As we move into the second half of 2024, the recent Labour election victory signals a period of potential legislative change, particularly in the realm of residential property.
Labour’s election manifesto states that it is committed to abolishing the leasehold system, intending to “bring the feudal leasehold system to an end,” ensuring commonhold is the default housing tenure, and tackling “unregulated and unaffordable group rent charges.”
The Labour Party also says it would enact all of the Law Commission proposals on leasehold enfranchisement and “take further steps to ban new leasehold flats and ensure commonhold is the default tenure”.
Of course, how this would be affected in practice remains to be seen. As time goes by, we’ll update the following blog to reflect how the industry is moving with the new party in power.
What is commonhold?
Commonhold is essentially a system of owning freehold ‘units’ within a building or block comprised of separate properties, with unit owners having joint responsibility for the common parts. So, instead of owning the property for a fixed period, as with a leasehold, you own the property freehold indefinitely.
What is leasehold?
When you own a leasehold property, you will essentially purchase a lease from the freeholder (otherwise known as the landlord) for the right to live in the property for a period of years. After the term of the lease expires, the property ‘reverts’ to the freeholder.
This is what is known as the freehold reversion.
Leasehold is currently the usual situation when buying a flat or apartment as it sits within a larger building, so it is essential that there are preparing uninsurance obligations for the building and any parts shared with other leaseholders set out in the lease. The lease is essentially a contractual agreement between the leaseholder and the landlord.
What are the issues with leasehold?
When the leasehold term falls to zero, the property reverts to the freeholder, and it eventually loses all value. So, all other things being equal, the shorter the remaining term, the less the property is worth.
You are also tied by the lease’s provisions. The lease will have obligations (covenants) that you are bound to comply with.
Leaseholders also experience a whole range of issues, including:
- High service charges and a lack of transparency over charges
- Freeholders who block attempts to exercise the Right to Manage (which lets some leasehold property owners take over management of the building – even without the agreement of the landlord)
- Excessively high administration charges and charges for applications to extend lease agreements
- A lack of knowledge of their rights and obligations.
There was a trend of developers selling houses on a leasehold basis accompanied by lease agreements setting ground rents at a relatively high level with provision for regular reviews resulting in significant ground rent liabilities being accrued over the term of the lease for long leaseholders.
Despite previously implemented legislation over the last 50 years or so, leaseholders are reluctant to seek resolution through the tribunal system due to a perceived unfair balance of power and the potential to become liable for the freeholder’s costs.
How does commonhold differ from leasehold?
Commonhold is intended to offer an alternative for flat owners to the current leasehold system of tenure. Some of the significant benefits of commonhold over leasehold are the following:
- Commonhold properties do not lose their value over time due to a diminishing lease term, whereas a leasehold property does
- As there is no landlord and accordingly no lease and no landlord and tenant relationship, in theory this should reduce conflict, and all decisions about the building are made by individual property owners
- Commonhold avoids the problem of landlords who demand high service charges and/or fail to repair or maintain the building
- It is expected that the commonhold documents will be in a prescribed format with few exceptions, unlike leases, which can contain a wide variety of terms
However, there are disadvantages:
- It is down to the members of the Commonhold Association to enforce the rules contained in the Commonhold Agreement/Community Statement, which could lead to tensions between members
- It can be expensive and complicated to convert a property to a commonhold
Here at Slater Heelis, our experts offer peace of mind and a cost-effective, high-quality residential conveyancing service.
Whether you are taking your first step onto the property ladder or moving into your dream house, moving house can be stressful, complicated and time-consuming. Having an excellent conveyancer to act on your behalf will help to ensure an efficient and fuss-free process.
Our years of experience in conveyancing across the UK mean we are often able to pre-empt any issues that may occur. We also provide you with an in-depth account of all stages of the transaction as it progresses.
To find out more about how we can assist you with any property legal support, please get in touch with us through our online contact form or by calling us on 0330 111 3131.