enfranchisement, in particular, does not lend itself to easy solutions, but I want to assure leaseholders across the country we will not duck this and other difficult issues.
“The end result of bringing all these measures into force will be more existing leaseholders able to take control of their buildings and more easily convert to commonhold as and when they judge it is the right time for them.”
He said leasehold would not end in an “abrupt and chaotic single moment of disruption” but through a methodical approach, “firmly shutting the door on leaseholds’ future use”.
Pennycook added: “Change that is carefully considered, properly sequenced, proportionate and fair, but also real and irreversible.
“These wider reforms will take time to enact. We’ve never pretended otherwise.
“We are abolishing leasehold forfeiture and replacing it with a modern, proportionate lease enforcement system that addresses breaches fairly, with appropriate safeguards and judicial oversight.”
