The Law Commission is currently consulting on reforming leasehold enfranchisement, which gives leaseholders the right to extend their lease or purchase the freehold in certain circumstances.
The number of years left on a lease is crucial when it comes to selling or remortgaging your home, and any potential buyer will struggle to find a lender once the remaining terms of the lease falls below 70 years.
The ‘enfranchisement’ process covers both extending the lease and buying the freehold, either individually if it’s a single property or collectively in a block of flats. The Law Commission have already put forward proposals to provide an easier and cheaper process for leaseholders.
Leases on both flats and houses are normally for 99 or 125 years from when the property is built, and in theory the property is returned to the freeholder when the lease expires if it is not extended or the freehold purchased by the lessee.
There is already a statutory process. The 1993 Leasehold Reform Act gives flat owners who have owned their property for two years the right to extend their lease by 90 years and have the ground rent reduced to zero. The rules are different for house owners, as you are only able to extend for 50 years, which often means it may be better to buy the freehold instead.
Currently extending the lease can be a long, tortuous and expensive process.
The Law Commission has also backed a move that would offer an alternative to flat owners who have landlord-controlled leaseholds. The rarely used ‘commonhold’ system of home ownership should be expanded and become more widely available because it permits anyone to own a freehold flat without the threat of a time limited lease expiring.
Commonholders become members of a company that owns and manages the shared areas and structure of the building. There is no landlord. Service charges levied by landlords would be replaced by commonhold contributions, which have been approved by a majority of those paying them.
Although introduced in 2002 as a co-operative form of ownership, fewer than 20 commonholds have been created. The system has been criticised for lacking the flexibility required for larger developments and for converting existing leases into commonholds. The legal reforms proposed would make it easier to convert from leasehold to commonhold and, it is argued, increase mortgage lender confidence in the system.
