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What does the Law Commission’s Report mean for tenants?

  • United Kingdom
  • Real estate

04-12-2020

Home ownership in England and Wales is set for a historic shake up. Leaseholders are likely to find it easier, simpler and cheaper to buy their freehold, extend their lease or buy out ground rents.

Landlords face the prospect of leaseholders having the right to extend their leases for 990 years. Ground rents will be extinguished as soon as the lease is purchased rather than 2 years later as now.

Leaseholders could benefit from a route out of leasehold by way of enfranchisement of buildings with just 50% of residential space (compared with the currently required 75%), with a right to compel landlords to take leasebacks of some flats effectively to reduce the premium payable.

Leaseholders could also become entitled to buy out, or take over the management of, a whole freehold estate rather than buying or managing on a block by block basis.

The commonhold system is set for a reinvigorating reboot. It could become the preferred tenure for apartment blocks, with the ambition of ultimately phasing out the existing leasehold system. The 1000 year old leasehold system would be replaced by ‘forever’ flats with no landlord and an easier route to convert from leasehold to commonhold.

However, commonhold has been available since 2003 and is rare for a reason. Commonhold still faces a number of substantial challenges. Mortgage lenders are still struggling to get comfortable with the concept of commonhold and the property management obligations that it brings to owners.

These reforms will have a radical impact on millions of ordinary landlords and leaseholders. They could also have a dramatic and complicating effect on institutional residential asset classes, including build to sell, senior living and mixed use developments.

We will be watching the impending legal changes closely and alerting our clients and contacts to the risks and opportunities they bring.