Ban on new leasehold flats ‘doesn’t go far enough’
The government’s newly released whitepaper promises to ban the sale of new leasehold flats, but campaigners say the policy will not provide enough relief for current leaseholders.
Labour said the plans mark the start of commonhold, rather than leasehold, being the “default tenure” in the UK.
“These reforms mark the beginning of the end for a system that has seen millions of homeowners subject to unfair practices and unreasonable costs at the hands of their landlords,” housing and planning minister Matthew Pennycook said.
The concept of leasehold, which allows the homeowner to own the property only for the length of time set out in the lease, has been described as “feudal” as it forces the leaseholder to pay expensive ground rents and service charges to freeholders, who own the building or land on which the property is built.
The Commonhold White Paper outlines changes to the commonhold system, including a new Code of Practice for commonhold tenures, greater developer flexibility over development rights, and new rules for managing commonholds.
What about existing leasehold flats?
The government said it will “continue to implement reforms” to help leaseholders suffering from “unfair and unreasonable practices” at the hands of freeholders.
There are around 5m leaseholds in England and Wales, with 3.4m of those in cities. Tenants’ concerns range from high fees for alterations to forfeiture rights and building defects.
Leaseholders can currently buy their freehold or extend their lease. The government plans to streamline this process further by making it “cheaper and easier” and giving leaseholders more power to challenge “unreasonable service charge increases.”
However, the founder of Free Leaseholders, Harry Scoffin, questioned whether this would be accessible to the majority of leaseholders.
“[The whitepaper] makes a great play about homes that are yet to be built… what about existing leasehold flats?” Scoffin said.
“A lot of people don’t qualify to buy it, and even those that do, it’s an absolute fortune to try and get hold of the freehold… you’ve got a lot of exclusionary rules,” he added.
Scoffin said that it is current leaseholders who are most in need of policy support, with many experiencing mental health issues due to the payments.
Without more concrete changes to the way current leaseholds operate, he added: “Freeholders… are going to fight this every step of the way. If you give them [more time], they’re going to have a field day with that.”
Director at Lawson Financial, Michelle Lawson, agreed that “more also needs to be done for those that are currently restricted with onerous leasehold terms having to part with substantial funds to get in a more favourable position”.
Must be ‘robust financial controls in place’ for commonhold
Commonhold was first introduced in 2002 as an alternative to leaseholds. It allows buyers to share ownership of a multi-occupancy building, with households splitting equal responsibility for common areas and services.
However, it failed to catch on, with critics describing the system as “not fit for purpose”, primarily due to a lack of incentives for developers and the absence of continued income streams for them.
Gary Ekpenyoung, a real estate partner at law firm Shakespeare Martineau, said the government’s decision to move to “reinvigorate” commonhold “comes with its own challenges.”
“Although the full framework is yet to be revealed, developers and landlords will be concerned for the commonhold future, which may not be as beneficial for tenants as many think,” he said.
Decisions in commonhold properties are often slower because they rely on the cooperation and participation of its members. This means “repairs and maintenance can be more irregular and tenants can find themselves left in unsuitable accommodation for longer,” Ekpenyoung said.
Partner at Payne Hicks Beach, Scott Goldstein, said the involvement of more Brits in property management decisions necessitates more government-led education on the topic.
“The government needs to provide easy to follow resources to educate and train all of us about the rights and responsibilities of commonhold,” Goldstein said.
He added: “There must be robust financial controls in place to ensure commonhold blocks have the resources they need to manage their properties.
“Lenders must be encouraged to give mortgages to purchase flats held on commonhold… The concern is to make sure that the system is ready to cope.”