Leaseholds could soon be a thing of the past as the Government announces plans to ban the practice. The Government has set out plans to ban new leaseholds, moving to a system of shared freehold or ‘commonhold’ on flats and banning new leasehold properties from being sold. In its white paper, it called the leasehold system “feudal” while emphasising that commonhold is a popular approach used around the world, marking the UK as an outlier.
Housing and Planning Minister Matthew Pennycook comments: “This Government promised not only to provide immediate relief to leaseholders suffering now but to do what is necessary to bring the feudal leasehold system to an end – and that is precisely what we are doing. By taking decisive steps to reinvigorate commonhold and make it the default tenure, we will ensure that it is homeowners, not third-party landlords, who will own the buildings they live in and have a greater say in how their home is managed and the bills they pay.”
“These reforms mark the beginning of the end for a system that has seen millions of homeowners subject to unfair practices and unreasonable costs at the hands of their landlords and build on our Plan for Change commitments to drive up living standards and create a housing system fit for the twenty-first century.”
The white paper proposes five key measures beyond the ban on new leaseholds:
• New rules to enable the use of commonhold in residential or mixed-use buildings
• More flexibility over development rights
• Assurance for mortgage lenders such as public liability insurance on buildings
• A clear framework for commonhold management
• More rights for homeowners in a commonhold including financial management of communal budget and democratic decision-making
The new legislation will only apply in England and Wales.
Rising ground rents
Criticism of the leasehold system really came into its own as ground rents soared after the pandemic. On average, ground rents rose 11% between 2023 and 2024 – to an average annual cost of £2,300 according to estate agent Hamptons. This can leave homeowners under leasehold facing punishing annual costs and little control or say in how those costs are generated, or how they are spent – on aspects such as upkeep of communal areas.
There are reportedly around five million leasehold properties in England and Wales, of which around 70% are flats.
The previous Conservative Government had pledged to ban new leaseholds but ultimately backed down after campaigning from the freeholder groups (owners of the leaseholds). The Labour Party made the ban a part of its 2024 election manifesto and is now acting on that pledge.
Conversion to commonhold would mean communal owners would have a say in matters that pertain to the whole property under the commonhold. There is no ground rent charge, although costs for maintenance would still need to be shared. This means there could be no profiteering from ground rent charges.
While new leaseholds will be prohibited under the legislation there is still no path for existing leaseholders to convert their properties to commonhold. This would likely require financial settlements with the freeholders.
While the Government has committed to looking at further reforms, until a solution is proposed, the situation for both existing leaseholders and freeholders remains unclear.
