The government’s long-promised overhaul of the leasehold system is entering a crucial phase, with ministers pressing ahead with plans to move England and Wales towards a commonhold-based model for flat ownership.
A major parliamentary report published this week broadly gives its backing to the existing direction of travel, but also warns that significant practical and legal challenges still need to be resolved before commonhold can work at scale.
For developers, investors and freeholders, the latest intervention is another sign that the leasehold model is steadily being pushed towards the exit.
That’s because the draft Commonhold and Leasehold Reform Bill, published earlier this year, will eventually end most new leasehold flats and replace them with commonhold structures instead.
Commonholders own and manage their building
Under commonhold, flat owners collectively own and manage their building, rather than buying a long lease from a freeholder.
The draft legislation also proposes a new legal framework designed to make commonhold work more effectively in modern developments, including mixed-use schemes containing shops, offices and shared facilities.
Although commonhold has technically existed since 2002, it has barely been adopted by the market. Successive governments have instead relied on leasehold, despite years of criticism surrounding escalating ground rents, expensive service charges and poor building management practices.
Political direction is becoming far clearer
The Housing, Communities and Local Government Committee said the draft legislation “establishes the new legal framework for a modern commonhold tenure”, describing it as the “long-term replacement” for leasehold.
In the report, though, the committee raised concerns around how existing leasehold developments would convert to commonhold, how disputes between residents would be handled, and whether enough safeguards are in place for large and complex schemes.
The report also recommends mandatory reserve funds for major repairs, stronger regulation of managing agents and clearer dispute-resolution mechanisms designed to prevent resident-run commonhold schemes from becoming bogged down in conflict.
Lenders, developers and investors may initially remain cautious
MPs further expressed concerns that lenders, developers and investors may initially remain cautious unless the Government can demonstrate that commonhold structures will operate reliably in large and complex developments.
Large city-centre schemes, for example, often include commercial units, gyms, shared energy systems, public spaces and long-term maintenance obligations, all operating within the same structure. One of the long-standing criticisms of commonhold has been whether resident-led ownership models can effectively manage developments of that scale and complexity.
The government argues the new framework has been specifically redesigned to address those concerns.
The draft legislation includes provisions intended to make mixed-use developments easier to operate under commonhold, while also giving developers greater flexibility during phased construction projects.
There are also wider implications for investors exposed to ground rents and freehold income streams.
Changes to existing ground rents
Alongside the wider reforms, ministers are continuing to examine changes to existing ground rents, including proposals to cap them at £250 before eventually reducing them to peppercorn levels over a transition period. The committee questioned why the Government had opted for a 40-year timeframe rather than 20 years, arguing that the process could be accelerated.
For property investors, the transition is unlikely to happen quickly. Existing leasehold stock will continue dominating the market for some time to come, and the government is expected to phase in changes gradually.
But after so many years of consultations, reviews and piecemeal reforms, the latest report suggests Westminster is now moving beyond simply improving leasehold and towards replacing it altogether.
For the wider property market, the debate is no longer whether major leasehold reform is coming, but what the final shape of the post-leasehold system will eventually look like.
You can read the full report here.
