New leasehold flats are set to be banned under Government plans to make commonhold the default tenure and give homeowners greater control over their properties.
Housing minister Matthew Pennycook said the reforms “mark the beginning of the end” for the “feudal” leasehold system, which subjects homeowners to “unfair practices and unreasonable costs”.
Here, The i Paper takes a look at what abolishing the leasehold system could mean for home buyers.
There are two main forms of property ownership in England and Wales – freehold and leasehold.
A freehold gives you total ownership over the property and land within a set boundary. When you purchase a leasehold, you are just buying the right to live in the property for a set number of years.
The leasehold system in England and Wales dates back to medieval times. The idea was that powerful families could retain ownership of their land as freeholders, while renting out plots for people to live in and work on.
This has influenced the modern leasehold system, particularly for flats – but it has also been applied to new-build houses, typically if they are bought through a shared ownership scheme.
Under the current leasehold system, third-party landlords can make decisions on behalf of homeowners. During the tenure, leaseholders are also forced to pay ground rent costs, which can escalate.
They are also subjected to a landlord who determines the service charges the leaseholder must pay, which can also increase, and how the building they live in is run.
Why is the Government abolishing the leasehold system?
The proposal to bring the leaseholds system to an end comes after years of campaigning and complaints by leaseholders about the unaffordable service charges, as well as poor and sometimes potentially dangerous conditions of buildings.
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Many leaseholders have found themselves made responsible for hugely expensive remedial works and building safety costs, or trapped in unsellable properties in aftermath of the Grenfell Tower fire.
The Government’s plan to abolish leasehold is in line with its manifesto commitment.
Pennycook said: “This Government promised not only to provide immediate relief to leaseholders suffering now but to do what is necessary to bring the feudal leasehold system to an end – and that is precisely what we are doing.”
He added that the reforms build on Labour’s Plan for Change commitments to drive up living standards and create a housing system fit for the twenty-first century.
The Government is poised to make commonhold the default tenure in England and Wales.
A commonhold is a different form of ownership for a multi-occupancy development. Each unit-holder will own their home, and a third-party will own and manage the common parts of the property.
This arrangement gives property owners more control over their home, but it is a far rarer arrangement than leaseholds. Following the new Government plans, this will begin to change.
A Commonhold White Paper published on Monday states commonhold will be “reinvigorated” through a new legal framework and the sale of new leasehold flats will be banned.
Pennycock said by taking decisive steps to reinvigorate commonhold and make it the default tenure, the Government will “ensure that it is homeowners, not third-party landlords, who will own the buildings they live in and have a greater say in how their home is managed and the bills they pay”.
The Government has also said it is “determined” to make conversion to commonhold easier for existing leaseholders.
What will the changes mean for home buyers?
The legislation will apply to England and Wales, where there are around 5 million leasehold homes.
The Ministry of Housing said the changes will mean that homeowners will have a stake in the ownership of their buildings from day one, not have to pay ground rent, and will gain control over how their buildings are run and the bills they pay.
Property owners will become part of a commonhold association, responsible for building management.
They will also have the power to hire or fire a managing agent who works in their interests, unlike in leasehold where one is appointed by the landlord.
How does the system operate in other countries?
England and Wales are two of only a few countries in the world that sell houses and flats as leasehold. The equivalent system in Scotland was abolished in 2004.
Commonhold has had success in other parts of the world, including Europe, New Zealand, Australia and the US.
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