Law Commission’s report on Leasehold reforms – Comments from 5 leading leasehold lawyers

The Law Commission of England and Wales (“The Commission”) has published recommendations [21 July 2020] to ‘transform home ownership’ for millions of people in England and Wales.

The reforms are laid out in three reports, each tackling a key theme – Leasehold Enfranchisement, Right to Manage (RTM) and Commonhold.

The recommendations purport to:

• Improve the process by which leaseholders can buy the freehold or extend their lease (“enfranchisement”). The Commission believes that by introducing an improved enfranchisement regime it would become simpler and cheaper for leaseholders in flats and houses.
• Make it easier and cheaper for leaseholders to take over the management of their building without buying the freehold, by exercising the right to manage (“RTM”). The RTM lets leaseholders take control of services, repairs, maintenance, improvements, and insurance.
• Reinvigorate commonhold tenure as a ‘preferred alternative’ to leasehold – which allows people to own a flat forever, with a freehold title and no landlord – as an option to replace leasehold for newly-built flats. Reform also seek to give leaseholders a route out of leasehold by making it easier to convert to commonhold.

Full details of the recommendations can be found here.

Below is a selection of responses from leading legal experts in leasehold:

Hema Anand, Residential Property Partner at BDB Pitmans, says:

“Leasehold ownership has been toxic in the press and in Parliament for many years now. The reforms proposed by the Law Commission address inconsistent legislative requirements, streamline processes, reduce corresponding costs, grant greater protection to poorly advised leaseholders and help to keep unscrupulous landlords in check.

“Whether or not the reforms revive Commonhold remains to be seen, but ‘Commonhold 2.0’ is expected to be much less cumbersome than its unsuccessful predecessor.”

Natasha Rees, Partner and Head of Property Litigation at Forsters, comments: 

“It is encouraging to see the Law Commission addressing all three areas of leasehold law in such a cohesive way given the problems highlighted during the lengthy consultation process.  These proposals follow on from the valuation proposals that were published earlier in the year and set out ways to make enfranchisement and right to manage easier and cheaper for leaseholders.  They also recognise the fact that there needs to be a viable alternative which is attractive to developers and investors.  With a take up of only 20 Commonholds since the Commonhold and Leasehold Reform Act 2002 came into force almost twenty years ago this will be a challenge.  The Government is, however, clearly planning to re-focus their energy on the residential leasehold reform and hopefully these proposals will give them food for thought.”

Janet Armstrong-Fox, Head of Private Client Property at Collyer Bristow, comments:

“Since its introduction in 2002, Commonhold has struggled to gain any degree of acceptance, particularly among lenders – with fewer than 20 Commonhold developments created during that time.

“Recently there have been signs of lenders growing less wary, but until lenders generally are more comfortable with Commonhold and have a better understanding of it, the perceived limited availability of mortgage finance for commonhold homebuyers could be the biggest stumbling block to Commonhold taking off as a popular form of home ownership.”

Tom Allfree, Head of Residential Property, Wedlake Bell, said:

“The Government is clearly minded to have another go at getting the Commonhold system to work.

“In principle, and from the perspective of homeowners, it is a good idea – there is no third-party landlord with the owners (together) owning the building in which their flat is situated, with no lease terms to worry about.

“Commonhold tenure has existed in England and Wales since 2004. It has, however, been largely ignored, with the Law Commission reporting fewer than 20 properties using commonhold to date.

“The Law Commission has worked hard to identify the issues that have prevented developers from being able to embrace the tenure  It will be interesting to see whether the recommendations, if implemented, lead to greater take up of commonhold by developers; an increased willingness by lenders to lend on commonhold units, and a greater demand from home owners.”

Adam Colenso, Partner, Wedlake Bell, said:

“These are long awaited recommendations for reform from the Law Commission. The over-arching principles about bringing an end to those aspects of leasehold ownership that have come in for criticism in recent years is laudable. However, very careful legislative drafting would be needed to ensure that the well-paved road of good intentions does not lead to a destination that is worse than the status quo ante.

“As the report makes clear, the commonhold system will not take root unless there is some motivation given to developers to apply it (because it is mandatory or there is a financial inducement).

“It will be interesting to see what steps the government is prepared to take in this regard when it is trying to encourage the building of many more new homes during what is likely to be a substantial period of recession.”

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