The End of Leasehold Flats? A Breakdown of the Draft Commonhold and Leasehold Bill

• Ban on new leasehold flats with limited exceptions
• Ground rent cap of £250 per annum for existing leases, reducing to a peppercorn after 40 years
• Abolition of forfeiture to be replaced with proportionate enforcement mechanisms
• Easier conversion from leasehold to commonhold (50% threshold instead of 100%)
• Complete overhaul of commonhold legislation to address previous failures

Why Leasehold Needs Reform:
Leasehold remains the predominant form of flat ownership in England and Wales – a characteristic not shared by most other common-law jurisdictions. The system creates fundamental imbalances between freeholders and leaseholders that the government now considers incompatible with modern concepts of home ownership.

The Wasting Asset Problem:
Unlike freehold ownership, a leasehold interest is inherently temporary. As the lease term diminishes, so too does the property’s value and mortgageability. Leaseholders face declining asset value, expensive lease extensions, and uncertainty about future costs.

The Forfeiture Threat:
Perhaps the most draconian aspect of leasehold is the forfeiture regime. Landlords can potentially extinguish a leaseholder’s entire interest, which can be potentially worth hundreds of thousands of pounds, for relatively minor breaches of covenant.

Unregulated Ground Rents:
Ground rents in existing leases can escalate beyond economic justification. Some leases include doubling clauses that see ground rents increase exponentially over time, making properties increasingly unattractive for future buyers and their potential lenders.

Commonhold was introduced by the Commonhold and Leasehold Reform Act 2002 as an alternative to leasehold. Despite being available for over 20 years, commonhold has “failed to take off,” with fewer than 20 commonholds established containing fewer than 200 units.

Reasons for failure include lender reluctance, developer resistance, legislative complexity, and the 100% unanimity requirement for conversion that made converting existing buildings “all but impossible to achieve in practice.” The government has acknowledged that smooth transition is essential to avoid disrupting housing supply.

What is Commonhold?
Commonhold offers freehold ownership of individual flats from the outset, accompanied by automatic membership in a commonhold association – a private company limited by guarantee. The association exercises collective control over the building’s management and finances.

Key Differences from Leasehold:
Unlike leasehold’s temporary interest and wasting asset structure, commonhold provides indefinite freehold ownership. There’s no ground rent, no forfeiture risk, and no need for periodic lease extensions. Management control rests collectively with all owners rather than with a landlord.

The Repeal and Replace Strategy:
Rather than amending the 2002 Act piecemeal, the Bill adopts a complete repeal and replacement of Part 1 of the Commonhold and Leasehold Reform Act 2002. This deliberate drafting strategy aims to eliminate accumulated statutory complexity and ensure the resulting enactment serves as the definitive legislative code for housing market practitioners as well as the public.

Existing commonhold owners face “no immediate change as a result of the draft Bill.”

Introduction of “Sections”:
One of the most significant innovations is the concept of “sections” – a mechanism for managing mixed-use and phased developments with greater clarity. Sections allow a commonhold to be divided into distinct parts, each with its own section committee, cost allocation, and tailored rules. This is particularly useful for separating retail units from residential units or managing buildings completed at different times.

Transparent Budgeting:
The Bill introduces a statutory framework for transparent budgeting through separate “heads of cost.” The commonhold association must categorise expenditure clearly (insurance, repairs, building safety, management fees, etc.), making it easier for members to understand where their money goes.

Annual Budget Approval:
A crucial reform requires the commonhold association to secure member approval for the annual budget through a vote. This represents a significant shift from the 2002 regime, where directors simply had to consult members but could disregard their views. The Commonhold Community Statement (“CCS”) is the standardised ‘rule book’ for every commonhold that sets out the rights and responsibilities of the commonhold association and those who own property or live in a commonhold building. It includes index-linked cost thresholds for non-essential expenditure, giving members the right to challenge excessive spending at tribunal.

Minority Protection Provisions:
The Bill allows members to challenge CCS amendments at tribunal if they are unfairly affected. “Where a member considers that they have been negatively affected by a local rule change on which they have been outvoted, measures in the Bill will give them new rights to go to the tribunal under the new minority protection rules.”

One of the Bill’s most consequential provisions is the prohibition on granting new residential leasehold flats, subject to narrow exceptions. The ban applies to newly built flats, conversions, change of use, and first sales.

The ban does not apply to existing leasehold flats being resold. The government had advised “Banning existing leasehold flats would severely impact on the rights of leaseholders and their landlords. Instead, we are making it easier for people to convert their existing leasehold building to commonhold, should they wish to do so.”

Implementation:
The prohibition is implemented through a three-stage compliance framework: marketing restrictions, sale restrictions (contracts will be unenforceable), and registration requirements (HM Land Registry will refuse to register new leasehold titles).

Remedies for Mis-Sold Flats:
Buyers who have been mis-sold leasehold flats will have statutory rights to convert to commonhold without cost.

The Bill extends the Leasehold Reform (Ground Rent) Act 2022 by imposing a statutory cap of £250 per annum on ground rents in existing leases, reducing to a peppercorn after 40 years. “Once the new measures come into force, the cap will apply to ground rents that fall due for payment after that date.”

Landlords will not have to reimburse leaseholders for payments already made before the cap comes into force. In response to the question ‘why 40 years?’, the government has advised “We have considered how best to achieve an orderly transition to the new system of peppercorn ground rents, since immediate implementation would risk significant market disruption, with adverse impacts on freeholders and investors who have invested in ground rent income streams.”

The £250 cap provides immediate relief for leaseholders facing high ground rents, whilst the 40-year transition allows for gradual adjustment.

The Bill proposes the complete abolition of the current forfeiture regime. Its replacement will establish proportionate enforcement mechanisms, though details will be prescribed in secondary legislation. The government will “bring these forward as soon as possible following the primary legislation.”

The new system is expected to include proportionate remedies (warnings, monetary penalties, injunctions) with procedural safeguards ensuring leaseholders can present their case and receive independent tribunal adjudication.

The Bill reduces the consent requirement for conversion to commonhold from 100% to 50% of qualifying leaseholders. This measure aligns with the collective enfranchisement threshold and removes the unanimity barrier that rendered conversion “all but impossible to achieve in practice” under the 2002 regime.

Rights of Non-Consenting Leaseholders:
Non-consenting leaseholders retain their leasehold interest as a “permitted lease” within the commonhold. Their existing lease remains valid, they don’t have to buy the freehold, and they can convert to commonhold ownership later if they wish.

The Process:
To convert an existing leasehold building to commonhold, at least 50% of qualifying leaseholders must first collectively enfranchise to buy the freehold. Following this, at least 50% must then vote to convert the building to commonhold. Once the conversion threshold is met, non-consenting leaseholders remain on “permitted leases,” become members of the commonhold association with voting rights, and their leases are phased out when they voluntarily choose to buy their unit, when they would otherwise extend their lease (as this right is replaced with the right to buy the freehold), or when they sell their property (which must be sold as a commonhold unit). The building is then registered as commonhold at HM Land Registry, with the CCS governing all units.

The government’s Moving to Commonhold consultation (running for 12 weeks from 27 January 2026 to 24 April 2026) seeks views on transitional issues, exemptions, commencement timing, and practical concerns. The government has advised “it is likely that different measures in the Bill will take effect at different times.” The reformed commonhold model is intended to be available for use before the end of the current Parliament, with the leasehold ban following once the new system is established and tested. However, this may change following the consultation and review process.