The UK government plans to ban the sale of new leasehold flats in England and Wales, as revealed in a commonhold white paper published this year.
The plan is to replace the leasehold model with commonhold – a Leasehold and Commonhold Reform Bill will be published later in 2025 with more details.
Commonhold works by granting owners of individual flats, houses and other units the freehold. Under the leasehold system a third party owns the freehold, with the leaseholder only having the right to occupy the property for a fixed period of time.
Richard Beresford, chief executive of the National Federation of Builders (NFB), said: “Leasehold can work, but its outdated, open to abuse, and offers none of the protections and benefits that Commonhold would, effectively creating second class homeowners. We are absolutely behind the government on their direction of travel.
“Planning minister, Matthew Pennycook made the announcement yesterday morning (3 March 2024), citing the need to “drive up living standards and create a housing system fit for the twenty first century”.
“He also championed efforts to “make it easier for leaseholders to buy their freehold or extend their lease.”
The white paper said new rules will enable commonhold to work for types of developments, including mixed-use buildings and allowing shared ownership homes within a commonhold.
There will be greater flexibility over development rights; mortgage lenders will be handed greater assurance, such as mandatory public liability insurance; and commonhold building management will be strengthened.
Lyndsey O’Connor, real estate partner at Shoosmiths, said: “The UK government’s white paper on commonhold reform follows the majority of recommendations made by the Law Commission in their 2020 report banning the sale of new leasehold flats, making commonhold the default tenure.
“The paper proposes more flexibility in implementing commonhold structures, including who manages and pays for sections within wider developments, allowing leases over 7 years for shared ownership, equity release, or Sharia-compliant financing models, and ensuring developers have necessary rights for phased developments.
“The proposed mandatory reserve fund aims to address concerns about arrears and maintenance funds and commonhold associations will have stronger powers of recovery, including applying to court for the sale of a unit for arrears over a certain level.
“Lenders will be notified when arrears reach this level and can repossess the unit or pay the arrears and add this to the mortgage. If a unit is sold, any mortgage will be repaid before the arrears are settled.”
Via @PropertyWire