So what does this mean, well the headlines are as below:
Ground rents: proposed cap at £250 p.a. for existing long residential leases, moving to peppercorn after 40 years (with some carve-outs, incl. business leases / certain specialist leases).
• New flats: proposed ban on new long leasehold flats, but the detail/exemptions and start date are tied to the commonhold work and the related consultation.
Commonhold: revised framework + easier conversion route (in principle) for existing buildings.
Enforcement: proposed abolition of forfeiture, replacing it with a new lease enforcement scheme.
• Estate rentcharges: proposed removal of the disproportionate LPA 1925 remedies (ss.121–122) for estate rentcharges
Comment
There is obviously a lot of detail in the draft Bill which we will enjoy digesting over the coming weeks.
Some immediate thoughts – this is not good news for portfolio ground rent owners, and the cap on all existing ground rents at £250 will limit values along with the proposed 40 year sunset clause.
This is perhaps likely to be the subject of a potential Human Rights Act challenge – as with LAFRA although the Policy Statement makes plain the government’s decision/ choice to legislate in this area and if the jurisprudence follows the decision of the High Court in ARC Time v Secretary of State [2005] EWHC 2751 then clearly government is hoping that this area is one that the courts will this to be a political choice that the government was entitled to take and that this is a natural extension of the progression of policy and legislation in this area and that it fits within the ‘margin of appreciation.’
We also need to bear mind that ARC Time has not been finally disposed of and deals with a different issue (as regards ground rent) namely the 0.1% cap deemed by LAFRA. However, the approach is likely to be the same. We will have to see how that plays out as the Draft Bill is debated.
With the one-year anniversary of Housing Minister Matthew Pennycook’s Ministerial Statement on leasehold reforms fast approaching, I felt it might be instructive to review Mr Pennycook’s progress on this over the last 12 months.
Mr Pennycook’s statement on 21 November 2024 set out the road map that the Government was going to follow to implement the Leasehold and Freehold Reform Act 2024.
To be fair to the Housing Minister, when he made his Statement, the Judicial Review challenge brought by a group of six freeholders hadn’t been granted (this happened in January 2025) and this has put a significant roadblock in place of planned reforms. The challenge was heard in July and an outcome is expected imminently, and it is only fair to judge Pennycook taking into account this unforeseen hold-up.
So, what did the statement say, and what progress has been made?
We will bring in the act’s Right to Manage provisions as a coherent package in Spring 2025
The lifting the non-residential element to 50% on right to manage claims, thereby expanding leaseholders’ access to the right to manage, and limiting the costs they can be made liable for, came into force as promised on 3 March 2025. The Act’s other provisions that would make similar arrangements for qualification for collective enfranchisement are not yet in force.
We will go out to consultation very shortly on the detail of the Act’s ban on building insurance commissions for landlords, property managing agents and freeholders.
The Ministry for Housing, Communities and Local Government held a 12-week consultation which closed on 24 February 2025 to seek views on what payments should be allowed within the new category of permitted insurance fees in the Act, to ensure that any costs charged in relation to arranging or managing insurance are transparent and reasonable.
We will look to consult on the Act’s provisions on service charges and legal costs next year (2025).
The government undertook its consultation on leaseholder charges and services, which closed on 26 September 2025. The aim of the consultation was to engage all of those involved in managing leasehold buildings as well as leaseholders on how best they believe that the service charge and legal costs measures in the 2024 Act should be implemented.
Next summer we will consult on the valuation rates used to calculate the cost of enfranchisement premiums.
The promised consultation on the capitalisation and the deferment rates has not been launched, with the Government stating that it won’t start that process while the Judicial Review is ongoing. It looks pretty certain that until the legal challenge is complete there won’t be a consultation on rates. The implication of that is that it is hard to see how they can get on with the implementation of the rest of the reforms without the consultation on rates. As Mr Pennycook said: ‘We will fix the Act’s serious valuation flaws in primary legislation before implementing the package’ – there are known issues with the valuation of intermediate interests and the resolution of this can only come with primary legislation – to be contained presumably in the new Bill. So perhaps on another level the consultation on rates might be also premature until the pathway to resolving this issue is known.
Next year (2025) we will consult on implementing the Act’s new consumer protection provisions
The consultation titled ‘Strengthening leaseholder protections over charges and services’, was launched in July 2025 and included the new consumer protection provisions.
We will publish an ambitious new Draft Leasehold and Commonhold Reform bill in this parliamentary session – our intention is that it will be published in the second half of next year
We are now very much in the second half of 2025 and as yet there is no sign of the Draft Bill. Recent utterances from Government have confirmed that the Draft Bill is still due by the end of 2025, despite the ongoing legal challenges. However, I think that we can safely anticipate that as a point of strategy the Government will not be likely to publish the Draft Bill until the decision in the Human Rights cases is known.
White Paper on reforms to commonhold early next year (2025)
The Government published the Commonhold White Paper in March 2025, which set out its plans for a comprehensive new legal framework for commonhold. The White Paper also confirmed the Government would ‘take decisive first steps to making commonhold the default tenure’. We await the draft Bill to tell us more about these plans.
We will consult next year (2025) on the best approach to banning new leasehold flats
The Commonhold White Paper outlined the plans to ban new leasehold flats, to give flat owners more control. The Consultation has not yet been announced, but there is still an expectation that this will be launched later this year. We await further news on this.
We will consult on new reforms to the section 20 major works procedure and introducing mandatory qualifications for managing agents
Both these issues were consulted upon in the ‘Strengthening leaseholder protections over charges and services’ consultation. The Government is currently analysing the feedback received.
We will consult next year (2025) on legislative and policy options to reduce the prevalence of private estate management arrangements
In September 2025, in a written answer to a Parliamentary colleague, Pennycook stated: “we will consult this year on legislative and policy options to reduce the prevalence of private estate management arrangements, which are the root cause of the problems experienced by many residential freeholders”.
So, how has Mr Pennycoook done?
How far has the Housing Minister gone in meeting his objectives? The Government certainly gains points for bringing in the Right to manage provisions and for publishing the Commonhold White Paper. It has also, as promised, launched a number of consultations that look in detail at many of the elements in the Act, and the results of those should take us a step closer to implementation.
For leaseholders generally, their frustration is rising as the big changes in the Act are all just sitting there on the statute books ready to come in. The uncertainty also has made it difficult to advise as to the best course of action, although having said that, knowing that the Judicial Review process and Human Rights challenges are ongoing, means that we know that immediate changes in the valuation space are not likely any time soon.
The decision relating to the initial challenge regarding the infringement of the freeholders’ human rights should be imminent, but unfortunately it is unlikely to be the end of the story. It is quite possible that whichever ever side the decision goes against will appeal. And following that appeal, there is the prospect of taking the challenge to the European Court of Human Rights in Strasbourg.
Without being too gloomy about the timetable for implementation of the Act, it is also worth noting that the current challenge is taking place during the pre-implementation phase. Once the provisions in the Act are implemented there may well be another opportunity for legal challenges based on actual infringement of human rights rather than the current challenge which is based on the possibility of this happening and the impact that the unimplemented legislation has had on values.
Although the government may well have foreseen the legal challenge, it cannot really be entirely blamed for it. It has pushed ahead with many of the promised consultations that are required to make sure any secondary legislation is fit for purpose, but on the big issues of capitalisation and deferment rates, the government has made clear that they cannot move ahead until the outcome of the legal challenge is known. Which leaves everyone currently in a state of limbo.
All of this makes it quite difficult to provide some sort of ‘end of term report’ on progress so far. There has certainly been a good amount of effort, and Mr Pennycook certainly does not fall into the ‘must try harder’ category, as he is clearly committed to the reforms and is very energetic about them as can be shown from his time before taking office.
Whilst progress may not have been quite what Mr Pennycook might have hoped, he certainly scores at least 7.5 to 8 out of 10 in my book for the work done to date.
White Paper – published 3rd March 2025 – updated 19th March
On Monday 3 March, the Government published its much-anticipated Commonhold White Paper and announced plans to end the sale of new leasehold flats by the end of this Parliament, i.e. by 2029.
Launching the White Paper, Housing Minister Matthew Pennycook MP said the changes “will ensure flat owners are not second-class homeowners and that the unfair feudal leasehold system is brought to an end.”
Initially introduced in England and Wales by the Commonhold and Leasehold Reform Act 2002, Commonhold has since struggled to make inroads into the UK property market, largely due to flaws in its legal framework. However, it is a successful form of tenure elsewhere in the world with similar models to be found in Australia and New Zealand, the U.S. and other common law jurisdictions.
Labour’s election manifesto committed to supporting the delivery of a Commonhold system, and the government has said that it intends to push forward the majority of the Law Commission’s recommendations “due to the benefits of this tenure over leasehold”.
Much can be said about about whether leasehold is in fact feudal (it is certainly not in the strict legal sense, however the government and many campaigners have chosen to characterise it as such as a metaphor for their frustrations and experiences at the hands of bad landlords or managers under the current system. That being said it is the only system that we currently have and on which see my comments at the end of this note.
What is proposed?
The proposed rules will only apply to new flats, not houses, and therefore will not change the ownership structure for existing leaseholders. As such, there is no suggestion that existing leasehold properties will automatically transfer to commonhold tenure, and conversion will not be straightforward. In practical terms, those who have bought flats as leasehold properties will find that these remain as leasehold properties and will only be capable of being converted to commonhold if all the flat owners and the freehold owner agree. An alternative route may be if in the future the law is reformed so that a collective enfranchisement will lead to the building being converted to a commonhold.
What is wrong with the current version of Commonhold?
The White Paper is only the first step in a journey to the implementation of a working Commonhold system. There are numerous known issues with the current version of Commonhold which need to be resolved before it can be made ‘fit for purpose.’
Whilst these are all reasonably technical challenges, examples include: what happens when and if a Commonhold company becomes insolvent, the inflexibility in the current model as relates to management charges and concerns for developers in terms of the handover requirements that apply when more than half of the units are sold.
In addition, lenders do not like the current provisions that would allow a vote of 80% of the unit owners to bring the Commonhold to an end.
The work that is needed to reform various other aspects should not be underestimated and currently there is no legislation on Commonhold before parliament – although the White Paper lays the path for the proposed new Commonhold and Leasehold Reform Bill, which is likely to be a very large piece of legislation and by Mr Pennycook’s own estimation may require two Bills and in fact stretch beyond the current session of parliament.
So what exactly is Commonhold?
Commonhold is a form of property ownership in England and Wales that allows homeowners to own their individual flats or units while collectively managing shared areas, such as hallways and gardens and the main structure the building. This is done through membership of a company called a ‘Commonhold Association’ comprised of the unit holders, which is responsible for managing and maintaining the structure of the building. The flats are freehold units and there is a single document ‘the Commonhold Community Statement’ which sets out the obligations to for repair and ownership boundaries.
Technically, this gives flat owners more control over maintenance and costs-based decision-making as there is no external freeholder or landlord.
What are the pros and cons of this system?
Whilst collective management gives flat owners greater control, there is no one else involved in the decision-making process, and this can have drawbacks. For instance, if a large number of the apartment owners are reluctant to spend on necessary maintenance, this can lead to issues of longer-term disrepair and lack of proper investment.
One of the other proposed reforms from the White Paper is the recommendation that for developments of any size and scale that a managing agent must be appointed to the company board. In my view this is pretty much essential to ensure prudent and appropriate management decisions are taken with a view to maintaining long term value in the property. There are many examples of self-managed buildings where neglect has set in and there has been an unwillingness to spend appropriately on maintenance which can then lead to much bigger problems, particularly where matters such as fire safety are concerned. I do not see these issues as going away simply because there is a new form of tenure.
In short there are likely to be pros and cons with any system and it would be foolish in my view to believe that Commonhold will automatically ‘cure’ these issues.
What about leasehold?
My personal view is that leasehold should not be seen as a ‘second-class’ form of tenure and is in fact a workable system and has much to commend it. The unfortunate truth is that in many instances management is less good than it should be and in some cases borders on the exploitative. In these cases taking action to buy the freehold or exercise the Right to Manage are likely to be of assistance.
However, not all freeholders are determined to be ‘bad’ landlords and whilst there is a lack of control where there is third party ownership of the freehold there is then at least someone who can be called upon to ‘police’ the lease covenants and is duty bound to act even handedly across the whole development. Ultimately however, most apartment owners would rather have the freehold in their ownership or have a stake in this through a share in the company that owns the freehold.
Are all leasehold flats bad?
Currently the only kind of flat or apartment you can buy is one that is leasehold. Increasingly, developers are starting to offer shares in a company that owns the freehold and 999-year lease which will be at a nil rent following the Leasehold Reform (Ground Rent) Act 2022, which banned ground rent for all new leases.
Whether or not the government manages to realise its vision to replace leasehold with commonhold, there will be leasehold properties for many years to come, even if a ban on new leasehold flats comes into force. We therefore need to be careful not to ‘talk down’ leasehold as an asset class, particularly given that this is the way in which around 5.6 million people currently own their home.
Where there are issues, leaseholders have rights, including the right to take service charges to the tribunal as well as the possibility of exercising the right to manage or buying the freehold. As matters stand in Commonhold once the ‘commonhold community assessment’ (the equivalent of the service charge) is set there are no grounds for challenge. The White Paper recognises the need to extend the tribunal’s jurisdiction to this.
No doubt not having a landlord may well be many people’s preference, but what has to be borne in mind in Commonhold is that it is then only the unit owners bound together who must deal with all of the liabilities and responsibilities that go with management. This is a fundamental shift of mind set and in other jurisdictions the Commonhold Association often has unlimited liability in recognition that the decisions that it takes and legal commitments that it makes under contracts etc are in fact binding on the apartment owners without limit. I do wonder if the national psyche is quite ready for this adjustment as with Commonhold there will certainly be no ‘nanny state’ or indeed third party ‘bogeyman’ that can be blamed for the ills arising whatever these may be.
Where next for Commonhold?
The publication of the Commonhold White Paper is to be very much welcomed as we now have a clearer idea of the Government’s intentions, which appear to be to implement more or less all of the Law Commission’s recommendations.
However, there are a fairly large number of challenges that need to be overcome before a Commonhold system can be brought into force. I and other practitioners are happy to assist in the discussions around this and I would hope that in the consultations that are to come around the Commonhold and Leasehold Reform Bill when it is published and debated that the views of those working at the ‘sharp end’ of the legislation are taken into account to ensure that any change is meaningful and effective.
In terms of timing, the promise of ‘by the end of this parliament’ seems ambitious, however, what we might see perhaps is the promise of a date in the future by which all new apartments will have to be Commonhold, even if that date falls after that time, with the promise of enabling legislation to bring this about.
What is very clear is that the government plans to seek to ‘switch off’ leasehold as a form of land tenure for residential properties and Mr Pennycook has indicated that he would like to bring legislation on this forward ‘before the end of this parliament.’
There is a fair amount to do to ‘fix’ commonhold but it is good to see the government’s response to the Law Commission’s work on this.
Clearly before any ‘digital switchover’ to commonhold can take place it will have to be made fit for purpose. The work to do this will be in a Commonhold and Leasehold Reform bill to be announced later on in the year. Once we see that we will know what the scale of the proposed legislation will look like and I for one look forward to reading that. Mr Pennycook has realistically said that he anticipates that this legilsation may be on such a scale that it will take more than one Act of parliament to bring it into effect and that it may be that this wider programme of reform may stretch beyond this session of parliament.
We await further news of the draft bill in due course.
