In March, the Ministry of Housing published the Commonhold White Paper which seeks to make landmark reforms on the leasehold sector. This article gives an overview some of the proposed changes.
At a glance:
- Commonhold (CH) ownership - was introduced over 20 years ago by the Commonhold and Leasehold Reform Act 2002. CH allows residents to own their property outright with no set (lease) ‘term’ in place and with no requirement to pay a ground rent – they own the freehold in their CH unit and also become a member of the Commonhold Association (CA), a company limited by guarantee and set up to own and manage the common parts and areas in a CH scheme. The rights and obligations of all CH unit owners are set out in a Commonhold Community Statement (CCS) which regulates how shared areas and facilities will be maintained and funded.
- What’s new? CH (1.0) has struggled to gain any real traction. The Commonhold White Paper announces an intention to change this, largely on the back of implementing detailed reforms proposed by the Law Commission. Government wants CH to be the tenure of choice for new developments and to make conversions of existing leasehold schemes easier to implement.
- Draft legislation is to be published, under the title “The Leasehold and Commonhold Reform Bill”, later this year. Allied to this will be the launch, later this year, of formal consultations on the banning of new leasehold flats and the aspects of the CH conversion process that need updating.
- Some of the proposed Changes to be set out in the draft legislation (CH 2.0) are:
- New rules to enable CH to work for all types of developments such as mixed-use buildings including the introduction of CH ‘sections’.
- Allowing shared ownership leases to exist within CH (an exemption to the ban on leasehold flats).
- Greater flexibility over ‘development rights’ within CH schemes, helping developers build with confidence and maintaining safeguards for the consumer.
- Giving mortgage lenders greater assurance with new measures to protect their stake in CH buildings and protect the solvency of CAs.
- Strengthening the management within CH structures, with new rules around appointing directors, clear standards for repairs, and mandating use of reserve funds.
- An enhanced offer for CH homeowners – greater opportunities for democracy in agreeing the annual budget, clarifying how owners may include and/or change “local rules” (in the CCS) about how a building is run and new protections for when things go wrong.
- A new Code of Practice which will set how costs should be apportioned.
Some have been initially sceptical about whether the proposals will make it through the parliamentary process and point to the previous failings of CH 1.0. This now appears short-sighted, on the basis that the Government is clearly and actively committed to reforming the leasehold and commonhold sector and, more simply, the ban on leasehold flats means that there needs to be a robust and viable alternative system in place when this comes into effect.
Ultimately, through the introduction of CH 2.0, the Government intends to ensure that homeowners, not third-party landlords, will own the buildings they live in and have a greater say in how their home is managed and the bills they pay. Minister for Housing and Planning Matthew Pennycook who published the Paper said, “..commonhold is not merely an alternative to leasehold ownership, but a radical improvement on it. The publication of our Commonhold White Paper today is the beginning of the end of the feudal leasehold system.”
We therefore live in exciting times - for most real estate practitioners and members of the property industry, there is a sense that, as the detail emerges in the months and years ahead, we will need to go back to school to learn about the new system and how it will be best implemented in the different living sector contexts.
Given its existing prominence in the housing and wider living sectors, Devonshires will position itself front and centre of this wave of changes, working together with our clients and other key stakeholders in the industry. Our engagement with the White Paper began with a client breakfast briefing, our 5 key takeaways from the event are available for you to catch up on. This monthly bulletin will feature a CH update section and we will also be tracking and commenting in detail on the draft legislation and consultation as this evolves.
If you want more information about the CH proposals and/or how they will affect you, please get in touch.
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