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Could Things Finally be Looking Up for Leaseholders?

All things considered, it hasn’t been a very good few years for leaseholders. (And yes, one could argue that it hasn’t been a very good few years for anyone – perhaps with the exemption of Jeff Bezos and his billionaire space-contemporaries – but that’s not really the point of this post).

The Grenfell tragedy in 2017 showed just how dangerously flammable composite cladding can be on high rise apartment buildings. In the wake of this, it emerged that around 2,000 other buildings in England had been cladded with similar highly flammable materials. The government stepped in quickly to enforce strict new safety regulations, but the leaseholders of buildings that were already cladded with these materials were left in a rather unpleasant limbo. While it was clear that any existing dangerous cladding needed to be removed and replaced… it wasn’t clear who’s responsibility it was to pay for it.

Over the last few years, many leaseholders in these buildings have found themselves being served with huge bills to contribute to the cost of replacing dangerous cladding, while others have been forced to pay towards expensive tests, surveys and even full-time fire martials. And just in case the whole thing didn’t sound stressful enough, while all this has been going on many of these affected leasehold flats have been essentially unsellable and uninsurable.

If you need a refresher on this very tricky situation, you can read our posts on the issue from June 2020 and September 2020.

A little bit of hope ahead

As much as we wish someone could wave a magic wand over the whole thing and sort it all out, that hasn’t happened yet. However, there is a glimmer of hope on the horizon in the form of a government announcement on a new approach to housing safety.

The housing minister Michael Gove has recently announced plans to make developers pay to replace cladding on affected buildings. This is really promising news for leaseholders and will hopefully mean that a situation that has seemed like a nightmare for many can slowly begin to be resolved. 

And the hopeful news doesn’t stop there! A consultation has been launched to consider whether the law should be changed in order to give more leaseholders in mixed-use buildings the right to buy full ownership (and therefore full control) of their buildings.

Where do things stand with this currently?

For those of you who aren’t fully informed on the law concerning leaseholder buy outs, allow us to explain (though we can’t imagine why you wouldn’t have swotted up on this already). Technically speaking, leaseholders have the right to buy the freehold of their property. If all the leaseholders in a property band together to do this, they can therefore collectively buy the freehold of the building. In doing this, they would have the right to take charge of the day-to-day management of the building as well as ongoing maintenance. This is known as the ‘right to manage’.

However, as the law currently stands, not all leaseholders in mixed-use buildings have this right. If more than 25% of the total floorspace of the building is occupied by shops or similar businesses, the leaseholders lose their so-called right to manage. This means that a significant number of leaseholders for apartment buildings that contain commercial rental units such as grocery stores, gyms or restaurants don’t have the right to take over the management of their building.

As part of the current consultation, the government are proposing raising the cut off percentage in these situations from 25% to 50%. This would mean that a significantly larger number of leaseholders would have the right to buy out their buildings and take control of shared facilities and general maintenance.

But will anyone actually be able to afford to do it?

It’s all very well giving people a ‘right’ to do something, but if that ‘right’ is at the mercy of a hefty price tag, it might not make much of a difference on a practical level. As it happens, this is another thing being considered as part of the consultation.

The government are exploring ways to make the whole shebang of buying the freehold cheaper and therefore more accessible. One of the ways this might work is by introducing a ‘mandatory leaseback’ scheme. In plain English, this would mean that the landlord would be legally required to retain the lease on at least a few units in a building, even when the leaseholders came together to buy the freehold. The idea is that requiring the landlord to retain a small interest in the property will reduce the overall cost of the premium required to take control of the freehold.

The practice of ‘leasebacks’ can and does happen already. However, landlords are not currently required by law to agree to this option, which means that only leaseholders with amenable landlords can take advantage of this.

It’s also worth noting that if mandatory leaseback did come into effect, it wouldn’t affect groups of leaseholders who could afford to buy the whole freehold without the landlord retaining a leaseback, as they could still choose to do so.

Is leasehold the future?

Far be it from us devoted lawyerly-types to bite the hand that feeds us, but it is fair to say that leaseholds and much of the law surrounding them is rather, well, antiquated. With that in mind, though there do appear to be plenty of plans in place to improve things for current leaseholders, there’s also a heavy emphasis on considering alternative options all together.

The consultation includes quite a bit on common hold, which is generally considered a more democratic way of managing the shared ownership of residential property. The consultation is exploring whether commonhold leases (which currently cannot last for longer than seven years) could be ‘reinvigorated’ (their word, not ours!) in order to make them a more viable alternative to leasehold leases, especially in cases of shared ownership.

How can you have your say?

The consultation runs until 22nd February 2022. If you are so inclined, you can read about it in minute detail and respond here.

We’re also on hand if you’d like help exploring your right to buy the freehold of your property, or assistance understanding where you currently stand as a leaseholder in a building affected by unsafe cladding. Please do get in touch if we can shine some light on the situation for you, though we’re sorry to say that our magic wand is currently out of order.

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