Leasehold Reform – What Does It Mean?

The government has launched an ambitious leasehold reform. This is the system under which most flats and a small number of houses are owned.

It’s become increasingly unpopular in recent years. Significant numbers of leaseholders – that is, the owners of leasehold properties – have found themselves paying increasing sums annually for ground rent and service charges due to the current leasehold system. Therefore, leasehold reform is necessary to address these issues.

So, the government is likely to have won a lot of friends. This is because they announced they want to scrap the leasehold system completely and replace it with something new.

But the alternative might be quite complicated. This is especially true if you are the owner of a flat in a block or a specific estate. Leasehold reform attempts to simplify this ownership model.

I’ll explain why in a moment. But before we go any further, let’s make sure everyone is up to speed with what these confusing terms actually mean.

What is leasehold?

If you buy a leasehold home, you purchase the right to occupy land or a property for a set period. That’s the duration of the lease, which is often 99 years or even 999 years. However, leaseholders do not own their property outright and have to pay a third party (called the freeholder) an annual ground rent under current leasehold reform processes.

If the property is in a block or estate, there will also be service charges. These cover cleaning or landscaping of communal areas or gardens.

And it’s likely that there will be another annual payment for a contingency fund. This fund covers once-in-a-generation costs like a new roof or rewiring. It also covers something affecting all the properties in the block.

The role of the freeholder

The freeholder could be an individual. Equally, it could be a developer who built a block, or even a finance company or a business based in another country. Leasehold reform might influence the roles of these entities.

It’s perfectly legal to own only freeholds of one or many properties that you have no connection with. This means you set ground rents and service charges and make big decisions affecting all the leaseholders. For example, deciding if a block should have its exterior and communal areas redecorated. Or deciding whether yet another third party (a managing agent) should be instructed to look after the block under updated leasehold reform.

It’s easy to see how leaseholders – the ordinary owners of the flats – feel rather disengaged from some of the biggest decisions affecting their homes.

And that feeling can turn to resentment if the annual charges escalate sharply each year.

To cap it all, when the lease runs down – even from, say, 99 years to 80 – it can then become more difficult to sell your property. This means you have to try to renegotiate the duration of the lease with… you guessed it… the freeholder.

Such renegotiation is both complicated and, potentially, expensive.

What’s the alternative?

The government wants to end the sale of any new flats as leasehold and replace it with commonhold.

This allows people to fully own their property outright, with no lease term that runs down. They have a say in managing their building and do not pay around rent or service charges to a third party. This shift is aimed at improving the issues leasehold reform addresses.

Individual owners have their rights and responsibilities set out in what the government has called the Commonhold Community Statement. A sort of rule book explaining how communal areas, gardens and the like are managed and funded.

So far so good but it’s not necessarily an easy way forward.

Pros of commonhold

• you own your property without anyone else involved;

• there is no lease, so it does not run down or expire, nor need extending;

• you have a say in the big decisions about the block you live in;

• there’s more transparency about costs of maintaining and servicing; and

• all owners of properties in a block have equal rights.

Cons of commonhold

Although systems like commonhold exist in many countries, this is untried in the UK. There will at least be teething problems, but there may be big issues too.

• some owners within a block will have to ‘step up’ to be key figures in the management of the block;
  
• If there is one owner who, say, declines to pay their share towards collective costs, there could be tension. This could ultimately lead to legal action.

• paying for communal cleaning or landscaping may be no cheaper under commonhold than under the old leasehold system;

• And of course, there will still be some five million people living in older properties, sold and operating under the leasehold system.

What happens next?

There’s a lot to take in here – I said it would be complicated!

The government has only made a proposal so far. However, it is likely to become law in the next two years or so that brand new flats will be sold as commonhold. This is a critical part of leasehold reform.

So, the system will gradually become bigger as more flats are built and new buyers move in.

No decision has yet been taken about the millions of properties currently leasehold. The government believes commonhold will become popular. So, owners of existing leasehold units will want to change. But that is a very long-term project, possibly taking a decade or more.

As ever with housing (and politics) there is plenty that might change. But one thing seems certain – commonhold is coming, albeit slowly, driven by leasehold reform.

Last Updated: April 11th, 2025