In a landmark shift for the UK housing market, the government has unveiled sweeping reforms that promise to transform the landscape for flat owners across England and Wales. The draft Leasehold and Commonhold Reform Bill, introduced today, represents one of the most significant property law changes in decades, directly addressing long-standing concerns about leasehold ownership.
A New Era for Homeowners
At the heart of the legislation is a decisive cap on ground rent, which will be limited to a maximum of £250 per year for leaseholders. This measure aims to provide immediate financial relief to thousands of homeowners who have faced escalating charges. Prime Minister Sir Keir Starmer emphasised the practical impact of this change, stating: ‘I’ve spoken to so many people who say this will make a difference to them worth hundreds of pounds. That’s really important because the cost of living is the single most important thing across the country.’
Phasing Out Leasehold for New Builds
The reforms go further than simply capping costs. In a bold move, the creation of new leasehold flats will be entirely prohibited. Instead, England and Wales will gradually transition towards a ‘commonhold’ system, which is already widely adopted internationally. Under this new framework, homeowners in new developments will own both their property and the land it stands on, eliminating the traditional leasehold structure entirely.
This fundamental change means that from the very first day of ownership, residents will have a direct stake in their building’s management. They will no longer be subject to ground rent payments and will gain meaningful control over how their communal spaces are maintained and operated.
Understanding the Current System
To appreciate the scale of this reform, it’s crucial to understand the existing leasehold model. Currently, when purchasing a flat, buyers often enter into a lease agreement with a third-party freeholder who owns the land. In addition to mortgage and utility payments, leaseholders typically face two significant ongoing costs:
- Ground Rent: A fee paid to the freeholder for the right to occupy the land. While sometimes nominal (referred to as a ‘peppercorn’ rent), this can escalate to hundreds of pounds annually.
- Service Charge: Covers expenses for building insurance, maintenance, repairs, and cleaning. These charges can vary dramatically, potentially reaching thousands of pounds per year depending on the property’s amenities, such as private gyms or concierge services.
Leases for new flats often start at 999 years, but once the term falls below 80 years, extending it becomes significantly more expensive—a major concern for homeowners and a barrier to selling properties.
Industry Backlash and Concerns
The proposed changes have not been universally welcomed. The Residential Freehold Association (RFA), which represents professional freeholders, has strongly criticised the ground rent cap as ‘wholly unjustified.’ A spokesperson for the RFA warned: ‘The inclusion of a ground rent cap in the draft Bill represents a wholly unjustified interference with existing property rights, which if enacted, would seriously damage investor confidence in the UK housing market.’
The association argues that the reforms could disrupt building safety projects and the day-to-day management of residential blocks, potentially leading to ‘greater financial and legal responsibilities’ for residents themselves. They cite a previous government impact assessment suggesting compensation costs could exceed £27 billion, claiming the forced exit of professional freeholders might hinder vital maintenance and safety works.
The Path to Commonhold
For existing leaseholders, the bill introduces a crucial new right: the ability to switch to a commonhold arrangement. This empowers homeowners to take collective ownership of their building’s freehold, fundamentally altering the balance of power. The transition to commonhold is designed to give people greater autonomy over their homes, from setting service charges to making long-term decisions about property improvements.
As the draft legislation moves through Parliament, it signals a profound rethinking of property ownership in the UK. By capping costs, banning new leaseholds, and promoting commonhold, the government aims to make flat ownership more transparent, affordable, and controlled by those who live in the properties. This reform could indeed make flats more popular again, offering a fairer deal for a new generation of homeowners.
