Speaking exclusively to The Neg, The boss of Freehold Collective Mike Somekh (pictured) advises homeowners not to ‘put their lives on hold’ waiting for the Government to reform the ‘feudal’ leasehold system.

He says there are a number of things that can be done right now that will enable leaseholders to take control of their ownership costs.

Lease extensions

If a lease has less than 80 years remaining, says Somekh, owners should act immediately to extend it to avoid a dramatic drop in the value of the property or, worse, having to hand the keys back to the landlord.

The first step is to apply for a statutory lease extension under the 1993 Leasehold Reform, Housing and Urban Development Act which will involve paying professional fees and a premium to the freeholder.

The first step is to apply for a statutory lease extension under the 1993 Act.”

Under the new Leasehold and Freehold Reform Act 2024, Marriage Value is being ‘abolished’. As freeholders will no longer share in the value uplift from a longer lease, this is proving highly contentious and is the subject of several legal challenges which may delay or even negate any savings for leaseholders.

Right to Manage

The Right to Manage (RTM) provision, Somekh explains, allows leaseholders in a building with at least two flats to take over the management of the building from the freeholder through a limited company without needing to prove bad management. This allows them to set the budget for building maintenance and improvements. The downside is that the landlord is allowed to sit on that management committee.

In addition, the freeholder still controls the level of ground rent, length of lease and the right to build more flats and rent out land.

Collective Enfranchisement

According to Somekh, this is the best option, as it gives leaseholders total ownership and control of their building. Purchasing a freehold is a collaborative process and involves a group of leaseholders agreeing to purchase the building’s freehold. The leaseholders effectively become the freeholders, setting their own service charges, ground rents and extending all the leases to 999 years.

There is specific qualifying criteria, such as the majority of flat owners agreeing to the action. It is akin to a compulsory purchase order and the landlord is legally obliged to sell.

The process is quite complex, however, and success depends on the unity of the leaseholders.”

The process is quite complex, however, and success depends on the unity of the leaseholders. The upsides, though, are considerable and the value of a property can increase by over 15%.

Commonhold

One of the most anticipated changes is the proposal to replace leaseholds with Commonholds but Somekh says that this is unlikely to happen until the end of this Parliament and they also have a number of serious drawbacks.

Commonholds, he explains, will mean homeowners each get a stake in their building, overseeing its governance and management or they can bring in a managing agent.

The law has been around since 2002, but in a 21-year period, only 300 dwellings and less than 20 buildings have been registered. The main pitfall is reaching a consensus among commonholders over expenditure – what is affordable for some, is not for others.

In addition, the replacement of a lease with a proscribed commonhold community statement will not suit many buildings’ needs. Directors will be exposed to personal liabilities, there is no case law to help address disputes between neighbours and no real powers to deal with people who do not pay the service charge or if the association goes into liquidation.