leasehold block of flats

Leasehold, freehold and commonhold: change coming in 2025

The government has pledged to make big changes to the leasehold system in England and Wales, with new legislation expected to be introduced this parliamentary year.

Last year, the government set out its targets for reforming the leasehold system, aiming to give more rights and protections to leaseholders and grant them more control over their homes.

In England, around 72% of all leasehold properties are flats. This normally means that a freeholder owns the property, while each individual flat has its own lease, which can be any length. This sometimes means the owners of these flats must pay a service charge to cover things like building maintenance and buildings insurance.

While this has been an accepted form of homeownership in England and Wales for many years, it has been deemed a ‘feudal’ and outdated system in need of reform, to avoid situations where leaseholders end up forced to pay unreasonable ground rents or other charges. Instead, the aim will be for all properties to be owned as either freehold or commonhold.

Leasehold promises

Last week, deputy prime minister Angela Rayner told the Housing, Communities and Local Government committee that new legislation is expected to be brought forward within this year. So what could that involve?

A package of measures will be introduced to expand access and reform the cost rules and voting rights where leaseholders claim the ‘Right to Manage’, meaning more homeowners in mixed-use buildings can take over management from their freeholders – and leaseholders making claims will no longer have to pay their freeholder’s costs in most cases.

Under the Leasehold and Freehold Reform Act, the government will remove the current ‘two-year rule’, meaning leaseholders will no longer need to wait for two years after buying a property to exercise their right to extend their lease or buy their freehold.

Within the next few months, the government is also expected to publish a commonhold white paper and to launch a consultation banning leasehold flats.

This will see new-build flats no longer being sold as leasehold, but as commonhold instead. This is in addition to banning the sale of new houses under a leasehold tenure.

What is commonhold?

Under commonhold, flats or other interdependent buildings are owned as a freehold indefinitely (unlike leasehold, where you buy the lease for a set period of time).

When you buy a flat in this way, you are essentially buying a unit in the property, and you become a member of the commonhold association of the property, which owns and manages the common parts of the building. This normally includes the structural and external elements of a building, as well as shared areas such as stairs and lifts.

The directors of the commonhold association, who tend to be unit holders, can decide how much money each unit owner will need to contribute to cover the costs of repairing or maintaining the commonhold. There is also the option of appointing an external manager, or managing these aspects of the commonhold yourself.

Each unit owner can vote on decisions like who to appoint as director, and whether to make building improvements.

Commonhold systems are already in place across the world, such as in the US and Australia, but are currently relatively rare in England and Wales.

Updating the framework

According to the government, the existing commonhold framework requires modernising to ensure it works for all flats in the future, and this modernisation will be contained in the pending white paper.

Find out more about the Leasehold and Freehold Reform Act and the Leasehold and Commonhold Reform Bill here.

For homebuyers and property investors looking to purchase a new-build or existing flat in England and Wales at the moment, it will take some time for the new legislation to take effect, but ultimately it is expected to be an advantageous move for any flat owners or investors.

You can keep up to date with any legislative changes or updates on our UK property news pages here.

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