Commonhold and Leasehold Reform Bill

The Government has published a draft of the long awaited Commonhold and Leasehold Reform Bill.

The draft Bill sets out a framework for a new “reinvigorated” commonhold and includes other key reforms including a ban on the grant of new leasehold flats, a reduction in the ground rent payable under existing residential lease and the abolition of forfeiture, to be replaced with a new leasehold enforcement claim regime.

Commonhold

What’s new?
Commonhold is not new, it was originally introduced in 2002 as a new form of tenure and alternative to leasehold ownership. It would be fair to say that, in its original form, commonhold was not a success, with less than 20 commonhold developments registered since that date.

So what has changed? The new form of commonhold as set out in the 2026 draft Bill is not too dissimilar in structure and operation to the 2002 form, save that the Government has considered and in the most part taken on board the detailed recommendations made by the Law Commission in its 2020 report “Reinvigorating commonhold: the alternative to leasehold ownership.” However, unlike the 2002 form of commonhold, the proposed new form of commonhold will have teeth in that it will be coupled with a ban on the use of leasehold for new houses and flats, making commonhold for new developments the default tenure by the end of this Parliament (so 2029).

What is commonhold?
Commonhold is a form of freehold ownership, where individual owners each own their Commonhold Unit outright, with no expiring term. All Unit owners are members of a Commonhold Community Association, which manages the common areas of the property for all Unit holders. Unit holders do not have their own negotiated form of lease, instead a single Commonhold Community Statement sets out the terms of occupation and management for all Unit holders with the costs of managing and maintaining the property covered by a Commonhold Community Charge payable by each Unit holder.

What are the potential benefits of commonhold?
A commonhold is “forever”, there is no diminishing lease term, no ground rent is payable by the Unit holder and the Unit holder will have a greater degree of control over the management of the property in common with other likeminded Unit holders. It is similar in structure to established forms of ownership used in other countries namely “strata” or “condominium” titles found in Australia, New Zealand and the USA. In practical terms, the use of the uniform Commonhold Community Statement should make it easier and quicker for buyers, conveyancers and lenders to review and report on the rights and obligations attached to a particular commonhold Unit, in turn speeding up the conveyancing process.

And the potential downside of commonhold?
The potential pitfalls of commonhold in its 2002 form are well rehearsed with issues including unsuitability for mixed use, the inflexibility of the Commonhold Community Statement, weak mechanisms for enforcement of non-payment by unit holders. These points look to have been addressed, in line with the Law Commission proposals, to make a workable form of commonhold.

However, commonhold is not necessarily the “golden egg” that it may at first seem. Whilst self-governance for unit holders may be empowering it can also be dysfunctional and problematic. Commonhold does not make maintaining a building cheaper, it simply changes who makes the decisions. Indeed, there is an argument to suggest that commonhold may even increase the costs borne by Unit holders, because certain responsibilities and costs (notably those related to Building Safety remedial works) that are otherwise currently borne by a landlord and not passed on to leaseholders will become the collective responsibility of the Unit holders, in their capacity as the beneficial owners of the commonhold.

When are we likely to see the first new commonholds?
The bill is a “pre-legislative” draft released for extra scrutiny due to its complex nature and will be subject to detailed parliamentary scrutiny in the usual way. This will not be a quick or straightforward process. That said, the government line is that homeowners should benefit from commonhold ownership “as quickly as possible” with 2029 as the target implementation date.

It is possible that once the legislative framework for commonhold is in place there will be a short transitional period, where commonhold is available but not compulsory, followed by the implementation of the ban on the use of leasehold for new flats, making commonhold the default tenure for new builds and newly constructed flats for sale in certain existing buildings.

What are the implications for existing leaseholders?
The ban on the use of leasehold will not apply to leasehold flats where there is already a lease in place. These properties will continue to operate under the established leasehold regime and the terms of each leaseholder’s lease. However, the Bill includes detailed provision for existing leaseholders to take steps to voluntarily and collectively convert to commonhold, reducing the required number of participating leaseholders from 100% to 50%. As it stands, there is limited benefit in leaseholders converting an existing leasehold to commonhold. To convert to commonhold the leaseholders would need to take enfranchisement proceedings to purchase the freehold, at which point they arguably have the same level of control as afforded by commonhold without the need to incur additional time and legal costs in taking the further steps to set up a commonhold. This may change in time, as commonhold becomes the default and form of ownership for new developments, possibly making commonhold units more marketable than leasehold interests.

Ground rents

The Bill includes the long-anticipated provision to cap and ultimately remove, ground rents payable under existing residential leases following the outcome of the 2023 consultation “Modern leasehold: restricting ground rent for existing leases.” The consultation put forward a range of options, including freezing ground rents at current levels, imposing a financial cap and reducing all ground rents to a nominal peppercorn with the confirmed “proportionate” approach set out in the current draft Bill being a reduction in all ground rents to £250 and the removal of ground rent payments entirely after 40 years. This change will undoubtedly come as considerable comfort to those leaseholders liable to pay ground rent that has escalated way beyond the initial agreed sum (albeit in line with the formula agreed at the time of the grant of the lease).

It will also however reward many leaseholders with a potential windfall reducing ground rents that have been contractually agreed and or factored into premium payments on the grant or assignment of the lease. The impact for those landlords that hold ground rent portfolios will be significant and it is possible that this particular provision in the Bill will be challenged and subject to greater scrutiny, notwithstanding the consultation exercise already undertaken.

Forfeiture

The draft Bill also includes provision to abolish the so called “draconian” remedy of forfeiture (the landlord’s right to terminate a residential lease and recover possession of the leaseholder’s home where the leaseholder is in default) to be replaced by a new court based “lease enforcement claim” statutory procedure. Under the new procedure, where a leaseholder is in breach, the landlord will be required to apply to court and the court will decide whether a breach occurred and what remedy is proportionate (including a payment order, a compliance order, a costs order or restrictions on future conduct). A court ordered sale of the leasehold interest (not termination of the lease itself) will be the ultimate sanction and where the sale proceeds satisfy the debt, the remaining equity will be paid to the leaseholder.

On first sight this appears to be a pragmatic solution that will ensure that landlords retain a meaningful method of enforcement where a leaseholder is in breach, while removing the disproportionate risk of the loss of a home for leaseholders as a result of a relatively minor breach. Success will of course be dependent on the court resources available to process such claims effectively.

Looking ahead

The publication of the draft Commonhold and Leasehold Reform Bill marks a dramatic shift in the Government’s approach to residential property ownership. While the proposed reforms promise fairness and long term security for homeowners, they also raise complex practical and financial issues for developers, landlords and existing leaseholders. Much will depend on the final form legislation following parliamentary scrutiny and, critically, how commonhold is received by the market and plays out in practice once fully in force.