In its final series of reports, that have been the subject of a two-year long study of the leasehold regime, the Law Commission wants the government to make commonhold agreements compulsory, putting an end to the use of leasehold contracts and protecting homeowners from profiteering developers.
The commission has also suggested incentivising developers to use commonhold rather than leasehold, or making it unattractive to sell properties under leasehold terms.
The government has already stated it wants to make commonhold a viable alternative to leasehold, but the Law Commission says that without strict intervention developers will not switch to the less well known tenure.
One way of doing that is to give them no choice, said the commission.
“Commonhold is used around the world; it can and does work,” reported the legal advisers. “But for so long as there is more money to be made from leasehold, and unless initial impetus can be given to overcome inherent inertia and a lack of awareness, it is not going to take root on its own.
“Without government intervention, commonhold simply cannot compete with leasehold.”
Commonhold is an alternative to leasehold. It was introduced in England and Wales in 2002 to allow the freehold ownership of flats.
It allows apartment owners to own their home forever under a freehold title and no ground rent is payable.
They can also directly influence how their own building is managed. And unlike leasehold agreements, there is no developer or freeholder to profit from the sale of the contracts.
But the tenure has not been popular, and since the legislation was introduced only 20 commonhold agreements have been put in place.
The commission says this is partly because it is a less attractive way of selling home for developers, but also because failings in the current law have prevented it being used. The commission has proposed to reform the system to make it a viable alternative.
“Once we have commonhold in a way that works … we do not need long residential leases,” said Professor Nick Hopkins, Law Commissioner.
Buying or extending existing leaseholds
The commission also wants to overhaul the current system for homeowners to buy the freehold, or extend the term of their lease, called enfranchisement.
Among its recommendations, the commission wants to reduce the cost of purchasing the freehold, give house and flat owners the same rights, the ability to extend a lease by 990 years, instead of 90 or 50 years and a ban on charging ground rent during the extended term of the lease.
The changes will give leaseholders more control over the costs they pay during the process and they would not be responsible for paying fees incurred by the landlord.
Mark Hayward, chief Executive of NAEA Propertymark, said: “We have long called for action to be taken to help leaseholders who have been misled and treated unfairly so it is really positive to see the law commission’s report today.
“For too long, housebuilders and developers have not been transparent enough about what it actually means to buy a leasehold property, which in turn has meant many owners have been faced with escalating ground rents and unreasonable fees, leading them into financial difficulty.
“In 2017 we argued for leasehold reform through our ‘Leasehold: A Life Sentence?’ report which found that 93 per cent of respondents wouldn’t purchase another leasehold property.
“It’s vital that the proposals laid out in today’s report lead to actions as soon as possible to give some hope to those who are currently trapped in leasehold properties with no easy route out.”