The UK government has announced major reforms to end the “feudal” leasehold system and promote commonhold ownership in England and Wales. This marks the beginning of the end for the leasehold system, often considered outdated and inequitable.

Commonhold: The Beginning of the End for Leasehold?

Commonhold was first introduced by the Commonhold and Leasehold Reform Act 2002, but it failed to gain significant support in its original form. However, steps are now being taken to revitalise commonhold as the default property tenure, with a goal of replacing leasehold entirely.

Key Reforms in the Government’s White Paper

On 3 March 2025, the government published a new Commonhold White Paper, outlining the first steps in these sweeping reforms:

• Ban on New Leasehold Flats
  New leasehold flats will be banned, and homeowners will be granted a freehold interest with provisions for the management of the common areas via a Commonhold Community Statement.
• Homeowner Empowerment
  Homeowners will gain a stake in their buildings from day one, without the burden of ground rent. They will have more control over the management and associated costs of their properties.
• New Legal Framework
  A new legal framework will support commonhold, with a Leasehold and Commonhold Reform Bill expected in the second half of 2025.
• Enhanced Rights for Homeowners
  Measures include mandatory public liability insurance, reserve funds, and more oversight by commonhold unit owners to ensure fairness in property management.

What Does This Mean for Existing Leasehold Properties?

While the proposed reforms offer a bright future for commonhold ownership, it is still unclear what will happen to existing leasehold properties. The government is also working on implementing greater tenant protections for leaseholders, but there is significant opposition from landlords, particularly those with large portfolios of leasehold reversions – many of which are held in pension funds or by charities.

The 2020 Law Commission consultation recommended the use of ‘Sections’ within commonhold developments, allowing areas like mixed-use spaces to be treated separately if they don’t share communal facilities. However, it’s expected that leasehold will remain applicable to commercial properties, and possibly to those flat owners who cannot afford the switch to commonhold.

Potential Consequences of the Reform

If the new commonhold system doesn’t fully replace leasehold, we could see a two-tier market. Potential consequences include:

• Further Claims Against the Government
  There could be legal challenges related to tenants’ right to peaceful enjoyment of their possessions under Article 1 of the Human Rights Act 1998.
• Loss of Value for Landlords
  Landlords with large leasehold portfolios may face a reduction in the value of their assets.
• Market Destabilisation
  The shift to commonhold could create uncertainty and disruption in the property market, as landlords and tenants adjust to the changes.
• Costs of Converting to Commonhold
  Converting existing leasehold properties to commonhold may be costly and complex, particularly for tenants and commercial leaseholders in mixed-use developments.

Looking Ahead

As the government moves forward with these reforms, it will be fascinating to see how they unfold. Will the possible negative effects of these changes be addressed, and will commonhold truly replace leasehold as the dominant ownership model? The coming months will reveal much about the future of property ownership in the UK.

Contact Us

For more information regarding the impact of these proposed changes and how they could affect your property, please get in touch with our real estate team at online.enquiries@LA-law.com.