Commonly described as the biggest change in how we own property for 1000 years. A fundamental change to how everyone owns a flat now or in the future.
In two part the more simplistic starting point being the proposal to cap ground rent at £250.00 PA. However, the other more complex focus of the bill is to allow existing leasehold home owners to switch to commonhold. This is a fundamental change for flat owners.
Under present leasehold law a leasehold owner has the right to live in their property for a fixed term (often 99 or 999 years). However, the real owner is the freehold owner to whom they must pay a high price to extend the lease if required, service or maintenance charges for upkeep, consent fees for any changes and ground rent for no benefit. When the lease ends or is breached the home goes back to the freeholder.
This system dates back to William the Conqueror. Today we are the last developed country with this feudal system.
The draft bill makes the system of commonhold the way to own new flats and allows a clear process for existing leaseholders to convert.
Commonhold means you own your home outright and common parts jointly wit neighbours. There is no third party freeholder(landlord), no time limit or reversion.
In any one existing leasehold block only 50% of leaseholders must agree to switch to commonhold. They must buy out the lease from the existing building’s landlord.
That price is set by a formula to account for ground rent the landlord would lose in future capped at £250 for 40 year and from then onward a peppercorn or nil.
High ground rents have meant that many leaseholders own flats that aren’t saleable. Many lenders will not consider offering mortgages on such properties even if a potential buyer was prepared to live a high ground rent liability . Indeed even mechanisms within leases that have the potential to inflate what may currently be reasonable ground rent will mean in certain cases that mortgage companies will refuse to lend and in so doing render the leasehold unable to sell to anyone other than a cash buyer.
We will of course keep you informed as process passing the legislation proceeds on what is a huge change for so many homeowners.
