Following a plan dropped by the previous government, Labour has announced its intention to ban outright the sale of new leasehold flats in England and Wales by 2029, making commonhold the default tenure. Leasehold houses will not be affected by the changes. Commonhold has been existence since 2002, but leasehold has remained the more widely used system. It is estimated that of the five million homes in England and Wales that are currently leasehold, 70% are flats.
Leaseholds give the purchaser temporary ownership of the property for a fixed number of years, during which they pay ground rent to the landlord (or freeholder). The freeholder is the owner of the property and the land on which it is built. The freeholder can also determine what can and cannot be done in the building, including what work can be carried out in owners’ flats, depending upon the lease agreement. Pets can be restricted and freeholders can influence or stop proposed renovations.
Feasibly, leaseholders can collectively own the freehold of their building, although the freeholder may not wish to sell it, and a complex and costly legal process may be necessary to prove leaseholders have the right to buy the freehold.
Ground rent may also be paid on leasehold property, covering repairs to common areas, such as communal entrances or hallways, foundations, lifts and roofs, although this was banned on new leases from 2022.
Leaseholders often complain that they are overcharged for ground rent. It can be expensive to extend the lease term. Leaseholders invest a substantial amount of money in their homes, but often have little control or security over the running of their homes in comparison to other owner occupiers. In 2024, the owner of a leasehold one-bedroom flat may pay around £2,000 a year in service charges.
Currently, mortgage lenders will not lend on short leaseholds and leasehold property can be difficult to re-sell. Consequently, a property with a lease of below 80 years will decline in value.
The housing minister, Matthew Pennycook, introduced the policy change, and described the leasehold system as “feudal”. He said the changes: “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.”
The government says the proposed changes will go to consultation and may be challenging to achieve. They may also affect the value of existing leasehold homes. At the moment, existing leasehold homes will not be affected by the new policy, although an investigation is under way to find a solution to this.
Draft legislation is to be proposed towards the end of 2025 after which it can go before parliament for approval and become law.
In a separate plan to the commonhold changes, leaseholders hope to be given more rights under the Leasehold and Freehold Reform Act 2024. This should make it easier and cheaper for leaseholders to buy the freehold to their property, increase their lease terms to 990 years for houses and flats, and provide greater transparency over service charges.
The sale of new leasehold houses will also be banned “other than in exceptional circumstances”.
Commonhold is already the default tenure for flat owners in other countries, including Scotland which uses a similar system.
Under the commonhold system, there is no lease. Each flat owner owns the freehold of their own home, while sharing the ownership of the building and the land on which it sits with the other flat owners, through membership of a commonhold association, which is administered by a company in which all owners in the building have a share. They are jointly financially responsibility for the maintenance and upkeep of shared areas. If they wish, they can appoint a management company to assist them.
Commonhold flat owners have joint financial responsibility for maintenance and upkeep of shared areas, set out in a ‘commonhold community statement’, which is a legal document defining the rights and responsibilities of all the flat owners. As a result, neighbours must work together to look after the building – leading to potential disagreement between neighbours or building disrepair if agreement can’t be reached.
Mortgage lenders are yet to show confidence in mortgages on commonhold property.