The Ministry of Housing, Communities & Local Government has just released the Draft Commonhold and Leasehold Reform Bill, which outlines its proposed changes to residential tenure in England and Wales, in what is the most significant package of leasehold reform for a generation.
The draft legislation sets out plans for prohibiting the use of leasehold for most new flats, revises the rules governing converting a property to commonhold, extends ground rent controls to millions of existing leases and will bring an end to forfeiture for long residential leases.
It has been published alongside a separate consultation document on how commonhold reform would be implemented, with much of the detail of how it will be delivered in secondary legislation.
Commonhold revised and improved
The Bill will repeal and replace the commonhold system that was first introduced in 2002, but has had limited uptake. The updated model is intended to operate more effectively in larger and mixed-use schemes, with changes to governance arrangements, budgeting rules and the introduction of “sections” within a single commonhold to accommodate different uses.
For existing buildings, the legislation would reduce the threshold required to change from leasehold to commonhold by removing the requirement for unanimous consent. The full details of how conversions would operate are expected to be set out in the secondary legislation phase.
Restrictions on leaseholds for flats
The draft Bill proposes a ban on the granting or assigning of most new long residential leases of flats, with limited categories of permitted leases, including some shared-ownership arrangements.
Trading Standards will oversee enforcement and will have the power over financial penalties and statutory redress for affected buyers.
Ground rent controls extended
Ground rent regulation would be extended to long residential leases not covered by the Leasehold Reform (Ground Rent) Act 2022, which only applied to leases granted after it came into force.
Under the proposals, ground rents would be capped at £250 a year, before falling to a peppercorn following a 40-year transitional period, as set out in a policy statement published alongside the draft Bill.
Forfeiture removed and estate rentcharges modified
The legislation would abolish forfeiture for long residential leases, replacing it with a court-based enforcement regime.
It would also strip out enforcement powers linked to estate rentcharges on freehold estates. These are charges paid by freehold homeowners to cover the upkeep of shared infrastructure such as roads, lighting and green spaces. Under the current system, non-payment can lead to a third party taking control of a property or registering a charge against it. The Bill proposes replacing these powers with a much more proportionate recovery process.
The next steps…
The draft Bill will now move into consultation and pre-legislative scrutiny before being formally introduced to Parliament. Many aspects of the reforms, including timing, exemptions and implementation, depend on secondary legislation that has yet to be published. No timeframe or commencement dates have yet been set.
Industry reaction
Industry reaction has been broadly positive, although concerns have been expressed over how the reforms will be implemented, with key details not expected to emerge until secondary legislation is underway.
The clarity provided by the £250 fixed ground rent cap was particularly well received, as it is expected to reduce ownership costs and improve saleability. As Timothy Douglas, head of policy at Propertymark, explains: “Addressing ground rents for existing leaseholders tackles one of the biggest barriers to selling leasehold property.”
However, legal advisers and institutional investors have warned that the proposals intervene in existing contractual arrangements underpinning billions of pounds of long-term investment, including from pension fund assets.
According to Jason Tann, partner at Howard Kennedy: “A challenge under the right to property may be open to pension funds and other affected parties if the legislation goes through as planned, particularly if it does not envisage compensation.”
The full details of the bill can be see here.
