Leasehold consultation – what do investors need to know?

On Tuesday, the government launched a six-week consultation on proposals to make it easier and cheaper for leaseholders to purchase the freehold of their building, in the latest win for campaigners calling for leasehold reform.

Homeowners and the housing industry – including investors affected by the leasehold scandal – are being invited to give their views on proposals from the Department for Levelling Up, Housing and Communities, which would enable more leaseholders in mixed-use buildings to take control and ownership of their building.

The consultation comes hot on the heels of the announcement by Michael Gove, the Housing Secretary, which said developers must pay to fix the cladding crisis rather than leaseholders.

“The current leasehold system is outdated, unbalanced and broken and we are determined to fix it,” Lord Stephen Greenhalgh, leasehold minister, insisted.

“Our proposals aim to rebalance power and should see more leaseholders than ever before owning the full rights to their homes.”  

He added: “This comes on top of our new approach building safety, which includes decisive action to protect leaseholders.”

The consultation, which will look at reforming the leasehold and commonhold systems in England and Wales, will run for six weeks until February 22 2022, seeking views on proposals to give more leaseholders the ability to manage or own their properties - in buildings where there is a mixture of homes and other non-residential facilities, such as shops and restaurants.

The current system means only some residential leaseholders in England and Wales can opt to buy their building outright through enfranchisement. Alternatively, they can take over the management of their building in what is known as a ‘right to manage’.

If shops and other similar properties take up over 25% of the total floorspace, as is increasingly the case with new apartment blocks, then leaseholders cannot collectively bid to take control of their building.

The government says its new proposals could give these leaseholders the right to manage or buy their building outright, by increasing this limit to 50%. This, it says, would enable them to have more control over how shared facilities are run and have the final say on building maintenance costs.

The consultation also includes proposals that aim to make it cheaper for leaseholders to collectively buy their freehold. A ‘mandatory leaseback’ would require landlords to keep a lease on some properties in the building, thus reducing the cost of a collective buyout of their building.

Future government proposals, announced last year, could also see the cost of enfranchisement fall further, such as abolishing ‘marriage value’ and the introduction of an online calculator with prescribed calculation rates.  

“I welcome this consultation as an important step towards implementing the Law Commission’s recommendations on leasehold reform, which were jointly commissioned by the Welsh and UK governments. I want us to work together on these important reforms to ensure they reflect the best interests of leaseholders in Wales,” Julie James, Welsh Minister for Climate Change, said:

What’s more, as part of the consultation, the government is calling for views on changes to support greater use of commonhold, as an alternative form of homeownership to leasehold. This includes for those in Shared Ownership schemes in England, which are always sold as leasehold.

“The commonhold model is used in countries across the world and provides a structure for homeowners to collectively own the building their flat is in from the outset - with a greater say on their building’s management, shared facilities and related costs,” the government’s statement said.

The government says that consumers and providers of shared ownership homes are now being invited to have their say on how decision-making in commonhold blocks could operate under the new Shared Ownership model, in England.

It insists it will consider all feedback from the consultation before making final policy decisions, helping to form the next stage of its ‘comprehensive programme of reforms’ to the leasehold and commonhold systems.  

Unsurprisingly, the National Leasehold Campaign (NLC) – one of the most influential and vocal voices for leasehold reform and the greater use of commonhold – strongly backed the consultation.

Katie Kendrick, founder of the NLC, said: “This consultation continues to demonstrate just how committed and determined government are to fixing this broken leasehold system as well as working towards a commonhold model that will ultimately be the sunset clause on leasehold across England and Wales forever.”

She added: “Leasehold is well and truly at the top of the political agenda and that is because of the relentless efforts of leaseholders themselves have united to ensure the spotlight shines brightly on this iniquitous, feudal system that really does have no place in the 21st century. It is paramount leaseholders continue to have their voices heard by taking part in this consultation.”

Jo Darbyshire, co-founder, added: “The NLC strongly supports this consultation before final policy decisions are made which we hope remain faithful to the outstanding work of the Law Commission reports that were extensively researched and consulted upon. Leaseholders simply want the homes they paid for and the autonomy and dignity they know that comes from real homeownership.”

The Association of Leasehold Enfranchisement Practitioners (ALEP) is also encouraging its members, homeowners and the housing industry to give their views on proposals from the Department for Levelling Up, Housing and Communities, to help create a fairer system for leaseholders.

Mark Chick, ALEP director, said: “Any plans to make the leasehold system simpler are to be warmly welcomed and ALEP will be actively participating in the consultation. It is so important that industry experts help to shape future changes to the system, and our members will relish the opportunity to consult and input into the proposed changes.” 

He continued: “The government has committed to making commonhold work and our members have been actively engaged in advising the steps needed to achieve this. Whilst the government has repeatedly stated its commitment to fundamental reform of the leasehold enfranchisement system, there is no definitive timescale as to when any of the measures may be implemented, which makes it hard for leaseholders and those advising them to be clear about when these reforms are likely to become law.” 

He concluded: “This consultation on introducing changes to support greater use of commonhold could provide some clarity, which would be very welcome.”

You can see more about the consultation and share your views here.