MHCLG pushes ahead with plan to ban leasehold

The government is pressing ahead with plans to ban leasehold on all new properties.

The Ministry for Housing, Communities and Local Government (MHCLG) is expected later today to set out more detail of its proposal to make commonhold the ‘default tenure’ for flats and houses.

Under leasehold, homeowners occupy land or a property for a set period of time which reverts back to the freeholder, whereas under commonhold residents own their property outright and share obligations for managing, funding and maintaining properties through a commonhold association.

The government argues it is unfair that leaseholders don’t own their home outright, have to pay ground rent costs and have little say in determining how the building is run or levels of service charge.

Through a commonhold association, homeowners will have a vote on the annual budget and on the charges they have to pay along with being to vote on issues that affect them including adopting ‘local rules’. The government will later today publish a Commonhold White Paper ahead of legislation in the Autumn.

The changes expected to be set out include new rules that will enable commonhold to work for all types of developments, including mixed-use buildings and allowing shared ownership homes within a commonhold.

The government is also pledging to give mortgage lenders assurance with measures to protect their stake in buildings and protect the solvency of commonholds.

It said it will strengthen the management of commonholds, with new rules around appointing directors, clear standards for repairs and mandating use of reserve funds.

A new Code of Practice will set out how costs should be apportioned in commonhold, aimed at providing residents with transparency and clarity.

MHCLG is also pledging greater flexibility over development rights, helping developers build with confidence and maintaining safeguards for the consumer.

>>See also: Pennycook signs regulations to abolish two-year lease extension rule from end of January

>>See also: Leasehold is a positive tenure and needs to stay

It said it will provide an enhanced offer for homeowners – including “requiring greater opportunities for democracy” in agreeing the annual budget, clarifying how owners may change local rules over how a building is run and new protections for when things go wrong.

Matthew Pennycook, housing minister, said: “By taking decisive steps to reinvigorate commonhold and make it the default tenure, we will ensure that it is homeowners, not third-party landlords, who will own the buildings they live in and have a greater say in how their home is managed and the bills they pay.

“These reforms mark the beginning of the end for a system that has seen millions of homeowners subject to unfair practices and unreasonable costs at the hands of their landlords and build on our Plan for Change commitments to drive up living standards and create a housing system fit for the twenty-first century.”

Sebastian O’Kelly, of the charity Leasehold Knowledge Partnership, welcomed the announcement a the “death knell” of leasehold.

However, others have warned about the complexity of the changes and the potential impact on investment.

Scott Goldstein, partner at law firm Payne Hicks Beach, said: “The concern is to make sure that the system is ready to cope.

“Lenders must be encouraged to give mortgages to purchase flats held on commonhold. There must be robust financial controls in place to ensure commonhold blocks have the resources they need to manage their properties.

“The government needs to provide easy to follow resources to educate and train all of us about the rights and responsibilities of commonhold.”

Ian Fletcher, policy director at the British Property Federation in November said: “It is important to bear in mind that commonhold is not just a legislative change it would also mean significant changes to mortgages, insurance, conveyancing, and property management, which will impact large-scale mixed-use developments as well as residential schemes

“Billions of pounds are invested in large-scale mixed-use development, and it is essential reform is mindful of the needs of these owners, as well as leaseholders.”