Beginning of the end for the ‘feudal’ leasehold system

Homeowners will have a stake in the ownership of their buildings from day one, not have to pay ground rent, and will gain control over how their buildings are run under major plans to bring the feudal leasehold system to an end. 

Plans to reinvigorate commonhold and make it the default tenure have been announced today. Unlike leasehold ownership where third-party landlords own buildings and make decisions on behalf of homeowners, these changes will empower hard working homeowners to have an ownership stake in their buildings from the outset and will give them greater control over how their home is managed and the bills they pay. 

Supporting delivery of a manifesto commitment – these reforms mark the beginning of the end for the feudal leasehold system. The changes complement the Plan for Change milestone to build 1.5 million homes, combatting the acute and entrenched housing crisis by making homeownership fit for the future, by putting people in control of the money they spend on their home. 

Commonhold-type models are used all over the world. The autonomy and control that it provides for are taken for granted in many other countries. It can and does work and the government is determined, through both new commonhold developments and by making conversion to commonhold easier, to see it take root – so millions of existing leaseholders can also benefit from this step change in rights and security.

Housing and Planning Minister Matthew Pennycook said:

“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 buildings they live in and have a greater say in how their home is managed and the bills they pay.

“These reforms mark the beginning of the end for a system that has seen millions of homeowners subject to unfair practices and unreasonable costs at the hands of their landlords and build on our Plan for Change commitments to drive up living standards and create a housing system fit for the twenty-first century.”

Following the introduction of a comprehensive new legal framework for commonhold, new leasehold flats will be banned, and in the meantime the government will continue to implement reforms to help millions of leaseholders who are currently suffering from unfair and unreasonable practices at the hands of unscrupulous freeholders and managing agents.  

The government has already empowered leaseholders with more rights and security – enabling them to buy their freehold or extend their lease without having to wait two years from the point they purchased their property, and overhauling the right to manage – putting more leaseholders in the driving seat of the management of their property and service charges. 

Progress will be made as quickly as possible to make it cheaper and easier for leaseholders to buy their freehold or extend their lease, and to make it easier for leaseholders to challenge unreasonable service charge increases.

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 allowing shared ownership homes within a commonhold.   
• Greater flexibility over development rights, helping developers build with confidence and maintaining safeguards for the consumer.   
• 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 around appointing directors, clear standards for repairs, and mandating use of reserve funds; and  
• 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, and the Government is committed to strengthening regulation of managing agents. The government will also launch a consultation to ban new leasehold flats later this year to explore the best way forward. 

An ambitious draft Leasehold and Commonhold Reform Bill will be published later this year setting out the legal framework for how reformed commonhold will work.

Further information

Under the current system, leasehold ownership hands the homeowner the right to occupy land or a property for a set period which reverts back to the freeholder once this expires. It means leaseholders don’t own their property outright, are forced to pay potentially escalating ground rent costs in some cases, and have a landlord who determines how the building is run and determines service charges the leaseholder must pay.  

Commonhold ownership allows people to fully own their property outright, with no expiring term or need to save to extend a lease. They can have a say in managing their building, and have the benefit of not needing to pay ground rent or have a third party landlord. There are no leases, with the rights, responsibilities and rules for all property owners set out in the Commonhold Community Statement (CCS). This “rulebook” establishes how the shared areas and facilities will be managed, maintained and funded, as well as the obligations for each person. It establishes a democratic system of decision-making and helps prevent disputes.  

Each property owner will become part of a commonhold association upon buying their home, which oversees both the governance and management of the building unless it decides to bring in a managing agent – which will be accountable to the commonholders, not to a landlord, including the power to hire and fire them.   

Through the commonhold association, homeowners will have a vote on the annual budget, which is for upkeep and for maintenance of the building, and on the charges they have to pay – equivalent to what service charges are used for under the current leasehold system. Homeowners will also be able to effectively plan for longer-term repairs or maintenance under commonhold, and vote on issues that affect them including adopting ‘local rules’ – specific to how they and their neighbours in the same block of flats want to live.   

The government is pushing forward the majority of the Law Commission’s recommendations due to the benefits of this tenure over leasehold.  Initially introduced in England and Wales in 2002, commonhold has struggled to take off due to flaws in its legal framework, despite its success in Europe, New Zealand, Australia, the US and other parts of the world.

Key differences between commonhold and leasehold:

• Commonhold offers full freehold ownership – real homeownership – unlike leasehold, whereby a property is leased out for a set amount of time before reverting back to the landlord and 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 – unlike leasehold, where a bill is usually imposed on leaseholders by landlords often even after the money has been spent.  
• There is 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.   
• Forfeiture is not possible under commonhold, meaning a unit owner cannot be threatened with losing their home and equity as they can in leasehold. The government will also address the disproportionate and draconian threat of forfeiture as a means of compliance with a lease agreement.    
• 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.