New leasehold flats in England and Wales are set to be banned under the latest government plans to reform home ownership.
Under the current leasehold system, third-party landlords known as freeholders own the building and a leaseholder buys the right to occupy a flat within it for a fixed time period.
The government says it wants to move to a system of home ownership that is more in line with the rest of the world, known as commonhold, where homeowners own a share of and have control over buildings they live in.
Freeholders say leasehold is the “most effective way of managing large complex apartment buildings”.
The government has yet to set out specific plans for the conversion of current leasehold properties to commonhold, but says it is “determined” to make this easier.
A white paper published on Monday, external stated the sale of new leasehold flats would be banned and commonhold “reinvigorated” with a new legal framework.
A draft Leasehold and Commonhold Reform Bill – including the detail of how the new system would work – will be published later this year, the government has said.
The new legislation would apply in England and Wales. There are an estimated five million leasehold properties in England, 70% of which are flats.
Housing Minister Matthew Pennycook told the BBC the current system is “inherently unfair” and reforms are needed to give leaseholders “better control” over their homes and associated costs.
Existing leaseholders can feel like they have no control over costs for repairs and maintenance of the outside of their building.
Under the current system, it is the freeholder or landlord that appoints a managing agent. Under a commonhold system, residents would have more autonomy over what they pay and who they appoint to do maintenance, the government said.
What is the difference between leasehold and commonhold?
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A leasehold property reverts to the freeholder after a fixed amount of time. A commonhold property is owned outright, like a freehold house.
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Under commonhold, homeowners have a say on the annual budget for their building. Under the leasehold system, a freeholder or landlord sends a bill to residents for communal costs. The residents will be able to hire and fire a managing agent.
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There is no ground rent charge in a commonhold property.
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Forfeiture is not possible under commonhold, meaning a resident cannot be threatened with losing their home.
Natalie Chambers, director of the Residential Freehold Association (RFA), said the measures “should not be seen as a trade-off between leasehold and commonhold”.
“Millions of leaseholders across the country are perfectly content with the tenure and we firmly believe that leasehold is the most effective way of managing large complex apartment building.”
She added that a commonhold system would mean “residents would face greater financial and legal responsibilities for block maintenance and management”.
‘Significant step’
The National Leasehold Campaign (NLC) said it was “delighted” about the announcement and called today’s white paper a significant step forward.
But NLC founder Katie Kendrick said it was “paramount” that those currently living in leasehold buildings were not forgotten.
She said: “While focusing on preventing future leasehold abuses is crucial, it’s equally vital to address the plight of existing leaseholders currently bound by the inequitable leasehold system.
“Commonhold conversion mechanisms are essential to offer an escape route for those trapped.”
Mr Pennycook said the government would “continue to implement reforms to help millions of leaseholders who are currently suffering”.
“Want we don’t want is a two-tier system,” he told the BBC.
“All existing leaseholders in blocks will be able to convert to commonhold,” he said, adding the government will introduce a system that makes it “very easy” to do so, with a draft plan set to be outlined later this year.
He acknowledged there will be a “remnant of existing leasehold blocks” once the ban on new leaseholds is brought in and a new system to convert existing leaseholds to commonhold is brought in, but said those remaining leaseholders will still have “greater protections”.
In 2023, Conservative housing secretary Michael Gove expressed a desire to abolish the leasehold system entirely, but later opted for reforms instead.
Several of these reforms have now been implemented, including the end of a “two-year” rule on extending a lease, and new rules on the right-to-manage properties in a mixed-use building.
