The changes keep on coming in the world of residential property. On 1 May, assured shorthold tenancies will cease to exist and be replaced by periodic tenancies, which landlords will find it more difficult to terminate. Reforms to the “marriage value” that owners of flats must pay to extend their leases are expected later this year. Leases themselves, which the government believes to be “feudal”, have long been in danger and proposals recently announced promise to sweep away leasehold altogether for new flats and replace it with “commonhold”.
What is commonhold?
Commonhold was created as a new form of ownership (to sit alongside freehold and leasehold) as long ago as 2002. However, you would be forgiven for not being much aware of it. In essence, commonhold creates perpetual ownership of parts of a building, something that is not possible under leasehold. There is no landlord and, instead of a service charge, the residents pay into a “commonhold association” that manages the common parts.
Commonhold was not embraced by developers when it was introduced and it has been viewed with suspicion by lenders, to the extent that fewer than 20 schemes exist in the entire country. Partly this was due to the feeling that it if ain’t broke, don’t fix it but the legislation in its current form is also complex and unwieldy.
The government, however, believes that leasehold as a form of ownership very much is broken and they intend to fix it by banning (in almost all cases) the grant of “long residential leases”, i.e. leases for a term of more than 21 years, and requiring developers to set up a commonhold scheme instead. Whether it makes sense to replace a system that has worked for hundreds of years is open to question; and the ability and appetite for residents to manage their own affairs without the experience of a professional manager, and without falling out with each other, is equally open to doubt. The empowerment that the reforms promise may, in reality, prove to be illusory.
What else is being proposed?
Existing leases won’t disappear but ground rents will be capped at £250 pa and then change to a peppercorn after 40 years. This is an obviously controversial move and may be challenged through the courts (although probably unsuccessfully) by pension funds and others with ground rent portfolios. The cap is a compromise, with some voices within government apparently having wanted to abolish ground rents from day one.
Existing flat owners are being promised that it will be easier to convert to commonhold. A scheme can be set up if at least 50% of qualifying tenants in the block agree. Dissenting owners can retain their lease but will be subject to a mechanism for phasing out remaining leases.
Although relatively uncommon, it will no longer be possible for landlords to forfeit a long residential lease for a breach of covenant or non-payment of ground rent or service charge. They will need to follow a new procedure called a “lease enforcement claim”. The court will have a wide discretion as to the appropriate form of remedy and non-payment of ground rent will not give rise to a lease enforcement claim at all.
When is this coming into force?
We are still at the very early stages. The Bill has only just been published. It will need detailed scrutiny in committee and, as was the case with the Renters Rights Act last year, we can expect the usual back and forth between the Commons and the Lords and lobbying from vested interest groups. No official announcement has been made but, assuming that the Bill progresses smoothly, a date of sometime in late 2027 would seem plausible. Not all measures will necessarily come in at the same time: the ground rent cap, for instance, might be later.
