The Law Commission’s latest report, ‘Making commonhold a preferred alternative to leasehold ownership’, risks causing potentially more problems than solutions for residents in both large apartment blocks with third-party landlords and small self-managed ‘share of freehold’ blocks, including increased responsibilities for building management, health and safety, and monitoring compliance of other residents.

Removing professional oversight of complex or large apartment blocks – as the report proposes – pushes financial, legal and even criminal liabilities onto leaseholders and residents, meaning they face many unwanted burdens. Commonhold associations, residential management companies and Right To Manage companies may be well placed in principle to offer a solution to a perceived problem of either rogue or disinterested landlords; but, from experience, such landlords are typically the exception, not the norm.

Open letter

As part of its proposals, the Law Commission wrote an open letter to lenders, acknowledging the shortcomings of the very system it was promoting. More importantly, its proposed remedies for these shortcomings lacked the tangible evidence required to persuade lenders that commonhold was the better option for security.

In this letter to lenders, the commission outlined several complicated roles that it suggested should fall to residents. These are roles that are already being fulfilled under the leasehold tenure.

For example, the Law Commission has recommended the formation of a Commonhold Association that will be responsible for managing public liability insurance, building safety and budgets. As part of the leasehold model, a professional freeholder already fulfils this role. The reason they do this is because it is in their interests to protect their investment over a long period.

When it comes to lending, the problem with commonhold property is that it does not have the same level of security. As a potential remedy, the Law Commission suggests that communal parts, such as lifts, corridors and stairwells, could be used as security; but with no intrinsic value these simply will not work.

The commission also fails to acknowledge the link between the value of a lender’s security and how well the building is managed and maintained, which is more important than ever in the context of high-profile issues such as cladding. If these proposals end up passing on serious maintenance obligations to residents, the likelihood of buildings falling into disrepair will increase, impacting property values. A good-quality landlord, however, would take an objective approach to maintenance while allowing their charges to be challenged, as they are currently through the tribunal system.

Adding to the issues

Taken together, the Law Commission’s suggestions leave residents more vulnerable and increase the risk of creating more mortgage prisoners. Instead of simplifying the law, it has simply added to the issues facing those in the leasehold sector.

With the prominent issue of unmortgageable homes in the spotlight, the consumer should be at the forefront of such proposals. Rather than overhaul the system completely, we should reform the current leasehold system. This could be through small but significant changes such as: greater transparency; caps on managing agent fees; clearer guidance on how to challenge service charge costs – perhaps requiring a guide to be issued to leaseholders akin to that needed for assured shorthold tenancies; and easier and quicker access to the first-tier tribunal, or a new landlord ombudsman, much like the legal and financial ombudsmen.

Such measures would improve the current system and address the problems encountered in smaller blocks, where the more practical issues and lack of engagement tend to arise out of disinterest or unawareness of requirements and expectations.

Nick Tarlton and Jamie Noel, partners, Knights Plc