Is the end in sight for leasehold properties?

In a recent landmark announcement, the Government has declared its intention to scrap the centuries-old leasehold system in England and Wales, labelling it “feudal” and outdated.

In their announcement, the Government proposed a shift toward commonhold ownership - a model the Government says will offer homeowners more freedom, security, and control.

This change marks a significant shake-up in how property is owned and managed in the UK and to some this has come as a welcome proposal. But what exactly is wrong with the current leasehold system, and how does commonhold compare?

Leasehold vs. Commonhold: What’s the Difference?

Leasehold ownership means you own a right to occupy your property (typically a flat or house) for a fixed term, but not the land it stands on. That land is owned by a freeholder, to whom you often pay annual ground rent (although with new leases, it is now no longer possible to include a ground rent of more than £0).

Leaseholders can face:

• Limited control over renovations or subletting
• Rising ground rents and service charges
• Costly and complex lease extensions
• No automatic right to buy the freehold without jumping through assorted compliance hoops, often requiring the cooperation of more than 50% of the flat owners in the building
• A diminishing asset as the lease term runs down

Commonhold, on the other hand, allows homeowners to own their property outright—including a share in the building’s communal areas.

There’s no lease, no freeholder, and no time limit. Residents collectively manage shared spaces through a commonhold association, with each unit owner having a voice and stake in decision-making.

Proposed Reforms: What’s Changing?

Under the Government’s new plan:

• The sale of new leasehold houses will be banned other than in exceptional circumstances.
• Leaseholders will be given a new legal right to extend their lease or buy it outright, without having to wait two years - this is already in place, having commenced on 31 January 2025.
• Commonhold will be promoted as the new standard for apartment and housing ownership, with simplified routes to transition from leasehold.
• Ground rents and unfair service charges will be further scrutinised, with new rules planned to protect residents from hidden costs.

Housing Secretary Michael Gove called the changes "the beginning of the end for an outdated, feudal system," promising a “fairer deal” for homeowners.

At this point in time, Commonhold already exists, but has had an extremely low uptake with developers and many lenders not lending against a commonhold property, given their rarity. This would need to change to allow the new system to develop, but it appears that the Government intends to rewrite the existing commonhold structure to fit within the framework of their new proposals.

Pros and Cons: A Closer Look

Benefits of the Existing Leasehold System:

• Familiarity and scale: Leasehold is deeply embedded in the legal and property system, making it a known quantity for lenders and investors.
• Professional management: Freeholders or managing agents often oversee maintenance, which can ensure consistent building upkeep.
• Lower upfront costs in some cases, as leasehold can make new builds more financially accessible.

But the drawbacks are well-documented:

• Lack of control and unpredictable costs have left many leaseholders feeling powerless.
• Short leases can devalue a property and complicate sales.
• Opaque management structures and exploitative freeholders have drawn widespread criticism.
• Delays in sale and purchase transactions due to the time and cost implications of obtaining necessary information from the freeholders

Advantages of Commonhold:

• Full ownership with no expiry, removing the ticking clock of lease terms.
• Democratic management by residents, ensuring decisions reflect collective interests.
• No ground rent or landlord-imposed fees.
• Greater alignment with systems in countries like the U.S. and parts of Europe.

Challenges with Commonhold:

• Low uptake so far, with legal complexity and a lack of awareness holding back adoption.

• Any new legal regime has teething problems – many of these will need to be settled in Court and leave uncertainty on points of law until someone has the appetite and budget to go to Court to resolve these.

• Potential management disputes among residents if governance isn’t well-structured.
• Potential apathy amongst residents causing a lack of sustainable management of the building
• Financial risks if some owners fail to contribute to maintenance or communal costs.

The Road Ahead

The Government’s reforms are intended to unlock fairness and simplicity in the housing market, offering people “a proper stake in their home.” However, critics warn that without wider support and education, commonhold could face resistance from developers and lenders accustomed to the leasehold model.

There’s also concern about the emergence of a two-tier system, where new homes benefit from commonhold but millions of existing properties remain leasehold—potentially limiting the impact of the reforms.

Final Thoughts

The move to phase out leasehold marks a pivotal moment in the evolution of UK property law. While leasehold has long been the norm, its failings have increasingly come under scrutiny. If implemented effectively, the switch to commonhold could empower homeowners, simplify ownership, and make the housing market fairer. But success will depend on clear legislation, strong guidance, and buy-in from across the housing sector.

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‍The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.