Government confirms major changes to leasehold

What you need to know about the Leasehold and Freehold Reform Act

The UK government has recently announced transformative changes aimed at overhauling the current leasehold system, with plans to replace it with commonhold as the default tenure for apartments. This move is designed to give homeowners more control, security, and a fairer stake in their home.

How is leasehold changing?

Under the current leasehold system, homeowners only own their property for a set period before it reverts to the freeholder. This can result in escalating ground rent costs, limited control over building management, and concerns over growing service charges. The proposed reforms aim to address these issues by:

• Banning new leasehold flats, with commonhold becoming the default tenure.
• Empowering homeowners with full ownership from day one, removing the need to pay ground rent.
• Providing homeowners with a say in how their building is managed and how service charge funds are spent.

What is leasehold?

Leasehold is a type of property ownership where you own the right to occupy a property for a set period, but not the land it stands on. Once the lease expires, ownership reverts to the freeholder (landlord). Leaseholders are often required to pay ground rent and service charges, with limited say over building management.

What is commonhold?

Commonhold ownership allows individuals to fully own their property outright with no time limit or need to extend a lease. It offers a democratic approach where homeowners collectively manage shared spaces through a commonhold association. Key benefits include:

• Full ownership: No lease to expire or extend.
• No ground rent: Eliminates the financial burden of ongoing payments.
• Greater control: Homeowners vote on budgets, maintenance, and management decisions.
• Transparency: A clear Commonhold Community Statement (CCS) sets out rules and responsibilities.

What are the key reforms?

These reforms are part of the government’s broader Plan for Change, which aims to build 1.5 million homes and create a fairer, more sustainable housing market. The transition from leasehold to commonhold is expected to improve living standards while making homeownership more affordable and transparent.

• Inclusion of mixed-use buildings: Commonhold will now work for all types of developments, including buildings with Shared Ownership homes.
• Development flexibility: New rules will support developers while maintaining safeguards for consumers.
• Mortgage lender assurance: Mandatory public liability insurance and reserve funds will protect lender stakes.
• Enhanced management standards: Clear rules for appointing directors, managing repairs, and maintaining reserve funds.
• Democratic decision-making: Homeowners will have a say in budgets, rule changes, and dispute resolution.

What about existing leaseholders?

While the focus is on future developments, the government have also confirmed that they’re committed to supporting existing leaseholders by:

• Making it easier and cheaper for leaseholders to buy their freehold or extend their lease.
• Overhauling the Right to Manage system, giving leaseholders more control.
• Providing better avenues to challenge unreasonable service charge increases.

What happens next?

A draft Leasehold and Commonhold Reform Bill will be published later this year, setting out the legal framework for how the reformed commonhold system will work. Additionally, the government plans to launch a consultation to explore the best way to ban new leasehold flats.

The move towards commonhold represents a significant step forward for homeowners across the country offering a fairer, more transparent, and democratic system of property ownership. For those currently in leasehold properties, the government is working to make it easier to gain control and reduce costs.

You can find out more about these changes on the GOV.UK website.