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Government Plans To Abolish Leasehold Flats And Introduce Commonhold By 2029 - Portner

 

The government has announced significant reforms aimed at abolishing the traditional leasehold system for flats, transitioning instead to a commonhold model. This move seeks to address longstanding criticisms of the leasehold system, which has often been viewed as outdated and unfair to homeowners. In this article, senior associate Joe Genco examines the government’s proposed reforms.

Understanding freehold, leasehold and commonhold

Property ownership in England is primarily divided into freehold and leasehold tenures. Freehold ownership is perpetual, while leasehold ownership (the default for flats) is time-limited.

Under the leasehold system, homeowners purchase the right to occupy a property for a specified period (typically 99, 125 or 999 years), but the freeholder owns the land and building. This arrangement can lead to issues such as escalating ground rents, high service charges and limited control over property management.

In contrast, commonhold offers a form of freehold ownership where individuals own a “unit” (ie, their individual flat) outright within a shared building, and owners collectively manage shared areas through a commonhold association.

This structure provides greater autonomy and eliminates many pitfalls associated with leasehold ownership. This model, similar to those in North America, Australia and Europe, is nothing new. Commonhold was, in fact, introduced in England in 2002 via the Commonhold and Leasehold Reform Act 2002 but saw limited uptake due to its complex legal framework. Commonhold was said to be incompatible with mixed-use developments or shared ownership and has been criticised by lenders for failing to protect their interests.

Implications and challenges of the proposed reforms

The shift to commonhold is expected to empower homeowners with more control over their properties, potentially leading to more transparent management practices and financial arrangements.

The government wants commonhold to become the standard tenure by the end of this parliament (ie, 2029). New leasehold flats will be banned, and commonhold will become the default tenure. By banning new leasehold flats, the government aims to modernise property ownership, aligning it with practices common in other countries. However, it will not ban the sale of leasehold flats until it is confident that reformed commonhold is viable.

Converting existing leasehold properties to commonhold is a significant challenge, and one that the government acknowledges needs more consideration. The initial legislation (the Commonhold and Leasehold Reform Act 2002) was complex and has been hampered by limitations, including requiring unanimous consent for a conversion to commonhold.

Further, the leasehold model is deeply entrenched in the property market, and many potential buyers, investors, developers, lenders and property professionals are not familiar with the commonhold system. There was no compulsory element to the previous legislation, and bar a few exceptions, most have chosen to stick with what they know rather than risk an untested model.

The government plans to tackle these issues head-on by:

  • Ensuring commonhold works for all types of ownership, including mixed-use buildings and shared ownership homes
  • Offering developers greater flexibility over development rights
  • Giving mortgage lenders greater assurance regarding their security
  • Strengthening the management of commonholds by imposing new rules for appointing directors, setting clear standards for repairs and mandating the use of reserve funds.   

What is the timetable for reform?

As mentioned above, the government wants commonhold to become the standard tenure of residential property ownership by 2029.

The Ministry of Housing, Communities and Local Government plans to publish a draft Leasehold and Commonhold Reform Bill for pre-legislative scrutiny in the second half of 2025. This will include detailed proposals for converting existing leasehold properties and implementing the reformed commonhold regime.

Consultations on banning new leasehold flats and introducing a new code of practice for commonhold management are also expected later this year. The government will seek input from industry and consumers on fundamental points such as potential exemptions for legitimate use and how to minimise disruption to the housing supply.

If you have any queries about the new commonhold proposals, please contact Joe Genco at jg@portner.co.uk. 

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