Commonhold: a new lease of life from Labour

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April 2001

Effects of new leasehold legislation
Leasehold is a feudal hangover from the Middle Ages. Outside England and Wales, it does not exist anywhere else in the world. It is archaic, unfair and heavily weighted against the tenant.  At the last General Election, Labour promised to remedy the situation.  But leasehold reform is a very complex matter. That is why the government  has resisted simplistic demands from radical leaseholder groups to ban leaseholding immediatelyRecently, Lord Bach Parliamentary Secretary of the Lord Chancellor's Office said, ĎTo abolish leasehold tenure and hand the properties over to the existing leaseholders would be to give them a gigantic windfall.  We do not have much sympathy for that view Landlords have rights too. That is why the Government has introduced the Commonhold and Leasehold Reform Bill. The new Bill will give tenants powerful new rights and introduce a new form of tenure called Commonhold.  Commonhold enables people living in flats to own their own homes individually and to own the whole property collectively.  It is hoped that once Commonhold has become firmly established, market forces will ensure that leaseholding will disappear altogether.  The Bill also seeks to create a more level playing field between the rights of landlords and tenants by easing the rules on collective enfranchisement.

Law gives new rights for tenants

As the law stands at the moment, although the tenants own the biggest part of the equity, they have few rights.  The landlord calls all the shots.  However, most landlords do not take unfair advantage of their tenants.  Generally speaking, they behave in a responsible and equitable manner.  Repairs and maintenance are carried out regularly at reasonable costs.  Tenants are often consulted in advance and are given the opportunity to discuss service charges and the like in an open and transparent manner.  However, there are still far too many rogue landlords who use every opportunity legal or otherwise to rip off their tenants.  
Common abuses include, overcharging for repairs, charging very high management fees or failing to carry out essential works until the costs become astronomical.  Leaseholders have also complained about the misappropriation of funds from maintenance budgets and being charged for services or works that have not been provided or carried out.  Some landlords have tried to bully and intimidate their tenants.  No legal reform can stop criminal behaviour.  That is a matter of law enforcement.  But there many ways in which the law can be changed to strengthen the tenantsí position.  This is what the new Bill seeks to do

Existing leaseholders are to be given powerful new rights.  They can challenge service charges.  If they are unhappy with the way their landlord is running the property, they will now have a new Right to Manage.  That means that they can take over the management of their buildings themselves.  They form a not-for-profit Right To Manage  company.  Then they decide the level of service charges and repairs for themselves.  And they donít have to pay the landlord any compensation or prove any negligence.  But what if people canít afford to buy the freehold?  The Bill will make it easier to extend their leases.

It will be more difficult to evict people.  The regulations on forfeiture are to be tightened up.  One of the abuses common in some parts of the country is the attempt by landlords to get people evicted for being a few days behind in paying the ground rent.  Often the amounts can be very small :as little as £20.  In some cases, landlords deliberately donít send out demands. So the first thing the tenants hears about it is to be informed that eviction proceedings have been started.  In future, the landlord will have to prove that the tenant was trying to evade payment.  Also when tenantsí leases run out, they will now have to be given assured tenancies.

The best way to stop landlords abusing the tenants is for the tenants to own the freehold of the property themselves.  Under the Leasehold Reform, Housing and Urban Development Act 1993 introduced by the previous Conservative Government, tenants could join together to buy the freehold by a process known as Collective Enfranchisement.  This was very complicated and set about with all sorts of restrictions.  If the landlord did not wish to sell , he could place all sorts of difficulties in the tenantís path.  As the tenants had to pay for the landlordís legal fees as well as their own, many became daunted at the prospect and simply gave up.  Thus very few flat dwellers ended up communally owning the freehold of their flats.  As a measure of leasehold reform , the Act did not go far enough.  But for many people, it will remain the only way of achieving common ownership. Because, unlike Commonhold, it does not require all parties to agree. So when Commonhold comes into law, will these tenants be able to convert to their flats to Commonhold?  It will still be quite difficult due to legal complications.  Where the flats are over shops or offices, itís even worse.  However, by easing the restrictions to collective enfranchisement, the new Bill should be a very real help for tenants seeking common ownership.

The biggest innovation in the Bill is the introduction of Commonhold.  ĎCommonhold is a tried and trusted means of managing Co-operative Living all over the worldí said Lord Bach.  Though new to the UK, Commonhold has existed in countries like Australia and the USA for many years.  Commonhold is a form of community housing tenure.  Residents jointly own and manage the common parts of their block of flats.  But they are different from housing co-ops because everyone owns their own individual flat.  In Australia, Commonholds are called strata tenures whilst in the US they are usually called condominiums.  

Condominiums are very popular in the States when people retire to places like Florida.  How will it work here?  Under the new Commonhold and Leasehold Reform Bill, tenants will get together and form a Commonhold Association.  Through the Association, they will jointly own and manage the common parts.  The common parts can include stairwells, carparks, boilers and ventilation systems.  They could also buy the freehold.  Under Commonhold, there are no leases and no landlords as the tenants own the freehold.  But everyone involved, including the landlord, has to agree in advance.  Unlike consumer co-ops, which are usually industrial and provident societies, Commonhold Associations will be companies limited by guarantee.  As such they will be controlled by Companies House like any other company. It is very important that there should be a standard model for all commonhold tenures.  As Lord Irving, the Lord Chancellor said, ď It wonít matter whether a new Commonhold is set up in Newcastle or Newhaven, the rules will be the sameĒ. 
In the past, problems arose because every resident buy-out scheme devised its own rules.  Some of these were badly drafted, leading to endless disputes.  They were a goldmine for lawyers. The introduction of Commonhold does not end leaseholding but should be the first stage in phasing it out altogether. Itís really for new developments.  Once it has become established, it is likely that most new-builds will be sold as Commonholds.  People simply wonít want to buy leasehold properties because their value diminishes with time.  This has already happened with new houses.  In most new developments, the houses are sold freehold. 

All these reforms were promised in Labourís manifesto at the last General Election.  Consultations have taken a long time.  But it was important to get it right.   Nick Raynsford, the Housing Minister has rightly described the Bill as Ďthe most fundamental package of leasehold reform for 20 yearsí.  In the future, further reforms may be necessary in order to get rid of leasehold once and for all.  Critics have suggested that if Commonhold is intended to replace leaseholding, surely it would be sensible to stop any new leases being created. The governmentís reply is that they want to wait and see if Commonhold works in the UK housing market. Are they being too cautious?  After all, Commonhold has worked quite satisfactorily for years in Australia and the US.  Both countries share our system of common law.  Only time will tell.  The Tories talked about Commonhold for 18 years but in the end did nothing.  Labour has acted.  Letís hope that the tenants remember this when the General Election comes.  If not, it will be our job to remind them.

 

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This article was published in  THE CHARTIST March 2001

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