Law Commission eyes leasehold shakeup with commonhold probe

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Leasehold property ownership could become less prevalent in the UK under new plans from the Law Commission to promote commonhold instead.

The Law Commission believes the more common leasehold structure for owning property can be unfair to homeowners.

There are more than 4 million leasehold properties in England, but the Law Commission is concerned about examples of unfair leasehold practices revealed last year.

As a result, the commission is launching an eight-week call for evidence to find out what is stopping commonhold taking off.

Commonhold is an alternative legal way structure of owning property that came into force in 2004 through the Commonhold and Leasehold Act.

It lets buyers own a freehold unit (such as a flat) outright, and also be part of a company set up to manage the building and shared areas.

Their ownership is not tied to a lease, does not require third-party managing agents and cannot run out.

However, fewer than 20 commonhold developments have been created since the law came into force in 2004.

The Law Commission thinks commonhold could have “lots of advantages” over leasehold.

But it says only a third of lenders will lend on commonhold, and leasehold accounted for 98 per cent of flat transactions in 2016.

Law Commissioner Professor Nick Hopkins says: “It’s clear leasehold law is a problem with some managing agents charging over the odds for the upkeep of shared areas, and the process of extending a lease costly and time consuming.

“Commonhold provides an alternative – giving unlimited ownership of a property and a stake in how the rest of the building or shared area is managed. But less than 20 have been created in the last 14 years.

“We want to find out what’s stopping people, and how the law could be improved to make commonhold more common.”

The Commission is asking for views on three broad themes:

  • What the difficulties in creating or converting to commonhold are
  • What issues make commonhold unattractive to homeowners
  • What issues make commonhold unattractive in the wider property sector

Association of Mortgage Intermediaries chief executive Robert Sinclair says: “Commonhold tends to be unusual because all you’re really doing is swapping one set of management agents for another.

“Even under commonhold you need a group to maintain a title over the property.

“The lenders like clarity of knowing who is accountable and having certainty about responsibilities.”

A full consultation will follow the call for evidence and address any tricky legal reforms needed for commonhold to take off.

The Law Commission is a Government body which ensures UK laws are up to date and working.

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