Heralded by Ministry of Housing, Communities and Local Government as the ‘beginning of the end for the ‘feudal’ leasehold system, plans are in place to reform commonhold and ban leasehold flats.
What are commonhold and leasehold?
Commonhold offers full freehold ownership – real homeownership – unlike leasehold, where a property is leased out for a set amount of time before reverting back to the landlord.
With leasehold, homeowners have a lack of control over their building.
Commonhold allows homeowners a say on the annual budget for their building – including how their charges for upkeep and maintenance are spent. With leasehold, a bill is usually imposed on leaseholders by landlords often even after the money has been spent.
There is also no ground rent in a commonhold property, compared to older leasehold properties. The ground rent requirement for newer properties was removed in 2022 (2023 for retirement properties) through the Leasehold Reform (Ground Rent) Act 2022.
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Forfeiture is not possible under commonhold, meaning a unit owner cannot be threatened with losing their home and equity as they can in leasehold.
Commonholders have the power to hire or fire a managing agent who works in their interests, unlike in leasehold where one is appointed by the landlord.
What’s changing?
Commonhold, will be reinvigorated under major reforms and new leasehold flats banned under new proposals.
The government said this ‘major change will give homeowners a stake in the ownership of their buildings and will hand them more power, control and security over their homes’.
Changes set out in the Commonhold White paper include:
- New rules that will enable commonhold to work for all types of developments, including mixed-use buildings and shared ownership homes.
- Greater flexibility over development rights.
- Giving mortgage lenders greater assurance with new measures to protect their stake in buildings and protect the solvency of commonholds – such as mandatory public liability insurance and reserve funds and greater oversight by commonhold unit owners to keep costs affordable.
- Strengthening the management of commonholds with new rules
- Providing an enhanced offer for homeowners – including requiring greater opportunities for democracy in agreeing the annual budget, clarifying how owners may change “local rules” over how a building is run and new protections for when things go wrong.
- A new Code of Practice will set out how costs should be apportioned in commonhold, aimed at providing consumers with transparency and clarity,
- Strengthening of the regulation of managing agents.
- A consulation to explore banning new leasehold flats.
Timeline for change
A draft Leasehold and Commonhold Reform Bill will be published later this year, said housing and planning minister Matthew Pennycook: “This government promised not only to provide immediate relief to leaseholders suffering now but to do what is necessary to bring the feudal leasehold system to an end – and that is precisely what we are doing.
“By taking decisive steps to reinvigorate commonhold and make it the default tenure, we will ensure that it is homeowners, not third-party landlords, who will own the build
Timothy Douglas, head of policy and campaigns at Propertymark, added: “Further reforms to the leasehold system will be welcome news for leaseholders up and down the country. Propertymark has long campaigned for changes to make it cheaper and easier to buy, sell and rent leasehold property.
“We know that there are complications and additional costs with extending leases and property with an escalating ground rent struggles to sell, so commonhold offers an opportunity to tackle these issues.”
