Leasehold Reform and the shift to Commonhold

By: Phil Ainley

February 5, 2025

Reforms in the property sector that should benefit leaseholders made it into law in May 2024. Yet, as of the beginning of 2025, the sector is still awaiting for them to come into force.

The new government pledged in November 2024 to act quickly to ensure leasehold reform was enforced and set out a timeline of action. However, until the law is enforced around Leasehold Reform, the current leasehold laws remain in place.

Leasehold Reform and Commonhold

What does the Leasehold and Freehold Reform Act 2024 mean for leaseholders?

The Leasehold and Freehold Reform Act – commonly referred to as the Leasehold Reform Act – has been created to strengthen existing consumer rights and introduce new rights for leaseholders including:

  • Making it less expensive for leaseholders to extend their lease or buy their freehold.
  • Increasing the standard lease extension term to 990 years, with ground rent reduced to nil.
  • Banning the sale of new leasehold houses unless it is an exceptional circumstance.
  • Giving leaseholders greater transparency over their service charges and banning excessive buildings insurance commissions.
  • Removing the requirement for a new leaseholder to have owned their house or flat for 2 years before they can extend their lease or buy their freehold.
  • Making it easier and less expensive for leaseholders to take over the management of their building.
  • Extending access to redress schemes for leaseholders to challenge poor practices.
  • Making buying or selling a leasehold property quicker and easier, by setting a maximum time and fee for home buying and selling information.
  • Granting homeowners on private and mixed tenure estates comprehensive rights of redress. This will mean the homeowners receive more information about what charges they pay, and the ability to challenge them.
  • Scrapping the presumption that leaseholders will pay their freeholders’ legal costs when they challenge poor practices.

 

What is the timeline for the reform?

Until now – January 2025 – the reform has experienced delays, with the government saying the implementation of the reform will take years to complete. There are still a few processes to be completed before the reform can be put into action:

  1. A secondary legislation needs to be passed – According to the government, it will involve 25 to 30 pieces of secondary legislation to implement the Leasehold and Freehold Reform Act 2024.
  2. Then come the consultations – Consultations covering the finer details of the reform will need to take place, which take time. The reform could also experience pushback from freeholders who are set to lose out because of the reforms.
  3. Judicial Review – There could also be a judicial review of the changes to enfranchisement premium calculations. A High Court hearing is scheduled in January 2025 to consider whether the claims can proceed.

Until these processes have run their course, the effect on leaseholders will be limited and the current laws will remain in place.

 

The government set out how and when it will implement parts of the Act in a November 2024 statement:

  • January 2025 – Removal of the two-year restriction on enfranchisement and lease extension claims from the point of property purchase will begin.
  • Spring 2025 – Provisions on the Right to Manage which increase access to the right for leaseholders in mixed-use buildings, alongside reforming costs and voting rights, will commence.
  • Summer 2025 – The government will consult on the valuation rates used to calculate the cost of enfranchisement premiums. Parliament will need to approve the secondary legislation that sets out the detail, and fix the Act’s flaws prior to implementation.
  • 2025 – The government will consult on implementing the Act’s new consumer protection provisions for homeowners on freehold estates and on service charges and legal costs. It will then bring the measures into force as quickly as possible afterwards.
Leaseholders purchasing their freehold

Are further reforms planned for leaseholds and commonholds?

Of course there are! Further commitments by the government include:

  • A draft Leasehold and Commonhold Reform Bill will be published in the second half of 2025 with a focus on commonhold.
  • Tackling unregulated and unaffordable ground rent charges.
  • Removing disproportionate threats of forfeiture as a means of ensuring compliance with a lease agreement.
  • Consulting on new reforms to the section 20 ‘major works’ procedure. Section 20 states, if the charge for major works exceeds £250 per tenant, then it is necessary for the landlord to follow a consultation procedure, commonly referred to as an S20 consultation. It is used to ensure that no leaseholder is prejudiced by the process. An S20 consultation is a rigorous procedure in the form of three notices: The Notice of Intention to Carry Out Works; The Notice of Estimates; The Notice of Award of Contract.
  • Preparing for the transition away from leasehold by publishing a White Paper on reforms to commonhold early in 2025. The government will also consult on the best approach to banning new leasehold flats which can work effectively with a ban on new leasehold houses.
  • Re-review Lord Best’s 2019 report on regulating the property agent sector.
  • Consult on options to end the injustice of what has been coined as ‘fleecehold’ in private estate management arrangements, which came to light in the leasehold scandal.

 

What is the leasehold scandal?

Thousands of leaseholders purchased houses from developers without realising that there were clauses in their contract stating that their ground rent would double every 10 years.

This meant that an annual ground rent of £100 would increase to £1,600 in 40 years’ time, which rendered many of the properties unsellable because lenders refused to offer mortgages on them.

The issue was further complicated by developers selling off their freeholds to investment firms, some of whom chose to retain the increase clauses.

The government has been working to overhaul the leasehold system since 2017, and has so far banned new-build houses from being sold as leasehold and has abolished ground rents on new residential leases.

 

What is the difference between leaseholds and commonhold?

Many residents may not know the differences between leasehold and commonhold. In a brief overview, those differences include:

  1. Ownership – Commonhold allows you to own the freehold of individual properties (typically flats), while leasehold involves a lease from a landlord.
  2. Duration – Commonhold has no limit on ownership duration, whereas leasehold has a fixed lease term.
  3. Ground Rent – Commonhold properties do not require payment of ground rent, unlike leasehold properties.
  4. Management – With commonhold, you and other owners have a say in how your building is managed, which includes the costs and responsibilities to come with this.

 

Premier Estates provide award-wining property management services across the UK. If you would like to speak to one of our team about managing your property portfolio, please call 0345 491 8899.

 

Sources:

  • https://www.legislation.gov.uk/ukpga/2024/22/contents
  • https://www.gov.uk/guidance/commonhold-property
  • https://www.which.co.uk/news/article/leasehold-scandal-thousands-of-homeowners-to-receive-ground-rent-refunds-aI2iO2e22mCd#
  • https://www.gov.uk/government/publications/regulation-of-property-agents-working-group-report
  • https://hoa.org.uk/advice/guides-for-homeowners/for-owners/leasehold-reform/
  • https://ifamagazine.com/leasehold-and-common-hold-reform-the-face-of-change
  • https://www.bbc.co.uk/news/uk-politics-65556089
  • https://www.gov.uk/guidance/guide-to-the-leasehold-and-freehold-reform-bill
  • https://www.attwatersjamesonhill.co.uk/the-leasehold-and-freehold-reform-act-2024-your-guide-to-the-reforms/
  • https://questions-statements.parliament.uk/written-statements/detail/2024-11-21/hcws244
  • https://www.residentsline.co.uk/section-20-how-does-it-work
Further leaseholds reforms