The Levelling Up Secretary’s comments come after a number of controversies surrounding leasehold tenure in recent years which include escalating ground rents, onerous lease terms, and the Grenfell Tower fire in 2017 which brought to light the number of leasehold flats in buildings with unsafe cladding.
Following government consultations, there has been legislation brought in to tackle some of these issues including the Leasehold Reform (Ground Rent) Act 2022 and the Buildings Safety Act 2022, but these have not gone far enough and indeed the latter piece of legislation is currently bringing more headaches than solutions for conveyancing solicitors. Perhaps because of the ongoing issues, Gove also said that leasehold is “unfair” and that “in crude terms, if you buy a flat that should be yours… you shouldn’t be on the hook for charges that managing agents and other people can land you with”.
One of the alternatives to leasehold is commonhold, which was provided for by the Commonhold and Leasehold Reform Act 2002 but has never taken off. It has been argued that this has been because of a combination of a lack of financial incentive for builders and lenders not getting on board with this tenure. But what is commonhold?
It allows a style of ownership similar to the condominium system in the USA or strata in Australia where can own their individual apartment (also called a “unit”) outright, as opposed to leasehold where you only own a property for a period of time i.e. the term of the lease.
Some argue that leasehold is necessary for flats to ensure that maintenance of the common parts is carried out as not all tenants would otherwise share responsibility of the maintenance. It could therefore be argued that tenants may not take care of a commonhold block, but a commonhold association does not depend on all tenants being “hands-on”. It is also important to note that voting rights can be weighted and that commonhold associations would be limited by guarantee.
It is clear that there are advantages for the consumer with commonhold over leasehold, which also include not having a depreciating asset, which a lease is, and not being at risk of forfeiture (i.e. termination of the lease) from the freeholder. However, leasehold is unlikely to be abolished soon with there being millions of existing leasehold properties in England and Wales and there is no mechanism currently in place to retrospectively convert the tenure. If only for this reason alone, reform is more likely.
Furthermore, we are still awaiting the outcome of the government’s consultation on the reinvigoration of commonhold and by the time it is published, the current government will have probably been voted out. Yet there is cross-party support for leasehold reform, as well as the take-up of commonhold, and changes are likely to be afoot over the next few years.
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