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Leasehold and commonhold reform
In recent years, my commentaries on residential leasehold reform have periodically returned to the subject of commonhold. And at the time of my last commonhold update in December 2023, leasehold and commonhold reform was well and truly back in the news. The then Levelling-Up Secretary Michael Gove promised major changes before the general election. But the opposition said his plans didn’t go nearly far enough. At that time, I predicted that a Labour victory would spell a very early end to new leasehold flats, with commonhold the only realistic alternative.
However, I was not at all optimistic about the prospects for existing leaseholds – typically a web of competing interests. And, as now with leasehold enfranchisement, transitioning to commonhold will inevitably involve:
- coordinated collective action; and
- a degree of financial outlay for flat owners.
Neither is usually easy or palatable.
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What’s the current position?
Let’s briefly recap where we are. The Leasehold and Freehold Reform Act 2024 (“the 2024 Act”) received Royal Assent on 24 May 2024, making it onto the statute book by the skin of its teeth on the eve of parliament’s dissolution. However, this was only possible after the government conceded significant amendments to pacify their own backbenchers. These included scrapping proposals for a cap on ground rents. This legislation formed the second part of the government’s pledge to overhaul residential leaseholds. It followed the abolition of ground rents for most new leasehold properties by the Leasehold Reform (Ground Rent) Act 2022.
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Leasehold and commonhold reform: the King’s Speech
As expected, the King’s Speech on 17 July promised the government would publish a draft Leasehold and Commonhold Reform Bill. It was no surprise to hear that the new legislation will, among other things, ban the sale of new leasehold flats, with commonhold becoming the default tenure.
The briefing documents published alongside the speech suggest two stages of reform.
Stage 1: Implement the 2024 Act
The government have promised to “act quickly” to implement the terms of the 2024 Act.
Stage 2: The new bill
Next, the focus turns to “further reform [of] the leasehold system” via the new bill, fully enacting the Law Commission’s decades-old recommendations, including:
- strengthening leaseholders’ rights to enfranchisement (extending their lease and buying their freehold), and taking over management of their building from the freeholder or management company (Right to Manage).
- “reinvigorating commonhold,” which has been on the statute book since 2002 but “failed to take off.” The new legislation will do this by overhauling the commonhold legal framework and restricting the sale of new leaseholds.
The government say the new bill will also address “unregulated and unaffordable” ground rents and end the “injustice” of “fleecehold” private estates and unfair costs. It’s estimated that around 1.75 million homes sit within private estates, with the number built growing yearly.
In addition, the bill will end the “disproportionate and draconian threat” of forfeiture, used to ensure tenants comply with lease terms. Many freeholders issue forfeiture proceedings for even small debts, causing considerable distress. It’s noted that forfeiture provides a significant windfall to the freeholder.
What to do about existing leaseholds
The briefing documents describe the current rules governing conversion from leasehold to commonhold as “unworkable“. Therefore, the government plans a consultation on the best way to achieve this so-called “second generation commonhold“. Returning to my earlier comments, it’s difficult to foresee how this might be achieved in a straightforward, one-size-fits-all manner.
So, while the new government seems genuinely determined to end all residential leaseholds once and for all, I can’t help but think the jury remains out for existing leaseholds. The consultation is likely to prove lengthy. If so, is it possible we may find second generation commonhold hived off into separate legislation as pressure builds to implement other, more straightforward changes?
As always with leasehold reform – watch this space!