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Leasehold property: on the road to reform

Leasehold property has gained much publicity and for several years, the government has been promising an overhaul of the leasehold practice.

Last year, the government announced it intended to ban the sale of new leasehold houses and cut ground rents on new apartment leases to zero.

It is now under increasing pressure to go even further in dealing with the issue as millions of leaseholders’ struggle with onerous ground rents, unfair service charges and exploitative informal leases that offer no legal protection.

Following a two-year investigation, The Law Commission has now made a series of recommendations to government that if implemented will transform the leasehold property market.

Proposals include replacing leasehold with “commonhold” and increasing lease extensions to 990 years instead of the current 50 or 90 years offered by landlords.

Commonhold is not a new concept but is not widely offered. Under commonhold owners buy a share of the freehold to their property in addition to buying the leasehold title, thereby increasing the value of their own property and removing ground rent charges. Owners can form self-management groups which gives them more control over repair and maintenance costs.

Currently, extending the lease leaves the owner with the landlord’s legal costs as well as their own. Under the new government proposals landlords would no longer be able to pass on their legal costs.

Sarah Naylor, partner and head of commercial and property, commented: “The problem has arisen because many people buying new build homes from housebuilders and developers have not been fully informed about what leasehold means for an owner. Because of this, many owners have ended up in financial difficulty or with properties that they cannot sell on.

“Setting a new statutory limit and capping the level of fees will come as a welcome relief to many leaseholders.”

The Law Commission recognise that there is likely to be opposition from developers. It says that there will need to be strict intervention by government – possibly going as far as giving developers no choice in the matter.

Whether the government opts to introduce the commonhold model as compulsory, optional or offer incentives to developers remains to be seen.

Should government opt to retain the leasehold model, the Commission has said that buying the freehold must be made significantly cheaper and ground rent charges should be removed.

Earlier this year the Competitions and Marketing Authority said it had found ‘serious issues’ with leasehold properties and would launch enforcement proceedings against those responsible.

Housing minister, Luke Hall said: “We will carefully consider the Commission’s recommendations, which are a significant milestone in our reform programme as we create a better deal for homeowners.”

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