Is this the end for leasehold?

The government has announced plans to ban the sale of new leasehold flats in England and Wales, marking a major shift in property law.

Matthew Pennycook, Minister of State for Housing and Planning, called the current leasehold system “feudal” and outlined a move towards commonhold in his Commonhold White Paper, pledging to abolish the leasehold system before the end of this Parliament. 

But what does this news mean for leaseholders living in flats now? And how will commonhold work in practice? Megan Murray-Carter, trainee in Lodders’ Real Estate team, sheds some light on the latest developments. 

The problem with leasehold

The leasehold system has existed in England and Wales for many centuries. It is a form of property ownership which is time-limited, where control of the property is shared with, and limited by, the landlord (also known as the freeholder). In the housing market, leases are typically given for a period of anything from 99 to 999 years. When the lease ends, the property will pass back to the landlord. 

In the UK, most flats are leasehold. Houses can be leasehold too and usually are if they’re bought through a shared ownership scheme.  

Leasehold has many perceived benefits; for instance, it is often cheaper to purchase a leasehold property than a freehold property, and shared spaces in blocks of flats, such as gyms and gardens, can help foster a real sense of community spirit.  

Reduced maintenance responsibility has also previously been viewed as a benefit, with upkeep of communal areas typically falling to the freeholder. However, in recent years, many leaseholders have become increasingly concerned about the behaviour of their freeholders and building managers, who they accuse of overcharging for the service fee, levying fees for services that do not exist, and failing to make repairs for which they have charged. 

Moving to commonhold

With the leasehold system now widely regarded as unfair and outdated, the Leasehold and Freehold Reform Act 2024 was introduced by the last government and came into force earlier this year. It will bring the majority of leasehold houses to an end and will mean the end of leasehold in flats. 

The government now wishes to move to the commonhold way of ownership. In commonhold, the people who own the property – and are able to exercise control over their management, facilities and costs – would be the people who live in the flats and have a direct stake in their upkeep, rather than third-party landlords. Matthew Pennycook has said there will be a “ban on the sale of new leasehold flats, so that commonhold becomes the default tenure.” He also specified that he would continue to work with the Welsh government to ensure this applies across all of England and Wales. 

The next step is for the government to publish a draft Bill, expected in the second half of 2025, for pre-legislative scrutiny. It will also continue to work with industry and consumer groups, and promote commonhold so that people become more aware of the term. He states that “we want commonhold to become the standard tenure by the end of this Parliament and so now is the right time to start preparing for this and we want to support industry through this.” Pennycook is committed “to finally bring the feudal leasehold system to an end.” 

What does this mean for current leaseholders?

The introduction of a new legal framework for commonhold marks a significant shift in property ownership. In the meantime, ongoing reforms aim to support millions of existing leaseholders facing unfair practices from some freeholders and managing agents.  

This includes making it easier for leaseholders to purchase their freehold or extend their lease without waiting two years after buying their property. Additionally, improvements relating to Right to Manage (RTM) mean more leaseholders now have greater control over how their buildings are run and how service charges are set. 

Further reforms are expected to continue at pace, focusing on reducing costs and simplifying the process of buying a freehold or extending a lease. Measures are also being introduced to help leaseholders challenge unreasonable service charge increases more effectively.