Law Commission proposals to transform the future of home ownership

The Law Commission has published three reports setting out significant recommendations aimed at "transforming the future of homeownership" in three key areas of law: enfranchisement, the right to manage and commonhold making it easier and cheaper for leaseholders to buy the freehold or extend their lease and favouring commonhold as an alternative to leasehold ownership.

The proposed reforms, set out in brief below, lay the foundations for future home ownership to be freehold, and tackle some “key issues” that existing leaseholders currently face. With commonhold at the heart of the proposals, the path has been set for a radical overhaul of the existing model of freehold and leasehold ownership. The proposed reforms will now be considered by the government which will decide if and when the proposed reforms will be taken forward.

Reform of leasehold enfranchisement

Leasehold enfranchisement is the process by which leaseholders may buy the freehold or extend their lease. The Law Commission propose a new, reformed enfranchisement regime aimed at reducing the cost of making an enfranchisement claim, making enfranchisement rights available to more leaseholders in more types of property and making the enfranchisement process less complicated. Key recommendations include:

• The creation of a single procedure giving uniform enfranchisement rights to the leasehold owners of both houses and flats.
• A new right to a lease extension for a term of 990 years (in place of the current 50 or 90 year extensions) with no ongoing ground rent.
• A new right for leaseholders with very long leases to “buy out” the ground rent under their lease without also having to extend the length of their lease.
• Widening the scope of the enfranchisement regime including:

o A simplified enfranchisement procedure, with single claim form free from procedural traps.

o The ability to enfranchise immediately following the assignment of a lease rather than having to wait two years (as is currently the case) and the ability to automatically assign an existing claim on the assignment.

o The ability for flat owners to collectively buy the freehold of premises where up to 50% of the building is commercial space (rather than 25% as is currently the case).

o The ability to acquire multiple buildings (such as an estate) in one claim, rather than acquiring each building on a block by block basis.

o Enabling leaseholders to require landlords to take “leasebacks” of units within a building which are not let to leaseholders participating in a claim, thereby reducing the price payable by participating leaseholders.

o Measures to prohibit the imposition of onerous or unreasonable obligations on enfranchisement particularly those designed to generate a profit or provide an ongoing income stream for landlords.

o Measures to control, or possibly eliminate, the current requirement for leaseholders to pay the landlord’s costs on enfranchisement with leaseholders able to know, up front, what the costs of a claim will be.

Exercising the right to manage

The right to manage (“RTM”) is a right for leaseholders to take over the management of their building without buying the freehold allowing them to take control of services, repairs, maintenance, improvements, and insurance. Key recommendations include:

• Removing the current requirement that leaseholders pay the landlord’s costs of an RTM claim.
• Relaxing the qualifying criteria, so that the RTM can be claimed in respect of leasehold houses and buildings with up to 50% commercial space and permitting leaseholders to acquire the RTM over multiple buildings (such as an estate) provided that each building meets the qualifying criteria in its own right.
• Reducing the number of notices that leaseholders must serve in order to claim the RTM, together with powers for the Tribunal to waive procedural mistakes in the claim process.
• Introducing clearer rules for the dual management of any property which is not exclusive to the premises claiming the RTM, for example shared gardens and carparks.
• Improving the information and training available to RTM companies to allow leaseholders to make informed decisions as to the RTM process and the handover of the building management obligations.

Reinvigorating commonhold

Commonhold is a form of freehold ownership of flats and therefore offers an alternative to the traditional leasehold ownership. Commonhold is not a new concept, but in the 20 years since it was created take up of commonhold has been limited with just 20 commonholds formed. The Law Commission propose to reform and reinvigorate commonhold as a workable and preferred alternative to leasehold, for both existing and new homes. Key recommendations include:

• A simple cost-effective procedure for converting to commonhold, including the removal of the requirement that conversion to commonhold needs the unanimous agreement of all leaseholders, making it much easier to convert buildings from leasehold to commonhold.
• Changes to provide developers with the flexibility to build new commonhold developments irrespective of their size, make-up or complexity.
• Recommendations to provide greater certainty to lenders that their interests will be protected
• Changes to improve the day-to-day operation of commonholds, enhancing the experience of the homeowners living within them and to ensure that commonholds are kept in good repair and are properly insured.
• The creation of a robust financing regime, providing owners with control over the commonhold costs, including powers to take action against those who fail to pay their share and a requirement to maintain a fund towards future repairs.
• Reforms to the commonhold rulebook (the commonhold community statement) to make it easier for owners to understand their rights and obligations within the building and harder to change the rules, to protect the expectations of those buying into the building, whilst ensuring that important changes can still be made.

The reforms will, no doubt, be welcomed by leaseholders whilst developers and landlords may be more cautious in embracing change. Transforming the future of homeownership and establishing a workable and attractive alternative to the established, if complicated, existing leasehold tenure looks likely to be a far from straightforward exercise.