Consultation outcome

Reforming the leasehold and commonhold systems in England and Wales

Updated 27 November 2023

Applies to England and Wales

Scope of the consultation

Topic of this consultation:

This consultation seeks views on reforms to the leasehold and commonhold system following recommendations in the Law Commission’s reports published in July 2020. Specifically, it seeks views on:

• The non-residential limit for collective enfranchisement;

• The non-residential limit for right to manage claims;

• A non-residential limit for individual freehold acquisitions;

• The introduction of mandatory leasebacks as part of collective freehold acquisitions;

• Commonhold voting rights in shared ownership properties; and

• The provision of information during the sale of a commonhold property.

Geographical scope:

These proposals relate to England and Wales

Impact assessment:

The information provided will inform government policy and any assessments required under the government’s Better Regulation Framework for this Parliament.

Basic information

Body/bodies responsible for the consultation:

The Department for Levelling Up, Housing and Communities in collaboration with the Welsh Government.

Duration:

This consultation will last for 6 weeks from 11 January 2022

Enquiries:

For any enquiries about the consultation please contact: leasehold.reform@communities.gov.uk.

How to respond:

Please fill out our digital survey hosted on Citizen Space.

Alternatively, you can email your response to the questions in this consultation to: leasehold.reform@communities.gov.uk

When you reply, it would be very useful if you confirm whether you are replying as an individual or submitting an official response on behalf of an organisation and include:

1. Your name

2. An email address

Individual:

3. Do you live in a building with non-residential elements/units e.g. a shop, gym or office?

a. Yes

b. No

c. I don’t know

4. Where is your home?

a. North East  

b. North West 

c. Yorkshire 

d. East Midlands 

e. West Midlands

f. South East  

g. East of England  

h. South West

i. Central London

j. Greater London

k. Wales 

l. Other 

5. Are you a:

a. Freeholder

b. Leaseholder

c. Commonhold unit holder

d. Don’t know/none of the above

6. Approximately, what percentage of the building you live in is non-residential?

a. Up to and including 25%

b. More than 25% up to 50%

c. More than 50%

7. Do you know who manages the building?

a. Yes

b. No

8. If Yes, who manages the building?

a. Freeholder/Landlord with no Managing Agent

b. Freeholder/Landlord with an appointed Managing Agent

c. Right to Manage Company with no Managing Agent

d. Right to Manage Company with an appointed Managing Agent

e. Resident owned freehold with no Managing Agent

f. Resident owned freehold with an appointed Managing Agent

g. Commonhold Association with no Managing Agent

h. Commonhold Association with an appointed Managing Agent

i. Unknown (not sure)

Organisation:

9. What is the name of your organisation?

10. What is your organisation?

a. Law Firm

b. Representation Group

c. Managing Agent

d. Investor

e. Developer

f. Retirement Sector Developer

g. Housing Association

h. Local Authority

i. Professional Body

j. Government Body

k. Trade Association

l. Charity

m. Commonhold Association

n. Residents Management Company/Right to Manage Company

o. Other (please specify):

11. Please describe your organisation’s purpose in relation to this consultation.

a. Ownership or management of properties 

b. Advising organisations that own or manage properties 

c. Other (please specify)

If you answered a. for question 12.

Please answer the following questions

12. Does your organisation own or manage a building(s), with non-residential elements or units such a as a shop, gym or an office?

13. In what region are the majority of properties in your portfolio based?

a. North East

b. North West

c. Yorkshire

d. East Midlands

e. West Midlands

f. South East

g. East of England

h. South West

i. Central London

j. Greater London

k. Wales

l. Other

14. Please indicate, as an approximation where necessary, how many mixed-use freehold properties your organisation owns or manages.

15. Please indicate, as an approximation where necessary, how many of the freehold properties your organisation owns or manages have non-residential floorspace of:

a. Up to and including 25%

b. More than 25% up to 50%

c. More than 50%

16. How are most of your organisation’s mixed-use freehold properties that have non-residential floorspace of up to 25% managed?

a. Freeholder/Landlord with no Managing Agent

b. Freeholder/Landlord with an appointed Managing Agent

c. Right to Manage Company with no Managing Agent

d. Right to Manage Company with an appointed Managing Agent

e. Residents Management Company with no Managing Agent

f. Residents Management Company with an appointed Management Agent

g. Unknown (not sure)

h. N/A

17. How are most of your organisation’s mixed-use freehold properties that have non-residential floorspace of more than 25% up to 50% managed?

a. Freeholder/Landlord with no Managing Agent 

b. Freeholder/Landlord with an appointed Managing Agent 

c. Right to Manage Company with no Managing Agent 

d. Right to Manage Company with an appointed Managing Agent 

e. Residents Management Company with no Managing Agent 

f. Residents Management Company with an appointed Managing Agent

g. Unknown (not sure)

h. N/A

18. How are most of your organisation’s mixed-use freehold properties that have non-residential floorspace of more than 50% managed?

a. Freeholder/Landlord with no Managing Agent 

b. Freeholder/Landlord with an appointed Managing Agent 

c. Right to Manage Company with no Managing Agent 

d. Right to Manage Company with an appointed Managing Agent 

e. Residents Management Company with no Managing Agent   f. Residents Management Company with an appointed Managing Agent

g. Unknown (not sure)

h. N/A

1. Ministerial foreword

The feeling of security, pride and hope when you finally secure a home of your own is unforgettable. It is a reward for hard work, for often years of patient saving to assemble a deposit – for a future you choose.

But the sad truth is that, for too many leaseholders, the dream of home ownership has become a nightmare of crippling ground rents, extra fees, and onerous conditions often imposed with little or no consultation.

This is not home ownership in the truest sense of the word.

The English legal system is, in many ways, the envy of the world.

But it is hard to justify why, in an age of greater equality and ever-expanding frontiers in technology, science and so much more, we don’t have a leasehold system fit for the future, that works for leaseholders as well as freeholders.

The historic imbalance on which it is built - a freeholder who can sell a home but retain the land on which it stands, with a strict time-limit for the leaseholder to return both – has grown over the years.

It has become a serious concern in recent times as more home owners have become caught in a web of onerous enfranchisement charges and arcane practices.

We are determined to right this wrong; to reform the entire leasehold system and make it fairer as we help more people to own their own home and level up opportunity across the whole United Kingdom – our new department’s and this government’s central mission.

In 2017, the government asked the Law Commission to recommend improvements to the leasehold and commonhold systems.

Their recommendations were published in July 2020 and we have been considering how best to implement them.

My department has also established the Commonhold Council to prepare homeowners and the market for the widespread take-up of this collective form of home ownership. This is the norm in many parts of the world and will extend the benefits of freehold ownership to even more homeowners.

In January we announced we will reform the process of enfranchisement valuation abolishing marriage value, capping ground rents in the valuation calculation at 0.1% of the freehold value and prescribing rates for calculations at market value. Together these changes will save some leaseholders thousands if not tens of thousands of pounds.

The Leasehold Reform (Ground Rent) Bill is currently going through parliament and will set ground rents on newly created leases to zero. This is the first part of our seminal programme to implement leasehold and commonhold reform in this Parliament.

These are significant changes, but it is clear that we need to go further to truly deliver for leaseholders.

We are therefore considering further recommendations made by the Law Commission aimed at reforming the leasehold system.

Under these changes, which propose expanding access to the “right to manage’ and enfranchisement by increasing the “non-residential limit”, more leaseholders will be able to take ownership and management responsibility for their buildings, if they choose to.

We are also exploring how shared ownership products could work in commonhold settings and improving the information that is available on buying and selling a commonhold property.

These are not just technical legal changes.

This is levelling up at its most fundamental: ensuring that people can take back control of their homes and their destinies, take greater pride in the places they live and take advantage of more opportunities on their doorstep.

We want to see many more people have the chance to own their own home and, when they do, to enjoy it and feel confident that it is truly theirs.

These reforms take us a step closer to making this a reality for a new generation.

Lord Greenhalgh

Minister of State for Building Safety, Fire and Communities

2. Introduction and background

1. The UK government and the Welsh government are committed to promoting fairness and transparency for homeowners and ensuring that consumers are protected from abuse and poor service. We are taking forward a comprehensive programme of reform to end unfair practices in the leasehold market, as highlighted in the Written Statement to the House of Commons on 11 January 2021 and the Welsh Government’s Programme for Government 2021-2026. Our aim is to address the historic imbalance between the rights of freeholders and leaseholders, ensuring fairness for leaseholders, whilst taking into account the legitimate rights of freeholders, and to make the enfranchisement process less complex, more transparent and less expensive.

2. The first major piece of leasehold reform in a generation is the Leasehold Reform (Ground Rent) Bill currently in Parliament. This will mean new leasehold homes will no longer include a ground rent of any financial value, meaning the costs of home ownership are more transparent. Alongside legislative reforms, the UK government has asked the Competition and Markets Authority to investigate mis-selling of leasehold homes. Their enforcement action against numerous developers and investors is already delivering significant changes to the benefit of thousands of leaseholders. Furthermore, we have established a new Commonhold Council to prepare homeowners and the market for the widespread take-up of commonhold.

3. The UK and Welsh governments are committed to making further wide-ranging leasehold reforms this Parliament. In January 2021, Ministers announced a package of reforms which will make it cheaper and easier for leaseholders to extend their lease or buy the freehold of their property, including allowing leaseholders to extend their lease by 990 years at a peppercorn rent, abolishing marriage value and capping the treatment of ground rent in the valuation calculation at 0.1% of the property value.

4. The purpose of this consultation is to seek views on proposals that would:

• give significantly more leaseholders the power to buy the freehold of their building (a process known as enfranchisement), or take over management of their building under ‘right to manage’ powers
• reduce the cost of a buying a freehold by allowing leaseholders to make landlords take leasebacks of non-participating units
• clarify how shared ownership leases could function in commonhold developments
• improve the efficiency and transparency of the home buying and selling process for commonhold

Background

5. In December 2017, following the ‘Fixing our broken housing market’ white paper, the UK government committed to widespread reform of the leasehold sector to improve consumer choice and fairness, and address unreasonable and unfair abuses.

6. Government consulted in July 2017 and October 2018 on a range of measures to improve the consumer experience of leasehold.

7. In 2017, as part of their wider programme looking at residential leasehold, Ministers asked the Law Commission to consider the case to improve access to enfranchisement and the right to manage including by modifying or abolishing existing qualification criteria, and to re-invigorate commonhold as a workable alternative to leasehold. The Welsh Government also supported the project.

8. The Law Commission consulted in 2018 and 2019 on enfranchisement (PDF, 884KB), the right to manage (PDF, 1.45MB) and commonhold (PDF, 2.39MB). They published and presented their reports to government in 2020. UK government announcements in January of this year, responded to a number of recommendations in these reports. The Welsh Government has also confirmed it wishes to work with the UK government regarding the implementation of this reform programme.

9. The UK and Welsh governments have now considered further Law Commission recommendations and agree in principle that these proposals would fulfil our stated aims. To support taking this work forward we are seeking views and further evidence on certain recommendations made by the Law Commission.

10. This consultation applies to England and Wales and seeks your views on:

Reforms to leasehold enfranchisement and the right to manage

• Raising the non-residential limit from 25% to 50% for collective freehold acquisitions

• Raising the non-residential limit from 25% to 50% for right to manage claims

• Introducing a non-residential limit at 50% for individual freehold acquisitions

• Introducing mandatory leasebacks to landlords as part of the collective enfranchisement process, taking into account the proposed increase of the non-residential limit to 50% for collective enfranchisement

• Consequential amendments to voting rights in right to manage companies, ensuring that leaseholders continue to have effective control of decisions made under the right to manage, while maintaining involvement from the landlord.

Reforms to shared ownership voting rights in commonhold developments

• Where shared ownership providers are liable for paying for repair and maintenance during the ‘Initial Repair Period’, they should have the right to vote on matters relating to these works and their costs

• Where shared ownership providers wish to delegate this right over decision-making to the shared owner, they should be able to do so

Reforms to the provision of information for the sale of a commonhold property

• What the maximum fee for issuing a Commonhold Unit Information Certificate should be
• If the deadline for issuing the Commonhold Unit Information Certificate is missed, whether the sanction should be that no fee is payable

11. All responses to the consultation should be submitted no later than midnight on 22 February 2022. We encourage respondents to use the online survey, although written responses can also be emailed to:
leasehold.reform@communities.gov.uk

3. The non-residential limit for collective enfranchisement

Introduction

12. Enfranchisement was introduced in 1967 for leaseholders of houses, and in 1993 for leaseholders of flats, to give them the right to extend their lease or buy the freehold of their property. For the purposes of this consultation ‘enfranchisement’ will refer to the right for leaseholders to purchase the freehold of their property.

13. Enfranchisement allows leaseholders to, on payment of a premium, gain ownership of their freehold, becoming the landlord of their property. This gives them control over repairs, maintenance and associated costs, as well as payment of ground rent and any lease extension premium, removing any obligation to a third-party landlord and granting them full ownership of their property. Residents who participate in a collective enfranchisement continue to own their unit on a leasehold basis but also own a share of the company that owns the freehold for their property.

14. Certain qualifying criteria must be met before leaseholders can enfranchise. The current law states that leaseholders cannot ‘collectively enfranchise’ if more than 25% of the floor space in their building, excluding common parts, is used for non-residential purposes. The original limit set in 1993 was 10% which was raised to 25% by the Commonhold and Leasehold Reform Act 2002 Act, in order to make enfranchisement rights more widely available.

Aims of reforms

15. In 2017, the UK government asked the Law Commission to consider existing leasehold legislation on enfranchisement. Government’s aims in this area are to address the historic imbalance as between the rights of freeholders and leaseholders, ensuring fairness for leaseholders, whilst taking into account the legitimate rights of freeholders, and to make the enfranchisement process less complex, more transparent and less expensive.

16. The Law Commission published a consultation paper on leasehold enfranchisement reform (PDF, 884KB) in September 2018 with provisional proposals to provide a new scheme of qualifying criteria for enfranchisement rights. They asked for consultee’s views, as well as running a number of consultation events.

The current problem

17. The current law excludes premises from enfranchisement if non-residential parts of the building exceed 25% of the total internal floor area. The Law Commission provisionally proposed the continuation of the 25% limit on non-residential use in collective freehold acquisition claims and individual freehold acquisition claims.

18. Stakeholders responding to the Law Commission’s consultation highlighted this rule is a significant barrier to enfranchisement for many leaseholders. They cited the arbitrary nature of the 25% limit preventing residents in clearly residential buildings from enfranchising. They also raised the increasing use of mixed-use development as a reason for the limit to be reviewed. However, just over half of consultees were supportive of the current 25% limit, arguing it is appropriate, works adequately, and limits freehold purchase to buildings that are predominantly residential.

19. Following consultation, the Law Commission instead recommended that the non-residential limit should be increased to 50% (PDF, 7.62MB). This would mean that in future leaseholders would only be excluded from enfranchisement if the non-residential parts of their building exceed 50% of the total internal floorspace of the premises. This limit would also apply in respect of each building or part of a building included in a multi-building claim, should relevant Law Commission recommendations be accepted.

Government proposals

20. The Law Commission received evidence from many leaseholders who wish to obtain the freehold and manage their buildings but are prevented from doing so by the current 25% limit. The UK and Welsh governments recognise this. For these leaseholders, changing the qualifying criteria for enfranchisement is the most important change the governments can make to improve the choice they have over how they own their properties.

21. The UK and Welsh governments believe the Law Commission recommendation is in line with our objectives to promote fairness and transparency for homeowners and increase choice for those leaseholders who wish to take a greater role in the ownership of their properties. For these reasons we are at this stage agreeing in principle with the Law Commission’s recommendation to increase the non-residential limit to 50%.

22. However, we recognise that the Law Commission did not consult specifically on the option of a 50% limit, and we have heard from numerous stakeholders that there could be unforeseen impacts and unintended consequences arising from such a change. We appreciate that not all stakeholders impacted by this change have had an appropriate opportunity to share their views, before a final decision is made.

23. Some freeholders for example have told us that leaseholders value the management function that freeholders undertake and do not want to take on the responsibility of ownership and/or management, especially in mixed use buildings. A 50% limit increases choice for leaseholders. Those who are unconcerned with ownership and control do not have to exercise these rights. Freeholder interests also suggest that leaseholders lack the expertise to adequately fulfil the management function. We recognise the importance of responsible building management and would expect that those who do exercise their rights will employ the use of a professional managing agent, ensuring the building is managed with the appropriate expertise.

24. We would like to hear views from stakeholders on the impact of this change.

Question 1. Do you agree or disagree that increasing the non-residential limit for collective enfranchisement from 25% to 50% meets government’s aim of addressing the historic imbalance of rights between freeholders and leaseholders?

a. Agree

b. Disagree

c. I don’t know

Question 2. Do you support or oppose a 50% non-residential limit for collective enfranchisement?

Mixed-use buildings refers to properties that contain both residential units such as flats, and commercial units such as shops, offices, or restaurants.

This proposal will allow leaseholders of flats in mixed-use buildings to collectively purchase the freehold of the whole building where the flats make up half or more of the property.

a. Strongly support 

b. Support   

c. Neither support nor oppose   

d. Oppose   

e. Strongly oppose    

If response Strongly support or Support - What are the benefits of increasing the non-residential limit for collective enfranchisement from 25% to 50%? (Max 500 words)

If response Strongly oppose or Oppose - What are the challenges or dis-benefits, of a 50% non-residential limit for collective enfranchisement? (Max 500 words)

Question 3. If you were to benefit from a new 50% non-residential limit, would you buy your freehold?

a. Yes

b. No

c. Not sure

d. Not a leaseholder

Question 4. If no/not sure to Q 3, please select all relevant reasons?

a. Cost i.e. can’t afford cost of buying freehold

b. Do not want ownership and management responsibility

c. Not enough qualifying tenants

d. Not enough support from other qualifying tenants

e. Other

Other (Please Specify)

Question 5. Are there any individuals, organisations or types of properties that you believe should be exempt from the proposed increase in the non-residential limit to 50%?

a. Yes

b. No

c. I don’t know

If Yes - Please set out what type of individual, organisation or property should be exempt. Please provide information on the following:

Why you think they should be exempt, providing evidence where possible; and the criteria for how an exemption would work in practice

Interdependent proposals

Individual freehold acquisitions

25. The Law Commission’s enfranchisement report recommends a new scheme of qualifying criteria for enfranchisement. This would replace the current criteria for flats and houses with a unified scheme centred on the concept of a ‘residential unit’. The property, its configuration and the type of tenants would determine qualification for enfranchisement, and whether this is individual or collective. The UK and Welsh governments are considering these wider recommendations on qualifying criteria and will be providing a response in due course.

26. The non-residential limit for collective freehold acquisitions is discussed above. The Law Commission also recommend applying a non-residential limit to individual freehold acquisitions (and lease extensions of a whole building under Recommendation 30). They recommended this be set at 50%, consistent with the limit for collective enfranchisement. This consultation provides an appropriate opportunity to consider this non-residential limit for individual freehold acquisitions.

27. In the majority of cases, individual freehold acquisitions will replace the right to acquire the freehold of a house, a single residential unit making up a whole property. They will also apply to acquiring the freehold of a property that has a single residential unit and one or more non-residential units, for example a flat above a shop where both leases are held by the same party. Under the current law, if the shop comprised, for instance, 30% of the floorspace of the building, the leaseholder might be able to acquire the freehold as the building might reasonably be considered a house.

28. A consequence of the Law Commission’s recommendation to apply a non-residential limit to such claims is that it may result in leaseholders losing enfranchisement rights that they currently have. This will depend upon the level the limit is set at and the floorspace dedicated to residential and non-residential usage in the specific property. The Law Commission recommend a limit of 50% in part to ensure that such leaseholders do not lose this ability to acquire the freehold.

29. We recognise the Law Commission did not consult specifically on the option of a 50% limit for individual freehold acquisitions. We therefore would welcome views on any impact of the introduction of a non-residential limit set at 50% should the Law Commission’s recommendations on individual freehold acquisitions be accepted.

Question 6. Do you support or oppose a 50% non-residential limit for individual freehold acquisitions?

More information: Please refer to Chapter 2: The non-residential limit for collective enfranchisement, Section: Interdependent proposals - Individual freehold acquisitions, paragraphs 25 – 29.

a. Strongly support 

b. Support   

c. Neither support nor oppose   

d. Oppose   

e. Strongly oppose    

If response Strongly support or Support - What are the benefits of a 50% non-residential limit for individual freehold acquisitions? (Max 500 words)

If response Strongly oppose or Oppose - What are the challenges or dis-benefits, a 50% non-residential limit for individual freehold acquisitions? (Max 500 words)

Question 7. What are the potential impacts of introducing a 50% non-residential limit for individual freehold acquisitions? (Max 500 words)

Mandatory leasebacks

30. Where a collective enfranchisement claim is brought forward, the landlord of the building may be entitled to retain certain units on leases after the leaseholders complete the claim. This is generally referred to as a “leaseback”. The effect of a leaseback is that it reduces the premium which leaseholders have to pay to acquire the freehold, whilst allowing the previous landlord to retain an interest in the property. While landlords can currently compel leaseholders to grant them a leaseback, leaseholders can only ask the landlord to take a leaseback and cannot compel them.

31. In September 2018, the Law Commission consulted on proposals to introduce mandatory leasebacks to landlords as part of the collective enfranchisement process. Mandatory leasebacks would give leaseholders the option to insist that a landlord take on leases for any non-participatory units, although leaseholders would not have to use this mechanism. The purpose of mandatory leasebacks is to reduce the price payable for enfranchisement and therefore make it more affordable and accessible for leaseholders to successfully enfranchise. The Law Commission found a sizeable majority of respondents agreed that mandatory leasebacks should be introduced (PDF, 7.62MB), citing the improvement to collective enfranchisement affordability, and recommended to government that this be adopted.

32. This recommendation, in combination with the proposed 50% non-residential limit would increase the potential number of leaseholders who can exercise their right to collective enfranchisement, and correspondingly, there would be a larger increase in the number of freeholders that may be required to take on a mandatory leaseback. The Law Commission observed that without the ability to require the landlord to take leasebacks, the recommended increase to the non-residential limit is likely to be of limited practical benefit to leaseholders.

33. The UK and Welsh governments agree in principle with the Law Commission’s recommendation on the basis that it will improve the affordability of and access to enfranchisement, which are our stated objectives. We would however welcome views on the impact of the introduction of mandatory leasebacks alongside an increase of the non-residential limit to 50%.

Question 8. Do you agree or disagree that mandatory leasebacks to landlords as part of the collective enfranchisement process will reduce the cost of purchasing a freehold?

More information: Please refer to Chapter 2: The non-residential limit for collective enfranchisement Section: Interdependent proposals – Mandatory leasebacks, paragraphs 30 – 33.

a. Agree

b. Disagree

c. I don’t know

Question 9. Do you support or oppose mandatory leasebacks to landlords as part of the collective enfranchisement process?

a. Strongly support 

b. Support   

c. Neither support nor oppose   

d. Oppose   

e. Strongly oppose    

If response Strongly support or Support - What are the benefits of mandatory leasebacks as part of the collective enfranchisement process, on the presumption of a 50% non-residential limit? (Max 500 words)

If response Strongly oppose or Oppose - What are the challenges or dis-benefits of mandatory leasebacks as part of the collective enfranchisement process, on the presumption of a 50% non-residential limit? (Max 500 words)

4. The non-residential limit in right to manage claims

Introduction

34. The right to manage was introduced in 2002 to give leaseholders the ability to take over the landlord’s management functions in respect of their building. Typical examples of property management include arranging for the building to be repaired or maintained and obtaining buildings insurance. It is a “no-fault” right which leaseholders can exercise without the need to prove a grievance against their landlord or managing agent. Following a right to manage claim, the landlord remains the owner of the premises. The landlord also retains certain management responsibilities, including those relating only to non-residential units, and to residential units that are not held by long leaseholders. The “Resident Management Company” becomes responsible for all other management responsibilities previously held by the landlord under leases of the premises, including management of the participating residential units and the common parts.

Aims of the reforms

35. The UK government asked the Law Commission to review the existing right to manage regime and recommend reforms to facilitate and streamline the exercise of the right to manage. Specifically, the Law Commission were asked to consider the use currently made of the right to manage legislation and how far it meets the needs of users; consider the case to improve access to the right to manage, including by modifying or abolishing existing qualifying criteria; and make recommendations to render the procedure simpler, quicker and more flexible, particularly for leaseholders.

36. The Law Commission published a consultation paper on the right to manage in January 2019 setting out proposals for reform and asking for consultees’ views, as well as a survey on Exercising the Right to Manage, and held a number of consultation events.

Current problems

37. The current law excludes premises from the right to manage if non-residential parts of the building exceed 25% of the total internal floor area.

38. One of the issues stakeholders reported was that they did not proceed with a right to manage claim due to being on a mixed-use estate. Many stakeholders viewed the rule as arbitrary, with the effect of excluding long leaseholders in buildings with majority residential use from being able to claim the right to manage. There has also been significant litigation relating to this rule. However, it is apparent also that there needs to be a balance between the impact of decisions made by residential leaseholders under the right to manage and the interests of other occupiers such as commercial tenants of shops.

39. The Law Commission provisionally proposed that the 25% rule should be removed, and that professional managing agents should be instructed if more than 25% of internal floorspace was commercial. However, following consultation they instead recommended that the non-residential limit should be increased to 50% (PDF, 3.68MB).This limit would apply in the case of multi-building claims, should relevant recommendations be accepted. This would mean in future that premises were only excluded from the right to manage if non-residential parts of the building exceed 50% of the total internal floor space of the premises.

Government proposals

40. The UK and Welsh governments believe the Law Commission recommendation is in line with our objectives to promote fairness and transparency for homeowners and increase choice for those leaseholders who wish to take a greater role in the ownership of their properties. For these reasons we are at this stage agreeing in principle with the Law Commission’s recommendation to increase the non-residential limit to 50%.

41. While accepting this recommendation would widen access to the right to manage, we are aware of several important issues, that we wish to gain further insight into before coming to a final decision. We have for example heard concerns from freeholders that residential leaseholders lack the necessary expertise to professionally manage mixed-use buildings with up to 50% non-residential usage.

42. The UK and Welsh governments recognise that the Law Commission did not consult specifically on the option of a 50% limit. We appreciate that not all stakeholders impacted by this change have had an appropriate opportunity to share their views, before a final decision is made.

Question 10. Do you agree or disagree that increasing the non-residential limit for the right to manage from 25% to 50% meets government’s aims of addressing the historic imbalance of rights between freeholders and leaseholders?

More information: Please refer to Chapter 3: The non-residential limit in right to manage claims

a. Agree

b. Disagree

c. I don’t know

Question 11. Do you support or oppose a 50% non-residential limit for right to manage claims?

a. Strongly support 

b. Support   

c. Neither support nor oppose     d. Oppose   

e. Strongly oppose    

If response Strongly support or Support - What are the benefits of increasing the non-residential limit for right to manage from 25% to 50%? (Max 500 words)

If response Strongly oppose or Oppose - What are the challenges or dis-benefits, of a 50% non-residential limit for right to manage? (Max 500 words)

Interdependent proposals

43. The Law Commission’s report on the right to manage identifies that modifications to voting rights in right to manage companies would be necessary as a result of their recommendation to increase the non-residential limit. Due to the way votes are allocated, the change to the non-residential limit would drastically increase the voting power of landlords. In some cases, where there is a large proportion of non-residential floorspace, but less than 50%, tenants who have acquired the right to manage could be consistently outvoted by landlords. Left unchanged, voting rights could therefore undermine the effectiveness of the recommendation. The Law Commission considered three options to change the way in which votes are allocated to non-residential parts of the building. These are set out in some detail in paragraphs 6.69-6.79 of their right to manage report.

44. The UK and Welsh governments agree in principle that the Law Commission’s Option 3 to impose a cap on votes allocated to landlord(s), is preferable to other options. The total votes exercisable by landlords would never be more than one-third of the total votes exercisable by qualifying tenants. This offers a simple approach to ensuring that leaseholders have effective control of decisions made under the right to manage, while maintaining involvement from the landlord. We recognise that the voting power of landlord(s) might be reduced in some cases, however we consider this option best achieves our overall aims.

Question 12. Do you agree or disagree that right to manage company voting rights should be amended to ensure leaseholders continue to have effective control of decisions?

a. Agree

b. Disagree

c. I don’t know

Question 13. Do you support or oppose capping the total votes allocated to landlords in right to manage companies to one-third of the total votes of qualifying tenants (Law Commission’s Option 3)?

More information: Please refer to Chapter 3: The non-residential limit in right to manage claims, Section: Interdependent proposals – Right to manage voting rights, paragraph 44.

a. Strongly support 

b. Support   

c. Neither support nor oppose   

d. Oppose   

e. Strongly oppose    

If response Strongly support or Support - What are the benefits of capping the total votes allocated to landlords in right to manage companies to one-third of the total votes of qualifying tenants? (Max 500 words)

If response Strongly oppose or Oppose - What are the challenges or dis-benefits, of capping the total votes allocated to landlords in right to manage companies to one-third of the total votes of qualifying tenants? (Max 500 words)

5. Commonhold voting rights for shared ownership properties

Introduction

45. Commonhold offers freehold ownership to homeowners in properties with shared fabric and infrastructure, such as blocks of flats. The commonhold model provides unit owners the permanent ownership of their home and the opportunity to participate in collective decision-making about how the building is governed, financed and managed.

46. All unit owners within a commonhold will belong to a commonhold association which owns and manages the common parts of the building or estate.

47. This democratic form of ownership gives homeowners, as members of a commonhold association, voting rights on how their building is run. These include decisions such as appointing directors, whether to appoint a managing agent, spending on repairs and whether to make improvements to the building. These voting rights are prescribed in law, where the Commonhold and Leasehold Reform Act 2002 and Commonhold Regulations require that certain decisions can only be made with a vote of the commonhold association.

48. Shared ownership in England is an affordable homeownership scheme which allows people to buy a share of a property (between 10% and 75% of the overall market value) and pay rent on the rest. Ownership of the property is split between the shared owner and the provider on a leasehold basis, up until the time the shared owner acquires a full 100% share of the property. The UK government believes that shared ownership has a vital role to play in offering a route into home ownership to those who would otherwise struggle to afford it, because the combination of rent and mortgage will often be lower than the cost of outright purchase and in many areas lower than the cost of private renting.

49. Current legislation, however, does not allow leases over seven years within a commonhold, which excludes Shared Ownership leases from commonhold.

50. As part of a wider review of leasehold and commonhold reform, government asked the Law Commission to make recommendations to reinvigorate the use of commonhold, including to consider ways of incorporating Shared Ownership within commonhold.

51. Their report, Reinvigorating commonhold: the alternative to leasehold ownership (PDF, 5.77MB), that followed the consultation and review outlined an array of proposed improvements to the commonhold legal framework, including allowing Shared Ownership leases to operate within commonholds.

52. In addition to permitting shared ownership leases, the Law Commission also proposed that shared ownership leaseholders are able to exercise all the voting rights that are available to any other commonhold unit owner, with the exception of a decision to terminate the commonhold which should be exercised jointly with the provider. This means that the shared owners who pay the service charge and will be the ultimate beneficiaries of the services provided have the opportunity to have their say on these costs and services. The proposal would apply in either in a new commonhold or in a building which has converted to commonhold (and where the shared ownership lease is granted after conversion).

53. We are reviewing the full set of the Commission’s recommendations and will respond in due course. The UK government agrees in principle that shared ownership should be allowed as part of commonhold developments.

54. Since the Law Commission made its recommendations, the UK government has introduced a new model for shared ownership, which includes a 10-year period during which the shared owner will receive support from their provider to pay for essential repairs, bridging the gap between renting and home ownership. The new 10-year repair free period will prevent shared owners living in new build shared ownership homes from being hit with unexpected repairs and maintenance bills in the initial years, better supporting them to put money aside towards buying more of their home.

55. In light of these changes, we wish to consult to seek views on how voting rights within a commonhold should be structured within the new Shared Ownership model for England.

Aims of the reforms

56. The UK and Welsh governments want to extend the benefits of freehold ownership to more homeowners and as part of this, we want to see the widespread take-up of commonhold.

57. This means working to reinvigorate commonhold, and a key part of this will be supporting its potential use in as many settings as possible, including allowing the full range of affordable housing products to function effectively in a commonhold setting so that neither the supply of commonhold, nor products such as shared ownership in England, are inhibited by technical barriers.

58. As far as practical, where there is opportunity to have a say over decisions affecting a building, such as facilitated via voting rights in a commonhold setting, and particularly where there are associated costs, we believe that those who pay should have a say.

Current problem

59. In England, shared ownership properties use leases, and the shared owner will both pay back any mortgage debt on the share of the home they own and pay rent on the remaining share (usually to a provider, such as a housing association or local authority, who owns the remaining equity in the property and will usually be the landlord freeholder). Under the existing model, from the outset shared owners will pay towards the upkeep of the structure and exterior of the building and any shared communal areas or services which they have access to.

60. The current restriction of long residential leases (over seven years) in commonhold precludes shared ownership leases being offered in commonhold settings. Shared ownership is a key part of the UK government’s home-ownership policy for England and accounted for around 13% of new starts in England in 2019-20. Prohibiting Shared Ownership leases could limit the scope for large-scale uptake of commonhold in future.

Government proposals

61. The UK government are looking to consult both the consumers and providers of shared ownership properties on how voting rights in commonhold associations should operate under the new shared ownership model in England (e.g. where providers are required to contribute to the cost of essential repairs for the first 10 years of the property’s existence).

62. The Law Commission proposed that nearly all commonhold voting rights, including budget decisions to fund the maintenance of shared spaces and structures, services, repairs and improvements, be delegated exclusively to shared owners in new properties or in a building which has converted to commonhold and where the shared ownership lease is granted after conversion. This view was reached on the basis that as shared owners were permanent occupiers of the dwelling, with responsibilities to pay the charges associated with the upkeep of the building, they should also be able to exercise the ability to vote on these matters.

63. The Law Commission also proposed that where a shared ownership lease is in place prior to conversion to a commonhold, the provider may delegate some or all of its voting rights to the shared owner. The Law Commission believes this discretion is necessary, given that the provider would have granted the shared ownership lease before knowing that the building would convert to commonhold.

64. Since these proposals were made, the new Shared Ownership model for England introduced a 10 year repair period (the “Initial Repair Period”) during which the landlord will assume responsibility for the cost of essential repairs. This will apply to new build homes for the first 10 years of the property’s life (10 years from the initial sale) or until the shared owner reaches 100% ownership (whichever is sooner). These costs cannot be passed down to the shared owner under the lease.

65. As a result, we are proposing an adjustment to the Law Commission’s recommended commonhold voting rights model for shared owners and providers. The adjustment will allow providers to participate in decision -making during the ‘Initial Repair Period’, therefore allowing them to vote on decisions relating to funding repairs that they are responsible for.

66. It may be that where providers grant or own a limited number of Shared Ownership leases within a commonhold, they may only incur very modest, if any, costs, or are otherwise content for the shared owner to exercise full voting rights during the ‘Initial Repair Period’. It would seem appropriate therefore, to allow this delegation to take place, should the provider see fit.

67. These proposals mean that in all cases, where a Shared Ownership provider is liable for ‘Initial Repair Period’ costs, they would have the option to retain voting rights in respect of these costs or choose to delegate them to the shared owner. The other Law Commission proposals relating to voting rights and Shared Ownership as set out at paragraph 4.8 would remain unchanged.

Question 14. Do you support or oppose that, where Shared Ownership providers are liable for paying for repair and maintenance during the ‘Initial Repair Period’ of a new Shared Ownership lease, they should have the right to vote on matters relating to these works and their costs?

a. Support strongly   

b. Support   

c. Neither support nor oppose   

d. Oppose   

e. Oppose strongly   

If response Strongly support or Support - What are the benefits of allowing Shared Ownership providers the right to vote on matters relating to the works and costs for which they are responsible during the “Initial Repair Period”? (Max 500 words)

If response Strongly oppose or Oppose - What are the challenges or dis-benefits of allowing Shared Ownership providers the right to vote on matters relating to the works and costs for which they are responsible during the “Initial Repair Period”? (Max 500 words)

Question 15. Do you support or oppose that, where Shared Ownership providers wish to delegate this right over decision-making to the shared owner, they should be able to do so?

a. Support strongly   

b. Support   

c. Neither support nor oppose   

d. Oppose   

e. Oppose strongly   

If response Strongly support or Support - What are the benefits of allowing Shared Ownership providers to delegate this right over decision-making to the shared owner? (Max 500 words)

If response Strongly oppose or Oppose - What are the challenges or dis-benefits of allowing Shared Ownership providers to delegate this right over decision-making to the shared owner? (Max 500 words)

6. Home buying and selling: Commonhold

Introduction

68. The UK and Welsh governments want to make the buying and selling of homes more efficient and more transparent. Commonhold offers significant advantages in this regard. It has a clear, standardised rule book in the form of the Commonhold Community Statement, rather than potentially complex and individually drafted leases, which should help make the conveyancing process simpler to understand for all parties.

69. Because commonhold is a specific type of freehold ownership, some of the information requirements in the buying and selling processes differ from the standard information required for leasehold and freehold homes.

70. At present, a Commonhold Unit Information Certificate (“the CUIC”) (PDF, 35KB) is often used to inform the buying and selling process of a commonhold unit. The current owner will request the certificate from the commonhold association, who have 14 days to produce the certificate. The prospective buyer or buyers’ solicitor will request a copy as part of the conveyancing process.

71. This certificate outlines, at the date of issue, the level of arrears owed by a unit owner towards the commonhold assessment (the equivalent of a service charge in leasehold) and/or arrears to an established reserve fund. This provides the prospective new owner with a clear statement of the amounts they are required to pay in respect of the arrears, should they complete the purchase of the home.

72. These arrears may arise from the current owner’s failure to pay the commonhold association towards either of these costs. The current owner would still be responsible for arrears accrued while they were a unit owner in the form a personal debt.

73. The CUIC is important for a number of reasons. It provides transparency to prospective owners to price the property effectively, acting as a protective mechanism for the buyer by establishing a fixed position on the level of arrears at the point when the certificate is issued so a new owner can understand what costs will be associated with the purchase. Critically it also supports the commonhold association’s solvency by encouraging arrears to be addressed as part of the conveyancing process, either by requiring the current owner to clear the arrears from the proceeds of sale, or having the new owner clear the debts, possibly offsetting this through a reduction in the offer price.

74. For these reasons, as part of their wider review into commonhold and leasehold reform, the Law Commission proposed retaining the CUIC as part of the buying and selling process (PDF, 5.77MB).

Aims of the reform

75. The UK and Welsh governments want to make the buying and selling of commonhold units as efficient and transparent as possible. In principle, we want to retain the CUIC as a key part of the conveyancing process. We also want to ensure that buyers and sellers can quickly and affordably access the information they need, by creating incentives for the commonhold association to supply the form quickly, and cap any charges associated with the CUIC’s production.

Current problem

76. Provision of a CUIC may require a fee to be paid by the prospective owner, ensuring the commonhold association is reimbursed for the costs of preparing the CUIC.

77. The costs of preparing such a form should be modest – the information requirements are matters the commonhold association or directors should be recording as a matter of course, and updating at least annually for the budgeting process. They should therefore be relatively simple to produce.

78. The requirements are significantly, and deliberately, narrower than those of the more comprehensive LPE1 form, which are used for providing consumers with a range of information regarding the costs and arrangements associated with buying a leasehold property.

79. The fees for producing a CUIC are not prescribed in law at present. The Law Commission were minded to recommend a maximum fee should be prescribed to avoid the abuses seen in the leasehold sector. In leasehold, fees are often paid for information detailing the costs and arrears associated with a property (via the LPE1 form), and there are concerns that excessive fees are being requested of prospective leaseholders to produce this information as a mechanism to generate profit for the management company or freeholder.

Government proposals

80. To prevent excessive fees being levied in a commonhold setting, the Law Commission have recommended that maximum fee for the provision of a CUIC is set by regulation, and kept under review. The UK and Welsh governments are minded to accept this proposal and want to engage with consultees on this matter.

81. The Law Commission did not consult on the level of the fee – but by way of comparison, the UK government have proposed capping the charge for LPE1 form at a maximum of £200 + VAT. The CUIC form involves only a small fraction of the information requested in the FME1 or LPE1 form, so we would expect the costs of producing a single CUIC to be significantly below the LPE1 cap. We are looking for the views of consultees on what level the maximum fee for the information required of a CUIC should be.

82. To ensure an efficient buying and selling process, the commonhold association has a duty to provide the CUIC within 14 calendar days. Currently, if the association (or managing agent acting on its behalf) delays issuing the CUIC, the current unit owner has little power to accelerate the process, beyond the existing disputes resolution process or ultimately resorting to using the courts. The Law Commission reported that the majority of consultees who responded on this point felt the absence of a clear incentive was likely to cause problems and delay in the conveyancing process.

83. The Law Commission recommended that, as a sanction, the commonhold association should not be entitled to charge a fee for providing the CUIC if it is not issued within the prescribed time limit of 14 days, and they should have the continued obligation to issue it. In the context of consulting on the maximum fee, we want to give consultees the opportunity to provide their views on whether the fee should be refunded if the deadline is missed.

Question 16. What should be the maximum fee (£) for issuing a Commonhold Unit Information Certificate (CUIC)?

a. 151 - 200

b. 101 - 150

c. 51 - 100

d. 0 - 50

e. Other (Please specify) (£)

Why do you think your chosen maximum fee (£) is most suitable? (Max 500 words)

Question 17. Do you support or oppose a sanction on the commonhold association that no fee is payable, if the deadline for the CUIC’s provision is missed?

a. Strongly support 

b. Support   

c. Neither support nor oppose   

d. Oppose   

e. Strongly oppose    

If response Strongly support or Support - What are the benefits of placing a sanction on the commonhold association that no fee is payable, if the deadline for a CUIC is missed? (Max 500 words)

If response Strongly oppose or Oppose - What are the challenges or dis-benefits of placing a sanction on the commonhold association that no fee is payable, if the deadline for a CUIC is missed? (Max 500 words)

About this consultation

This consultation document and consultation process have been planned to adhere to the Consultation Principles issued by the Cabinet Office.

Representative groups are asked to give a summary of the people and organisations they represent, and where relevant who else they have consulted in reaching their conclusions when they respond.

Information provided in response to this consultation may be published or disclosed in accordance with the access to information regimes (these are primarily the Freedom of Information Act 2000 (FOIA), the Environmental Information Regulations 2004 and UK data protection legislation. In certain circumstances this may therefore include personal data when required by law.

If you want the information that you provide to be treated as confidential, please be aware that, as a public authority, the Department is bound by the information access regimes and may therefore be obliged to disclose all or some of the information you provide. In view of this it would be helpful if you could explain to us why you regard the information you have provided as confidential. If we receive a request for disclosure of the information we will take full account of your explanation, but we cannot give an assurance that confidentiality can be maintained in all circumstances. An automatic confidentiality disclaimer generated by your IT system will not, of itself, be regarded as binding on the Department.

The Department for Levelling Up, Housing and Communities will at all times process your personal data in accordance with UK data protection legislation and in the majority of circumstances this will mean that your personal data will not be disclosed to third parties. A full privacy notice is included below. Individual responses will not be acknowledged unless specifically requested.

Your opinions are valuable to us. Thank you for taking the time to read this document and respond. Are you satisfied that this consultation has followed the Consultation Principles? If not or you have any other observations about how we can improve the process please contact us via the complaints procedure.

Personal data

The following is to explain your rights and give you the information you are be entitled to under UK data protection legislation. Note that this section only refers to personal data (your name, contact details and any other information that relates to you or another identified or identifiable individual personally) not the content otherwise of your response to the consultation.

1. The identity of the data controller and contact details of our Data Protection Officer

The Department for Levelling Up, Housing and Communities (DLUHC) is the data controller. The Data Protection Officer can be contacted at dataprotection@communities.gov.uk or by writing to the following address:

Data Protection Officer
Department for Levelling Up, Housing and Communities
Fry Building
2 Marsham Street
London
SW1P 4DF

2. Why we are collecting your personal data

Your personal data is being collected as an essential part of the consultation process, so that we can contact you regarding your response and for statistical purposes. We may also use it to contact you about related matters.

3. Our legal basis for processing your personal data

The collection of your personal data is lawful under article 6(1)(e) of the UK General Data Protection Regulation as it is necessary for the performance by MHCLG of a task in the public interest/in the exercise of official authority vested in the data controller. Section 8(d) of the Data Protection Act 2018 states that this will include processing of personal data that is necessary for the exercise of a function of the Crown, a Minister of the Crown or a government department i.e. in this case a consultation.

4. With whom we will be sharing your personal data

DLUHC may appoint a ‘data processor’, acting on behalf of the department and under our instruction, to help analyse the responses to this consultation. Where we do we will ensure that the processing of your personal data remains in strict accordance with the requirements of the data protection legislation.

5. For how long we will keep your personal data, or criteria used to determine the retention period

Your personal data will be held for two years from the closure of the consultation

6. Your rights, e.g. access, rectification, restriction, objection

The data we are collecting is your personal data, and you have considerable say over what happens to it. You have the right:

a. to see what data we have about you

b. to ask us to stop using your data, but keep it on record

c. to ask to have your data corrected if it is incorrect or incomplete

d. to object to our use of your personal data in certain circumstances

e. to lodge a complaint with the independent Information Commissioner (ICO) if you think we are not handling your data fairly or in accordance with the law. You can contact the ICO, or telephone 0303 123 1113.

Please contact us at the following address if you wish to exercise the rights listed above, except the right to lodge a complaint with the ICO: dataprotection@communities.gov.uk or

Knowledge and Information Access Team
Department for Levelling Up, Housing and Communities
Fry Building
2 Marsham Street
London
SW1P 4DF

7. Your personal data will not be sent overseas

8. Your personal data will not be used for any automated decision making

9. Your personal data will be stored in a secure government IT system

We use a third-party system, Citizen Space, to collect consultation responses. In the first instance your personal data will be stored on their secure UK-based server. Your personal data will be transferred to our secure government IT system as soon as possible, and it will be stored there for two years before it is deleted.