The government has come under increasing pressure in recent years to tackle what has been seen as unfair practices and systems that penalise leasehold homeowners. Historically, many leaseholders have found it difficult to obtain mortgages on their homes when their leases have less than 60 years left to run, and they have had to grapple with an expensive and complicated process in order to buy an extension of just 90 years. In some cases, homeowners have unwittingly bought leases of new houses, with the ground rent payable to their landlord increasing significantly over time, without any appreciable benefit in return.
In July last year, we blogged about the Law Commission’s proposals for the future of residential property in England and Wales. These included a host of recommended changes to the law, intended to reduce the number of new houses sold on a leasehold basis, empower leaseholders to take control of their property, and encourage commonhold as an alternative to leasehold ownership. The government’s latest announcement indicates that it has taken up many of the Law Commission’s core recommendations.
Following the Law Commission’s proposals, the Housing Secretary has announced that leaseholders will be entitled in future to extend their leases by 990 years and reduce any ground rent to zero. The valuation process for calculating the premium payable for a lease extension is to be simplified, and an online calculator will give an indication of the price a leaseholder should expect to pay. We will have to wait and see what effect the new valuation regime will have on the cost of lease extensions, and the impact that this might have on investment in the residential sector.
The government is also taking tentative steps to follow up on the Law Commission’s recommendations for reinvigorating commonhold. Since its introduction in 2004 there has been very little take up (particularly from housebuilders) for the regime, which is intended to put ownership of a block of flats under the control of a commonhold association representing the individual flat owners. A new cross-industry Commonhold Council is intended to promote commonhold development, or conversion of existing flats to a commonhold structure, again with the intention of giving leaseholders greater control of the property they occupy.
Whether this will indeed lead to a cultural change in the way that residential property is developed and managed in England and Wales, only time will tell; but the industry will require buy-in from housebuilders as well as home owners if commonhold is to become a genuine alternative.
Authored by Tim Reid, Counsel