Commonhold reform: Will changing tenure solve the real problems?
Andrew Peters of Countrywide Surveying Services considers whether commonhold reform will resolve the challenges facing leasehold properties.
Leasehold reform has gathered pace as the Government seeks to make commonhold the standard tenure for new flats and support the conversion of existing leasehold developments.
There are clear reasons for change. Onerous ground rents, steep review clauses, building safety concerns and rising service charges have all damaged confidence in leasehold. These issues can also make it harder for brokers, lenders and valuers to assess whether a property is suitable mortgage security.
Yet replacing leasehold with commonhold raises an important question. Will a change of tenure address the main causes of these concerns, or could some be resolved through further changes to the existing system?
Ground rent is a useful example. High initial charges and aggressive review terms have left some owners facing rising costs and properties that are often difficult to sell or remortgage. However, ground rent has already been removed from almost all new residential long leases granted in England and Wales since June 2022 and further proposals could cap the charges on older leases before reducing them to a peppercorn.
If these plans take effect, one of the main criticisms of leasehold would largely be addressed without the property becoming commonhold.
Lease length is another long-standing concern. Extending a lease can become costly as the remaining term falls, while the range of lenders willing to accept the property may narrow. Plans to introduce 990-year statutory extensions at a peppercorn ground rent could greatly reduce this risk.
The question is not whether leasehold has faults, it clearly does, what matters is whether those faults require a complete change of tenure or stronger rules within the current system.
Service charges have risen sharply across many developments, but the reasons are not limited to tenure. Buildings still require insurance, repairs, cleaning and maintenance. They must also meet fire, structural and other safety requirements, while the cost of labour, materials and insurance has increased.
These costs will remain under commonhold. The way they are controlled and collected may change, but residents will still need to fund the management and upkeep of their building.
Commonhold should give owners a greater say over budgets, maintenance and the appointment of managing agents. This may improve accountability and make it easier to challenge poor service. Even so, direct control brings legal, financial and practical duties that some residents may not want or feel able to take on.
Many larger or more complex blocks are still likely to use professional managing agents, especially where strict building safety duties apply. Resident control could also create problems if owners disagree about spending or delay essential work to keep short-term bills down.
This is a key consideration for mortgage providers because weak management can affect a building’s condition, future saleability and long-term value. The strength of the management arrangements may therefore matter more than the name attached to the tenure.
Mandatory reserve funds, long-term maintenance plans and clear financial reporting could offer important safeguards. They would help ensure money is available for major repairs and reduce the risk of owners receiving sudden, unaffordable bills. These measures could support commonhold, but similar standards could also be required within leasehold.
Recent changes have already strengthened leaseholder rights. Right to Manage provisions give qualifying owners a route to take control of their building, while some modern developments provide residents with a share of the freehold through a management company.
Commonhold may still offer a clearer form of ownership and a stronger voice for flat owners. However, changing tenure will not, by itself, guarantee fair costs, sound management or well-maintained buildings.
Brokers, lenders and valuers will judge the reforms by the results they produce. Better-run buildings, planned maintenance, clear accounts and fair charges would improve confidence in flats. Achieving those outcomes will depend on the rules and standards behind the tenure, rather than its name alone.
Andrew Peters MSc FRICS is associate director of technical services at Countrywide Surveying Services
Related
Commonhold reform: The impact on valuations and mortgage lending
How real-time quality assurance supports faster, safer valuations
Conveyancing Association urges firms to respond to commonhold consultation
Coventry Building Society extends valuation partnership with CSS for five years
Why valuations sit at the heart of lifetime mortgages
The Conveyancing Association reiterates opposition to proposed ILCA scheme
Countrywide Surveying Services to host property and mortgage leaders at Future Insight Forum
Nine in 10 landlords hope commonhold will deliver cheaper charges, finds Landbay
LMS to host live property market reform webinar
Project 28 marks first anniversary with focus on faster property transactions
conveybuddy appoints Chris Smith as regional director for London and South East
