The Government has published the Draft Commonhold and Leasehold Reform Bill, setting out sweeping reforms designed to modernise flat ownership and better protect consumers. The proposals represent a significant shift in residential property law, with major implications for homeowners, prospective buyers, landlords and developers.
Some of the key changes to be aware of are outlined below.
Leasehold to be replaced by commonhold for new flats
The Bill proposes a ban on selling most new flats as leasehold, instead opting to make commonhold the default model for new developments. Under the commonhold system, owners hold the freehold of their flat and collectively manage shared areas through a commonhold association. There is therefore no traditional third-party landlord.
The aim of this change is to address many of the longstanding issues with leasehold ownership, including the imbalance of power between landlords and leasehold owners, unregulated and unaffordable ground rents, exploitative service charges and the threat of forfeiture.
A modernised commonhold system
The Bill introduces a major overhaul of the commonhold framework in order to make it a practical alternative for modern developments. This includes (but is not limited to):
- “Sections” and “separate heads of cost”, which enables commonhold to function in more complex buildings, such as those with mixed-use sites with both residential and commercial units. This would ensure that owners only pay for – and vote on – the services that they actually use.
- A mandatory reserve fund, supported by periodic professional assessments, which should help avoid sudden large bills for major works which arise as an emergency.
- A requirement for an annual budget to be approved by the commonhold owners, which will grant residents more control over costs by providing greater transparency on what said costs may be.
These improvements, amongst others, aim to increase the flexibility of commonholds, both for developers and owners, as well as better safeguard owners against the current lack of control and transparency afforded to them.
Easier conversion of leasehold to commonhold for existing buildings
The Bill also seeks to support existing leaseholders by making it easier to convert their leasehold into a commonhold. This can be done via collective enfranchisement, and previously, the requirement was the agreement of 100% of leaseholders in a block to convert. Now, this threshold has been reduced to 50%. Leaseholders who do not consent to conversion remain as “non-consenting leaseholders”, but their leases will be phased out in time and their rights and obligations will be closer to those under commonhold arrangements. This change, paired with the reforms to commonhold, could pave the way for groups of leaseholders to take better control of their buildings.
Forfeiture to be abolished
One of the most significant protections afforded to homeowners under the Bill is the abolition of forfeiture – the process whereby a landlord can terminate a lease, sometimes for relatively minor breaches, potentially depriving the leaseholder of their equity.
Forfeiture is to be replaced with a new lease enforcement scheme, which will require landlords to apply to the courts for proportionate remedies for breaches of lease that they have suffered. Only the most serious cases will result in the courts considering an order for sale. Even where an order for sale is made, there will be protections to ensure that the leaseholder is compensated for any remaining equity they have in the property.
Although the Bill remains in draft form, the direction and aim are clear: leasehold is set for fundamental reform, and commonhold is poised to be the sustainable alternative that will replace leasehold in time.
If you need assistance regarding Flat Ownership Reforms, please do not hesitate to get in touch with our friendly team on 01256 844888 or enquiries@lambbrooks.com