Commonhold and Leasehold Reform: What the draft Bill proposes

Commonhold is a modern homeownership structure. Under a commonhold structure, each flat owner holds the freehold title to their own unit, with no time limit on the ownership (rather than for a fixed term under a lease). The shared parts of any buildings are then managed collectively by a commonhold association which is made up of all the unit owners.

Key changes in the Draft Commonhold and Leasehold Reform Bill:

1. Ban on New Leasehold Flats

   The Bill will introduce a prohibition on the sale of certain long residential leases for flats, effective from the date of enactment. As a result, commonhold will become the default form of ownership for new flats in England and Wales.

   This ban will apply to flats in newly built developments, as well as newly created flats for sale in some existing buildings. However, build-to-rent and social rent blocks will be exempt from the ban.

   Existing leasehold flats will not be affected by this ban, although the government plans to make it easier for current leaseholders to voluntarily convert their properties to commonhold.

   If implemented, this change could reduce costs for many leaseholders, while also affecting the long-term income streams of freeholders and investors.

2. Reform of Commonhold

   Following the ban on leasehold, the Bill seeks to simplify the governance and registration process for commonhold developments, aiming to make commonhold a more attractive and viable option.

   To encourage broader adoption, the Bill will facilitate the conversion of existing leasehold properties to commonhold. Currently, the law requires unanimous consent from leaseholders and other relevant parties. The draft Bill proposes lowering this threshold to allow conversion with approval of 50% of qualifying leaseholders.

   In addition, the current law on commonhold is ill-equipped to facilitate multi-block and mixed-use developments. The Bill will address this by introducing the concept of sections within commonhold, allowing different areas of the same development or building to be separately managed.

3. Ground Rent Reform

   The Bill introduces a legislative cap on ground rents, initially limiting them to £250 a year and eventually reducing them to a peppercorn payment (essentially zero), within 40 years. This proposal will apply to most long residential leases that are not already covered by existing legislation.

4. Abolition of Forfeiture

   The Bill will abolish the right to forfeit a lease for breach of covenant. Instead, a new enforcement regime will be introduced, subject to judicial overview. Under the current system, leaseholders can in theory lose their homes over relatively small debts, such as service charge arrears. The new approach aims to better protect leaseholders by ensuring that enforcement actions are proportionate to the seriousness of the breach.

Next steps

If enacted in its current form the Bill will undoubtedly have wide-ranging legal and practical consequences. Further amendments are likely before the Bill is formally introduced to Parliament, with the consultation on banning leasehold for new flats open until 24 April 2026. Nonetheless, the Bill demonstrates a clear intention to move away from leasehold ownership towards a system of commonhold that provides homeowners with greater control and certainty.