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The Government has recently published the draft Commonhold and Leasehold Reform Bill, setting out a significant package of proposed reforms aimed at reshaping leasehold ownership in England and Wales. The stated objective is to modernise, strengthen and reinvigorate both the leasehold and commonhold framework, making commonhold a more workable and attractive model for lenders, developers and homeowners, with the longer-term ambition of making it the default tenure for flats.
One of the headline proposals is the introduction of a cap on ground rents in residential leases at £250 per annum, with rents then reducing to a peppercorn after 40 years.
If implemented, this would significantly reduce the financial burden for many leaseholders and could also significant reduce the premium payable for lease extensions and freehold acquisitions where long leases reserve a ground rent of over £250 per annum at any point during the term.
The proposal builds on the Leasehold Reform (Ground Rent) Act 2022, which is already in force and required the ground rent to be a peppercorn (i.e. nil) throughout the term on the grant of most new leases.
The draft Bill also proposes a ban on the creation of new leasehold flats, subject to limited exceptions. Those exceptions are expected to be narrow and are currently under consultation.
A transition period is anticipated, meaning the ban may not take full effect for some years.
Perhaps the most transformative proposal is the move to make commonhold the default tenure for new flats. The intention is to replace the traditional leasehold model with a structure that gives homeowners absolute ownership in their flat and direct input into the management decisions relating to the common parts of their building.
The draft proposals suggest support for existing leaseholders who wish to convert their buildings to commonhold, including reduced voting thresholds for conversions.
Under this updated model, homeowners would have greater control over building management, annual budgets and long-term decision-making, with the broader aim of strengthening home ownership.
Another important proposal is the abolition of a landlord’s right to forfeit a residential lease. In its place, the Bill proposes a new lease enforcement regime intended to be more proportionate and balanced.
At present, forfeiture can expose leaseholders to the risk of losing their home and equity in the home. The proposed reform is intended to offer greater protection against termination for minor, disputed or technical defaults.
What this means in practice
Taken together, these proposals amount to a major reworking of the leasehold system. The ground rent cap is intended to provide financial relief and improve marketability for affected properties, while the abolition of forfeiture would offer stronger protection against disproportionate consequences for breaches of the lease.
At the same time, the proposed expansion of commonhold points towards a very different model of home ownership which is based on absolute ownership, no ground rent, and greater collective control over building management.
That said, these reforms are expected to be introduced gradually. There will also remain practical and financial considerations for existing leaseholders, particularly where conversion to commonhold is contemplated.
Final thoughts
The draft Commonhold and Leasehold Reform Bill is one of the clearest indications yet that the Government intends to move decisively away from the traditional leasehold model. Although the detail will no doubt evolve as the Bill progresses, the overall message is clear: leasehold reform remains firmly on the legislative agenda, and commonhold is being positioned as the future of flat ownership.
