UK Government Proposes End to Leasehold with Commonhold Reform

The UK government has unveiled its highly anticipated white paper on leasehold reform, aimed at reinvigorating the commonhold system, which ministers have described as the "beginning of the end" for leasehold tenure. These proposals could bring transformative changes for homeowners across England & Wales, particularly for those currently living in leasehold properties.

What is Commonhold?

The commonhold system was first introduced in England & Wales in 2002 following the enactment of the Commonhold and Leasehold Reform Act 2002. Commonhold differs significantly from the leasehold system.

Instead of owning a lease to a flat for a set number of years (which then reverts to the freeholder upon expiry), unit owners own the freehold of their flats. The common areas, such as hallways and communal gardens, are managed by Commonhold Associations, which are overseen by the unit owners themselves.

In its original form, commonhold had limited uptake due to the complex procedures for creating and registering a commonhold, as well as the reluctance of many lenders to provide mortgages on commonhold properties. As a result, substantial reforms are needed to modernise property ownership in England & Wales.

Key Leasehold Reforms Proposed in the White Paper

Published on 19 March 2025, the white paper outlines major reforms to make commonhold a viable alternative to leasehold, ensuring homeowners have more control over their properties.

Key proposals include:

1. Automatic Right to Own a Share of the Freehold

Under the current leasehold system, leaseholders can only acquire a share of the freehold through Collective Enfranchisement or the Right to Manage, which requires agreement from multiple leaseholders.

The new proposals automatically grant flat owners ownership of the freehold, providing greater security for both homeowners and mortgage lenders.

2. Flexibility in Raising Service Charges

Currently, service charges can only be adjusted according to lease terms and budgets, often resulting in over- or under-payment.

The white paper proposes that Commonhold Associations can raise service charges as costs arise, offering flexibility but potentially creating budgeting uncertainties for flat owners.

3. Enabling Commonhold for All Property Types

The reforms will extend commonhold to all types of developments, including mixed-use buildings and shared ownership homes. This is a significant step towards making commonhold the default tenure for new developments.

4. Protecting Commonhold Solvency

New measures will safeguard the financial stability of commonholds, enhancing long-term security for homeowners.

5. Strengthening Commonhold Management

The reforms introduce regulations to improve management standards, including:

• Clear rules for repairs
• Enhanced powers for appointing directors
• Requirements for reserve fund usage
• Compliance with a Commonhold Community Statement, outlining rights and obligations

These measures aim to ensure efficient and fair management of commonholds, though disputes between unit owners may still occur.

Impact on Leasehold and Commonhold Transition

The proposals largely implement recommendations from the Law Commission’s 2020 report, “Reinvigorating Commonhold”, signalling the government’s commitment to reforming the UK housing sector.

New Flats

The reforms will apply to all new flats, effectively ending the creation of new leasehold properties in England & Wales. This may impact the value and saleability of existing leasehold properties, as commonhold becomes the preferred tenure.

Converting Existing Leasehold Properties

Currently, converting a leasehold flat to commonhold requires:

• Leaseholders acquiring ownership of the freehold
• Meeting a high threshold
• Paying a potentially high premium

The white paper proposes two options for facilitating conversions:

1. Mandatory Leasebacks
2. Equity Loans

All flat owners who wish to convert their lease to commonhold will be able to do so, while non-consenting leaseholders can continue living under their existing leases until they are phased out, triggered by choice, resale, or lease extension.

Equity loans provided by the government will cover the conversion cost, repayable upon property sale. Option 2 appears preferred, allowing all properties in a block to convert simultaneously, though it represents a substantial cost to the government.

Expert Opinions

Matthew Pennycook, Housing and Planning Minister, stated: “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."

Greta Whitaker, Property Litigation Solicitor at Warner Goodman LLP, commented: "These reforms empower homeowners and address unfair leasehold practices. Commonhold provides clearer, fairer ownership. While disputes may still occur, standardised Commonhold Community Statements will help minimise conflicts."

Benefits for Homeowners and the UK Housing Market

The proposed reforms offer:

• Greater control for homeowners
• A fairer, more transparent system
• Enhanced security for flat owners and mortgage lenders
• A step towards ending leasehold tenure in new developments

Next Steps

The draft Bill is expected in the second half of 2025 for pre-legislative scrutiny. While the draft Bill will likely reflect the white paper, consultations with developers, lenders, and property professionals may introduce new provisions.

Although early in the process, these reforms signal a long-term shift from leasehold to commonhold tenure in England & Wales.