Law News

Property industry reacts to reform of leasehold law announcement

Em Morley - July 24, 2020

A number of reforms have been planned to improve homeownership for millions in England and Wales.

The government aims to transform the future of homeownership by making it easier and cheaper to buy a freehold or extend the lease. Homeowners will also be able to take control of the management of their block of flats or an estate.

It states that the reforms also aim to improve commonhold to make it the preferred alternative to leasehold as a way of owning homes, “just as it is around the world”. You can read the government’s full report on the Law Commission website.

Mark Hayward, Chief Executive, NAEA Propertymark comments: “We have long called for action to be taken to help leaseholders who have been misled and treated unfairly so it is really positive to see the Law Commission’s report today. 

“For too long, housebuilders and developers have not been transparent enough about what it actually means to buy a leasehold property, which in turn has meant many owners have been faced with escalating ground rents and unreasonable fees, leading them into financial difficulty. 

“In 2017 we argued for leasehold reform through our ‘Leasehold: A Life Sentence?’ report which found that 93% of respondents wouldn’t purchase another leasehold property.

“It’s vital that the proposals laid out in today’s report lead to actions as soon as possible to give some hope to those who are currently trapped in leasehold properties with no easy route out.”

Mary-Anne Bowring, group managing director at Ringley comments: “The Law Commissions report into leaseholds is a timely announcement, coming just as the government looks to get the housing market going again.

“The proposals to streamline and simplify the process of buying the freehold are especially welcome – not least because every lease is getting shorter. It is debatable whether the process simplification will equitably offset the proposed extension to permitted development rights, which would allow certain building owners to add another two storeys without planning permission, thereby increasing what is known as the hope value of a building, making purchasing the freehold of a building more expensive.

“Similarly, improving leaseholders’ rights to manage their building is also welcome. In many smaller blocks especially, because if there is harmony self-managing can be an option, insurance commissions can be saved, budgets and major works plans can be set by those who want to maintain their asset value, not by an absentee freeholder whose disillusioned by the diminishing value of his reversionary interest may have given up.

“The Law Commission’s report carries the oft-repeated call for converting leasehold flats into commonhold but this wouldn’t be as simple as people think and would create a lot of grey areas around building management. 

“Many institutional investors such as pension funds and insurers have also invested in freeholds and ground rents are an important income stream to match their liabilities. With many having lost out on revenue with shopping centres and offices being closed, any move to commonhold needs to keep this fact in mind.”

It was in July last year that the government announced plans to abolish the selling of new houses as leaseholds.