The Act received Royal Assent on 1 May 2002. The legislation is expected to become law in stages from July 2002.
The Act reforms the purchase of freeholds by leaseholders and creates a new form of tenure for flat owners, or unit-holders, known as commonhold. Under the Act the organisation managing the common parts of developments of flats would be set up as a company.
Under commonhold, there is no landlord and no individual would have rights in the property which would be in any way superior to the individual unit-holder’s rights. In addition, the owner’s (previously the leaseholder’s) interest in the property would not expire over time as it does in leasehold.
The main points of the Act:
- It provides a way of allowing people who occupy units in a multi occupied building to own their freeholds.
- It gives leaseholders the right to take over management of a whole building without having to prove landlord fault or pay compensation on new contracts
- It makes it easier for leaseholders to buy their freeholds and means that more leaseholders will qualify for right to buy, with simpler valuation rules;
- It provides range of measures to prevent leasehold abuse.
The Government has issued some initial guidance
on the commonhold and residential leasehold reform provisions which should prove useful to intereted parties.
Although this new Act is mainly concerned with residential properties it also applies to commercial properties. Under the new form of tenure known as commonhold, individual flats and commercial properties will be owned individually with the common areas to be controlled collectively.
These are far reaching changes in leasehold law.
Part 1 of the Act deals with Commonhold:
- Separate occupancies in a building in a commonhold development will be called units and the owners will be known as unit holders.
- The Commonhold Association will be a private company owned by guarantee and will be set-up to manage the common parts.
- Commonhold Associations will now be registered at Companies House with a standard set of memorandum and articles of associations.
- These associations will be registered with HM Land Registry when they present their memoranda and articles of association and commonhold community statement containing rules of the commonhold. Commonhold applying to residential and commercial developments.
- These memoranda and articles of association will govern the management of commonholds. They set out voting rights of individual unit holders and procedures for dealing with disputes using ADR (alterative dispute resolution methods) as opposed to county courts.
Part 2 of the Act deals with Leasehold Reform – It gives leaseholders new rights and improves existing ones:
- It gives leaseholders of flats the right to manage their building and sets out the conditions for exercising this right and it provides that eligible leaseholders must set-up a company to be known as a Right to Manage Company (RTM).
- It amends provisions of the 1993 Act dealing with the right of leaseholders to buy collectively the freehold by simplifying the eligibility criteria.
- It abolishes the requirement that two thirds of the leaseholders must participate and also the low rent test.
- It amends the marriage valuation principles contained the 1993 Act.
- It concerns new leases for tenants of flats. Changes include the abolition of the low rent test and divides marriage value between landlord and leaseholder.
- It amends the provisions contained in the Leasehold Reform Act 1967 dealing with the rights of leaseholders of houses to buy freehold or extend a lease.
It changes leasehold management contained in the Landlord and Tenant Act 1985 by:
- Changing and extending the definition of the service charge, the jurisdiction of leasehold valuation tribunals, changes in accounting of service charges, introduces the concept of ‘administration charge’
- Bringing in the requirement that service charges must be reasonable and allows leaseholders the right to challenge their liability to pay such charges at a leasehold valuation tribunal.
- Amending the Landlord and Tenant Act 1985 s20 by extending the landlord’s responsibility for consulting leaseholders before carrying out proposed works.
- Extending the right to apply to a LVT for the appointment of a new manager under the Landlord and Tenant Act 1987 Part 2.
- Extending and clarifying the grounds on which an application may be made to vary a lease under the Landlord and Tenant Act 1987 and transfers jurisdiction for handling such applications from the county courts to the leasehold valuation tribunal.
- Bringing in the rule that all demands for ground rent must be made by prescribed notice and introduces additional restrictions on forfeiture proceedings.
The Leasehold Advisory Service (Tel: 020 7490 9580) can help in these matters