Leasehold property sales could finally be banned: what can it mean for buyers and homeowners?
Leasehold property sales might be abolished towards commonhold, under recommendations produced in a long-awaited new report.
The Law Commission’s ‘Residential leasehold and commonhold’ investigation also recommends existing leaseholders will be able to extend their leases by 900 years, and ground rents should be cut to zero.
Here, Which? analyses how today’s announcement could be significant news for homebuyers later on and we explain what it really means for homeowners held in unsellable leasehold houses.
Could commonhold replace leasehold?
The Law Commission today published its final leasehold report, after a study lasting a lot more than 2 yrs.
Its key recommendation involves replacing the leasehold system with regards to the sale of flats.
The Commission says a commonhold system would ‘overcome the inherent limitations of leasehold ownership’.
Commonhold involves flat buyers owning the freehold to their individual property and forming a business with other residents to manage shared areas, removing the requirement for freeholders and third-party management companies.
Should the federal government decide to keep the leasehold system, what the law states Commission says ground rents ought to be reduced to zero and freehold purchases be made available at an acceptable price.
The government has already been set to ban houses for sale as leasehold later on, aside from in ‘exceptional circumstances’.
Recommendations for existing leaseholders
But what of the numerous homeowners already trapped in leasehold houses with soaring ground rents and punitive fees?
The Law Commission says existing leaseholders should be given improved rights to purchase their freehold or extend their lease.
It says lease extensions should be for 900 years (instead of 90) so they’ll only need to be made once. Additionally, ground rents ought to be cut to zero.
The Commission also addressed the cost of buying freeholds and recommended homeowners should no longer have to pay the freeholder’s legal costs at tribunals.
What will happen next?
It’s now as much as the federal government to consider what the law states Commission’s recommendations, which it described this morning as ‘a substantial milestone’.
The key question it faces will be whether to make commonhold compulsory for flats, incentivise using commonhold or allow it to be optional.
If the federal government decides to help keep leasehold for flats, the Law Commission says the cost of buying freeholds should be made significantly cheaper.
Any change could face significant opposition from developers, a number of whom claim ground rents and freehold sales assist them to keep prices down.
Leasehold and also the CMA
This new report is the latest step in the direction to leasehold reform, also is being instigated by the Competition and Markets Authority (CMA).
In February, the CMA published an update on its leasehold investigation.
It said hello had found ‘serious issues’ within the selling of leasehold homes and would launch enforcement proceedings against those responsible.
Which? and also the leasehold scandal
The CMA is yet to publish its final report, nevertheless its findings echo those of a Which? investigation into the leasehold crisis in 2021.
For our investigation, we spoke to nearly 200 leasehold homeowners and found a pattern of properties being sold with spiralling costs and covenants.
Some developers included ‘double clauses’ within their contracts which meant ground rents would ultimately run to thousands of pounds a year.
In addition, we found examples of developers selling freeholds to faceless investment companies, who then used managing agents to invoke ‘permission fees’ for alterations as minor as changing a doorbell.
Our coverage from the leasehold scandal
- June 2021: government launches consultation into banning new-build leasehold houses
- September 2021: leasehold consultation closes
- December 2021: government announces intends to ban leasehold new-build houses and lower onerous ground rents
- June 2021: our investigation into the leasehold scandal
- September 2021: report claims nine in 10 leasehold buyers regret their purchase
- October 2021: government launches second consultation into capping ground rents
- March 2021: select committee calls for a change of the leasehold system (see our submission towards the inquiry here)
- February 2021: CMA takes action over leasehold mis-selling
