Residential leasehold and commonhold

All three residential leasehold and commonhold reports were published on 21 July 2020. Further details are available on the project-specific pages by following the above links.

Summary: The future of home ownership: download our summary of all three residential leasehold and commonhold reports and how they fit with Government’s own reforms.

At a glance: the future of home ownership: download our short “at a glance” summary of the future of home ownership.

In more detail: the future of home ownership: download our introductory chapter to all three reports, which explains how our reports fit with Government’s own reforms, and sets out the future of home ownership after reform.

The problem

In England and Wales, properties can either be owned as freehold or as leasehold. Leasehold is a form of ownership where a person owns a property for a set number of years (typically, 99 or 125 years) on a lease from a landlord, who owns the freehold.

Flats are almost always owned on a leasehold basis, but in recent years it has also increasingly been used for newly built houses.

It is estimated that there are over 4 million leasehold homes in England alone. However, we have been told that the law which applies to leasehold is far from satisfactory.

The UK Government has said that leasehold has “far too many problems including disproportionate costs to extend leases; poor value property management; and a slow and costly sales process”. The Welsh Government has also noted “widespread criticism of poor practice in the use of leasehold”.

Respondents to the consultation on our 13^th Programme of Law Reform also identified numerous problems with residential leasehold law.

We were tasked with improving consumer choice, and with providing greater fairness and transparency for leaseholders.

The project

Our project currently addresses three issues:

• leasehold enfranchisement
• the right to manage
• commonhold, which provides an alternative form of ownership to residential leasehold.

The Terms of Reference, agreed with the Ministry for Housing, Communities and Local Government and with the Welsh Government, are available here.

Our project complements the ongoing work of the Ministry of Housing, Communities and Local Government and the Welsh Government. That work is summarised in “The future of home ownership” documents above.

Leasehold enfranchisement
Our report, Leasehold home ownership: buying your freehold or extending your lease, was published on 21 July 2020. We published our report on valuation, Report on options to reduce the price payable, on 9 January 2020.

Our consultation paper on leasehold enfranchisement reform was published in September 2018. The consultation period closed on 7 January 2019.

Ahead of a full response to our July 2020 Report, Government has announced that it has accepted some of the recommendations that we made in it. Government has also announced which of the options to reduce the price payable on enfranchisement contained in our January 2020 Report it intends to take forward.

To read about Government’s announcement, the reports, the consultation paper, or other documents related to this project, please see the leasehold enfranchisement project page.

Right to Manage
Our report, Leasehold home ownership: exercising the right to manage, was published on 21 July 2020.

Our consultation paper on the right to manage was published in January 2019. The consultation period closed on 30 April 2019.

To read the report, the consultation paper, or other documents related to this project, please see the right to manage project page.

Commonhold
Our report, Reinvigorating commonhold: the alternative to leasehold ownership, was published on 21 July 2020.

Our consultation paper on commonhold was published in December 2018. The consultation period closed on 10 March 2019

To read the report, the consultation paper, or other documents related to this project, please see the commonhold project page.

 

Developments since the publication of our reports

On 11 January 2021, the Secretary of State for Housing, Communities and Local Government, Robert Jenrick, made a written statement to Parliament highlighting Government’s intention to bring forward residential leasehold legislation.

In the announcement, the Secretary of State indicated it was Government’s intention to reform the way in which the sum that enfranchising leaseholders must pay to extend their lease or buy the freehold is calculated. The conclusion reached by Government is based on options supplied in our report on options to reduce the price payable in those circumstances.

In addition, the Secretary of State signalled the Government’s acceptance of some recommendations made in our later report on the enfranchisement regime.

 

The Leasehold and Freehold Reform Bill
Since publication of the Reports, the Law Commission has been undertaking work to support Government, including helping Government to consider the Commission’s recommendations and develop legislation.

In  the 2023 King’s Speech it was announced that Government would bring forward a Leasehold and Freehold Reform Bill. Following that, the Bill was introduced into Parliament on 27 November 2023. Details of the passage of the Bill are available on the UK Parliament website.

Significant aspects of the Bill as introduced are based on options and recommendations put forward by the Law Commission in its reports on enfranchisement and the right to manage. For example, the bill would:

• reduce the price and costs payable to the landlord where a leaseholder exercises their right to extend their lease or purchase the freehold.
• expand the scope of enfranchisement and the right to manage so that flat owners can together buy the freehold of premises or take over its management where up to 50% of the building is commercial space rather than the current limit of 25%.
• enable leaseholders of both houses and flats to place the vast majority of a home’s value in their hands and avoid the need for further extensions by increasing lease extensions to 990 years with no ground rent payable, in place of shorter extensions of 90 or 50 years under the current law.
• create a new right for leaseholders with long leases to “buy out” the ground rent under their lease without also having to extend its length, enabling those leaseholders to free themselves from the ongoing obligation to pay ground rent.

On 27 November 2023, Lee Rowley MP, Minister of State for Housing, wrote to the Law Commission to express gratitude for the work of the Commission and its contribution to the Leasehold and Freehold Reform Bill.

 

 

Contact

By email to:   propertyandtrust@lawcommission.gov.uk