Replacing leasehold with Commonhold – government responds at last

While we wouldn’t be so bold as to say the government gets its daily fix of property news from the Today sites, can it be mere coincidence that just days after we published two stories (here and here) outlining the lack of government response to our readers’ questions on leasehold and commonhold, the government finally responded?

The answers - attributed to the Ministry of Housing, Communities and Local Government rather than Heather Wheeler MP - are to these questions we passed on in May.

The responses from MHCLG are reproduced in full below.

Q1 – Why are any homes (houses) being sold as leasehold in the UK? We are clear that if a house can be provided on a freehold basis then it should be. It is not right that people face unnecessary charges or restrictions in a house they should own outright. That is why the government will change the law. Other than in exceptional circumstances, all new build houses will be sold freehold. It also means that no new long leases will be able to be granted on existing houses.

And we’re already seeing real changes - since announcing that we will ban new long leases on houses in December 2017, the number of new build leasehold house sales for all transactions has fallen from 11% in Q4 2017 to 2% in (Q4 2018).

The Secretary of State also recently announced that no new government funding schemes can be used to fund the unjustified building of new build leasehold houses. This means that Homes England are renegotiating Help to Buy contracts to prohibit the sale of leasehold houses through the Help to Buy programme, except in the rare circumstances where this is necessary.

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Q2 – How does the government envisage the New Homes Ombudsman will oversee/tackle the leasehold sector when the post is introduced in the near future?

The government’s New Homes Ombudsman will champion home buyers, protect their interests and hold developers to account. We will also legislate so all new developers will have to belong to the Ombudsman as well as anyone who wants to participate in the government’s future Help to Buy scheme. Our ambition ultimately is for the new service to cover all housing consumers, including tenants and leaseholders of social and private rented housing as well as purchasers of new build homes and users of all residential property agents.

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Q3 – How can we be certain that Commonhold will have enough enforceable regulations to ensure blocks are not neglected or fail to comply with current and evolving health and safety regulations?

We want commonhold to be a viable alternative to leasehold, which is why we asked the Law Commission to look into making it work. Their proposals to reinvigorate commonhold will be published next year.

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Q4– Knock on effect to existing leasehold flats. (Ground 8 – loophole)

Lenders are becoming increasingly concerned about this clause and it may impact on their decisions whether to lend on properties where this may be an issue. We will legislate to ensure that leaseholders will not be subject to Ground 8 mandatory possession orders for arrears of rent, whether it is ground rent or rent payable as part of a shared ownership scheme.

Q5 – Cancel leases and force to provide freehold ownership to all house owners for the perimeter of their property.

To support current leaseholders, we are working with the Law Commission to review the law on enfranchisement to make it easier, quicker, and more cost effective for leaseholders to purchase their freehold or extend their lease. The Law Commission is due to report back to Government with recommendations next year. 

In addition, we announced a ‘Public Pledge for Leaseholders’ in March this year. This includes a number of commitments such as ensuring the process for leaseholders to acquire the freehold on their home or extend the terms of the lease is uncomplicated, transparent and fair. Leaseholders should also be told in advance of any planned change in the ownership of their freehold. It has been signed by over 60 industry bodies.

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Q6 – Can we have an informed and balanced debate, with evidence instead of opinion, on how both leasehold and commonhold should be reformed to create a robust and just system that protects the consumers? Also an examination of the roles of agents and conveyancers on the sales process?

We have committed to reforming the leasehold system so it is fairer and more transparent and ensuring that consumers are protected from abuse and poor service. We are also committed to reinvigorating commonhold so that it works better and can be a viable alternative to leasehold.

We have just responded to our consultation on the leasehold system, which received over 1200 responses. We have also asked Lord Best to look at how we can raise standards across the entire property agent sector – including professional qualifications, a code of practice and an independent regulator.

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Q7 – How did this government allow this (legal right to buy freeholds) to happen? Why is the law so ineffective?

Freeholders have a right to sell their freehold. However, unlike leaseholders of flats who currently have a Right of First Refusal when their freeholder is planning to sell the freehold, owners of leasehold houses do not currently have this right. 

This needs to change and we have committed to introducing a Right of First Refusal for those in leasehold houses. This should remove inconsistency between leaseholders of flats and houses and make the system fairer. 

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To keep up to date with all the latest leasehold and commonhold news, keep an eye on the daily breaking news section of the Today sites. The Leasehold Knowledge Partnership, Leasehold Solutions and the National Leasehold Campaign (NLC) are other excellent resources to turn to.

The Law Commission’s consultation on commonhold can be viewed here. The Commission will publish its final report, and assist with the implementation of its recommendations, at some point this year or next.