The UK government has announced a shift in property ownership, taking steps to phase out the leasehold system in favour of commonhold. This move aims to empower homeowners, giving them a greater stake in their buildings, control over property management, and protection from unfair costs imposed by third-party landlords.

What is changing?

Under the current leasehold system, homeowners technically do not own their properties outright. Instead, they lease them for a set period, often paying ground rent and service charges decided by the freeholder. This system has been criticised for its complexity, high costs, and lack of transparency. The planned reforms will introduce commonhold as the default tenure for new flats, eliminating ground rent and handing control back to homeowners.

Why commonhold?

Commonhold, widely used in other countries, provides a more transparent and equitable way for homeowners to manage their buildings. Instead of relying solely on third-party freeholders, residents collectively oversee the maintenance and management of their properties through a commonhold association. This model removes unnecessary middlemen, ensuring fair costs and greater accountability.

Key benefits of commonhold include:

  • Full ownership: Homeowners own their property outright, with no expiry date or high cost lease extensions.
  • No ground rent: Unlike leasehold properties, commonhold units do not require ground rent payments.
  • Direct control: Residents decide how their building is managed, making sure decisions reflect their best interests.
  • Fair service charges: Homeowners have a say in budgeting for maintenance and repairs, preventing unexpected or inflated charges.

Key reforms and their impact

The government’s proposed changes include:

  • Banning new leasehold flats: Future developments will default to commonhold, ensuring new homeowners are not burdened by outdated leasehold practices.
  • Making commonhold viable for all properties: Reforms will make it easier to apply commonhold rules to mixed-use developments, shared ownership properties, and larger residential complexes.
  • Improving governance and financial security: Strengthening protections for homeowners, including clearer rules on managing repairs, budgets, and dispute resolution.
  • Supporting mortgage lenders: New safeguards will be introduced to make sure lenders are confident in financing commonhold properties.
  • Simplifying the transition from leasehold to commonhold: The government will implement measures to make converting existing leasehold properties to commonhold more accessible.

The end of unfair leasehold practices

This transition is a major step in the government’s commitment to protecting homeowners from the injustices of the leasehold system. Over the years, many leaseholders have faced increasing ground rents, high service charges, and limited recourse against freeholders. By shifting towards commonhold, the government aims to provide a more secure and fair homeownership model.

What happens next?

The commonhold white paper will lay the groundwork for a draft leasehold reform bill later this year, which is expected to prohibit developers from selling new flats under the controversial leasehold system. Implementation of the measures (effectively abolishing the leasehold system in England and Wales) is expected by the end of the current parliament.

The reforms will be implemented through the upcoming Leasehold and Commonhold Reform Bill, with further consultations planned to refine the details. While leasehold properties will not disappear overnight, the changes signal a clear move towards a fairer system where homeowners have genuine control over their properties.

As these reforms progress, seeking expert legal advice will be crucial for current and prospective homeowners looking to navigate the transition effectively.