Government plans to ban leasehold flats mark the “beginning of the end” of England and Wales’ “feudal” leasehold system, according to Housing Minister Matthew Pennycook.
Published today by the Ministry of Housing, the Commonhold White Paper details a series of proposals aimed at giving homeowners more control over their property, including a ban on developers selling new flats under the leasehold system. Instead, new developments will operate under the commonhold system. Reforms introduced last year have already prohibited the sale of new houses under leasehold.
“These reforms mark the beginning of the end for a system that has seen millions of homeowners subject to unfair practices and unreasonable costs at the hands of their landlords,” said Pennycook.
The move follows “years of complaints” from leaseholders about “crippling service charges and crumbling buildings”, said The Guardian.
What is leasehold?
England’s leasehold system dates back to the days of the Domesday Book, when serfs were given the right to work a piece of land, Pennycook told The Guardian. “It’s land owned by someone else who grants the right of use of that land to another person.”
Leasing allows someone to own a property, but not the land on which it sits. That is owned by a different person or organisation – the “freeholder” – who leases it out for a fixed period of time. When the lease expires, the land reverts to the freeholder, together with any property on it. There are around five million leasehold homes in England and Wales.
In contrast, freehold gives the purchaser full control over the property and the plot of land on which it’s built.
What are the problems with leasehold?
Buying a leasehold property “might be the worst mistake you’ll make”, said The Telegraph in 2023. Agreements may mean buyers have to pay an annual ground rent, with clauses that allow the freeholder to double the amount “every 10 years or so”. In addition, the freeholder can impose service charges, “which cover everything from building insurance, to management costs, running costs, repair and maintenance”. These charges are also subject to change. According to property company Hamptons, the amount leaseholders paid for communal maintenance and services rose by 11% between 2023 and 2024, reaching an average of £2,300, reported the BBC.
There can also be issues when it comes to selling a leasehold property. A shorter lease is unattractive to potential buyers, meaning owners must often factor in the cost of extending the leasehold into the expense of selling their home.
What is the commonhold system?
The government proposals, along with banning the sale of new leasehold flats, would make it simpler for homeowners to co-own the buildings they live in – a form of ownership known as commonhold, which is “used all over the world” and which the Ministry of Housing claims would be a “radical improvement” on the current system.
Commonhold means each flat-owner owns the freehold of their property, but shares the responsibility for common areas and upkeep with others.
Ending the fixed-term of a lease allows people to own their property outright, and also gives them a say in the management of their building, said Inside Housing.
Ground rent would be abolished and flat-owners able to vote on their own service charges, with the cost of repairs and maintenance shared by those flats affected rather than across the whole building.
The government’s proposals, reported ITV, do also include strict rules on how commonhold buildings would be managed in order to reassure mortgage lenders that properties won’t be neglected.