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The government is poised to revolutionise homeownership in England and Wales by banning new leasehold flats and making commonhold the default tenure.
The move promises to empower homeowners with greater control over their properties, effectively dismantling a system long criticised for its archaic practices.
Housing Minister Matthew Pennycook heralded the reforms as the “beginning of the end” for the “feudal” leasehold system, which he condemned for subjecting homeowners to “unfair practices and unreasonable costs.”
Currently, leasehold ownership allows third-party landlords to own a building’s lease, granting them significant decision-making power over the homeowners residing within.
This proposed shift aligns with the government’s manifesto commitment to abolish the leasehold system and empower residents with direct control over the management of their buildings.
The transition to commonhold ownership will grant homeowners collective ownership of the freehold, eliminating the intermediary landlord and fostering greater autonomy in building management.
Homeowners will not have to pay extra costs such as ground rent under the proposed reforms.
A Commonhold White Paper published on Monday states commonhold will be “reinvigorated” through a new legal framework and the sale of new leasehold flats will be prohibited.
Mr Pennycook said: “This Government promised not only to provide immediate relief to leaseholders suffering now but to do what is necessary to bring the feudal leasehold system to an end – and that is precisely what we are doing.
“By taking decisive steps to reinvigorate commonhold and make it the default tenure, we will ensure that it is homeowners, not third-party landlords, who will own the buildings they live in and have a greater say in how their home is managed and the bills they pay.
“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, and build on our Plan for Change commitments to drive up living standards and create a housing system fit for the twenty-first century.”
The Government has also said it is “determined” to make conversion to commonhold easier for existing leaseholders.
A draft Leasehold and Commonhold Reform Bill, which will include the detail of how reformed commonhold will work, will be published later this year, the Ministry of Housing, Communities and Local Government has said.
Legislation will apply to England and Wales, where there are around five million leasehold homes.
Leasehold, freehold, commonhold – what’s the difference?
Leasehold
At the moment, the owner of leasehold property does not own the land or building that it is a part of. Rather, they have a lease agreement with the company or person who is the freeholder or landlord, and does own these things.
For instance, those who own a leasehold flat do not own the shared parts or structure of the building. They are instead given a ‘lease’ to use and occupy the flat for a certain number of years, often 99 or 125.
This means that every time the property is sold, the lease is passed on to the new buyer with however many years are left on the lease. This means it will decrease in value over time, although leaseholders may have the option to extend their lease.
The owner of a leasehold flat will usually need to pay ground rent to the landlord, comply with agreed rules about how to use the property and contribute to running costs through a service charge.
Commonhold
A commonhold is a different form of ownership for a multi-occupancy development. Each unit-holder will own their home, and a third-party will own and manage the common parts of the property.
This arrangement gives property owners fare more control over their home, but it is a far rarer arrangement than leaseholds. Following the new government plans, this will begin to change.
Freehold
A freehold property is owned with no fixed time limit or restrictions. Most houses are sold like this, although some are sold as leasehold.
The freehold owner usually owns the property and the land it sits on. They will be responsible for maintaining the building, insuring the property and its contents, and can make any alterations they wish (within planning laws). There is no ground rent.
