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28th July 2020

The future of (leasehold) home ownership?

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On 21 July 2020, the Law Commission published three linked reports setting out recommendations for changes to the way that homes are owned across England and Wales. The main methods of ownership currently remain freehold ownership and leasehold ownership. The Law Commission acknowledges in its reports that there are a number of issues with the current leasehold ownership model. Thereports published recommendations include making it easier for leasehold owners to:

  • exercise their right to manage;
  • to extend their lease and;
  • to buy the freehold.
Extending leases, purchasing freehold and right to manage

In order to enable leaseholders to extend their lease, the Law Commission has proposed that lease extensions should be for a period of 990 years, rather than the current common extensions of 50 or 90 years and also recommended the removal of ground rents. This should prevent the need for regular renewal and the significant decrease in property value of leasehold properties as they reach near the end of their term.

The Law Commission also recommends a cap on the costs leaseholders pay for acquiring freeholds and improved transparency for prospective leasehold purchasers of the costs that may be incurred to extend the leasehold or purchase the freehold.

These amendments to the leasehold system, along with the proposed reform of the right to manage a property, aim to make the leasehold system work for the leaseholders by regulating the system and making it transparent.

The Law Commission also recommends the removal of the pre-condition of two years ownership currently required before applying to purchase the freehold, and that the building must not have more than a 50% commercial use.

Commonhold ownership

Commonhold currently remains an uncommon method of property ownership in England and Wales. The system ensures that owners, particularly of flats in residential blocks, own the freehold title. The Law Commission has recommended that this system becomes the predominant way that flats are sold rather than the leasehold system. In order to make commonhold a viable alternative to leasehold, the Law Commission recommend extending the system so that it can be used with shared ownership and home purchase plans and removing the requirement that all properties in a building must agree to convert to commonhold.

The Future?

The Law Commission’s report consists purely of recommendations. It is now up to the government to decide whether (or not) it chooses to implement any, or all, of them. The future of leasehold home ownership therefore remains uncertain but what is clear is that this is an area of law that is under scrutiny and ripe for reform. In due course the government will publish it’s response to the latest proposals and Hewitsons will then report further

For more information on any of the items raised in this article please contact Ceri Riddell by clicking here.