The Law Commission has thrown down the gauntlet to the government to embrace commonhold, but doing so will not be without challenges, according to property lawyers reacting to the raft of reform proposals.
Lauren Fraser, senior associate at Charles Russell Speechlys LLP, said that the Law Commission had “proposed the biggest shake-up of home ownership in history”.
Fraser said: “The gauntlet has been laid down for the government, as the Law Commission calls on it to promote commonhold as the predominant form of home ownership.
“The three reports totalling almost 2,000 pages focus on creating a better deal for leaseholders as ‘consumers’, which was the main policy objective identified by the government. The Law Commission has suggested changes to many aspects of the existing leasehold system and concludes that commonhold is not simply a workable alternative, but a preferable one.
“These dramatic proposals would not only affect new homes, but also introduce an extensive regime for changing existing home ownership by allowing the transfer to commonhold if just half the leaseholders in a building agree. It remains to be seen what effect it will have on leaseholders if their neighbours can introduce such a significant change without unanimous agreement.
“This raises an important point that while commonhold may provide answers to some of the problems identified by the Law Commission, it won’t remove the possibility of disputes between co-owners.”
She added: “What happens next is down to the government. There is a long road ahead, but the direction of travel is clear.”
Natasha Rees, partner and head of property litigation at Forsters, said that it is “encouraging to see the Law Commission addressing all three areas of leasehold law in such a cohesive way given the problems highlighted during the lengthy consultation process”.
She said that the reports follow on from the valuation proposals that were published earlier in the year and set out ways to make enfranchisement and right to manage easier and cheaper for leaseholders – however, she warned that adoption of commonhold will not be straightforward.
“The Law Commission recognises the fact that there needs to be a viable alternative which is attractive to developers and investors,” she said. “With a take-up of only 20 commonholds since the Commonhold and Leasehold Reform Act 2002 came into force almost 20 years ago, this will be a challenge. The government is, however, clearly planning to refocus its energy on residential leasehold reform, and hopefully these proposals will give it food for thought.”
Hema Anand, residential property partner at BDB Pitmans, said that leasehold ownership has been “toxic in the press and in parliament for many years now”, continuing: “The reforms proposed by the Law Commission address inconsistent legislative requirements, streamline processes, reduce corresponding costs, grant greater protection to poorly advised leaseholders and help to keep unscrupulous landlords in check.
“Whether or not the reforms revive commonhold remains to be seen, but ‘commonhold 2.0’ is expected to be much less cumbersome than its unsuccessful predecessor.”
Janet Armstrong-Fox, head of private client property at Collyer Bristow, added that “until lenders generally are more comfortable with commonhold and have a better understanding of it, the perceived limited availability of mortgage finance for commonhold homebuyers could be the biggest stumbling block to commonhold taking off as a popular form of home ownership”.
Tom Allfree, head of residential property at Wedlake Bell, said that “in principle, and from the perspective of homeowners, commonhold is a good idea” – but he agreed that it had been “largely ignored” since its introduction.
He said: “The Law Commission has worked hard to identify the issues that have prevented developers from being able to embrace the tenure. It will be interesting to see whether the recommendations, if implemented, lead to greater take-up of commonhold by developers, an increased willingness by lenders to lend on commonhold units and a greater demand from homeowners.”
Adam Colenso, a partner at Wedlake Bell, added: “The overarching principles about bringing an end to those aspects of leasehold ownership that have come in for criticism in recent years is laudable. However, very careful legislative drafting would be needed to ensure that the well-paved road of good intentions does not lead to a destination that is worse than the status quo ante.
“As the report makes clear, the commonhold system will not take root unless there is some motivation given to developers to apply it (because it is mandatory or there is a financial inducement).
“It will be interesting to see what steps the government is prepared to take in this regard when it is trying to encourage the building of many more new homes during what is likely to be a substantial period of recession.”
James Duncan, partner at Winckworth Sherwood, described it as a “considered” report that deals with a lot of the sector’s concerns around leasehold and aims to give homeowners greater involvement in the management of where they live.
But he warned: “Transferring powers to residents will bring its own challenges. Introducing commonhold associations in place of residents’ management committees will see residents having stewardship of financial and maintenance issues, with the commonhold association being its own company with its own directors. It means residents will need to step up and take the legal liabilities of being a director; this will be new, and potentially off-putting, to many. Outsourcing this to a property management company will be a solution for some but, of course, will come with added costs.
“It is disappointing that the report does not consider the option of introducing a bespoke system for commonhold association liabilities or responsibilities. If the objective is to encourage direct resident participation in the management of their homes and neighbourhood, then a specific system recognising the unique circumstances of commonhold associations – which balances commonhold association directors’ responsibilities, liabilities and insolvency issues – would be a good idea. This would also reduce costs to the residents through cheaper insurance premiums for matters such as directors’ and officers’ liability insurance.
“There are good changes put forward by the Law Commission but residents will need to be aware that while some costs will go, others will come in. Whether these reforms will make commonhold cheaper than current arrangements remains to be seen.”
LISTEN: Commonhold, enfranchisement and right to manage: the Law Commission’s proposals
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