Commonhold reboot and other reforms

The main reforms contained in the Bill relate to:

• reform of commonhold;
• a ban on new leasehold flats;
• ground rent reforms;
• abolition of forfeiture;
• reform of rent charges.

Reform of commonhold

Most flats are held on leases.  There are approximately 5 million leasehold properties in England and Wales. The leasehold system has (in some cases unfairly) come in for criticism.   In response to this, the Commonhold and Leasehold Reform Act 2002 was passed to introduce commonhold as an alternative mechanism for owning flats.

With commonhold, flat owners own a type of freehold of their flat rather than a lease of the flat. Also, collectively with the owners of the other flats in the building, they own the common parts of the building and manage the building.

But the 2002 Act has its shortcomings and commonhold has not been embraced, with less than 20 buildings adopting commonhold.

The Government intends that commonhold becomes the default mechanism for owning flats in England and Wales. The Commonhold and Leasehold Reform Bill proposes to reform the 2002 Act to make commonhold viable.

The commonhold reforms include:

• reducing the threshold needed to convert a building from leasehold to commonhold from 100% of the qualifying leaseholders to 50%;
• allowing for the management of mixed-use buildings;
• a clearer Commonhold Community Statement, which contains the obligations and rights regarding a commonhold property;
• powers for the commonhold association to enforce the payment of contributions;
• introducing provisions to appoint directors through the First-tier Tribunal;
• giving developers more rights to continue developing a site after some units have been sold.

 Ban on new leasehold flats

The Bill proposes that except in certain circumstances, the grant and assignment of new long residential leases of flats (leases for more than 21 years) in a relevant building be banned.

For example, flats in a newly built block or a converted house being sold for the first time would have to be sold on a commonhold basis rather than leasehold.

The ban does not apply to existing leasehold flats, so they can continue to be sold and the lease of the flat can still be extended.

Consultation

The Government launched an open consultation, Moving to commonhold: banning leasehold for new flats. The consultation relates to the proposed ban on new leasehold flats, including how far reaching the ban should be and possible exemptions.  The consultation runs until 24 April 2026.

Ground rent reforms

Under current law, in most cases newly created leases must provide that the ground rent payable is a peppercorn (zero in practice). This does not apply to existing leases.

The Bill proposes that ground rents payable under existing leases be capped at £250.00 per year for a transitional period of 40 years and then reduced to a peppercorn.

Abolition of forfeiture

Leases usually give the landlords the remedy of forfeiture (essentially termination of the lease) if the lessee is in breach of the lease, for example non-payment of service charges.

The Bill proposes to abolish forfeiture of long leases of residential properties and replace it with a leasehold enforcement scheme, under which the courts have powers to make orders for remedying breaches but would not terminate the lease except in very limited circumstances.

Reform of rent charges

Owners of houses on estates with common areas may have to pay a maintenance charge for the upkeep of the common areas.

These maintenance charges are often charged by way of a rent charge. If there are rent charge arrears there can be harsh remedies, such as taking possession of the property or granting a lease of the property to the rent charge owner (the owner of the estate).

The Bill removes these remedies.

Payment of rent charge arrears will still be enforceable, for example by taking court proceedings for payment of the amount owed.

There is also reform regarding the rent charge demands.

Comment

Commonhold on a much larger scale will happen. But this will depend on the support of property developers and mortgage lenders.

Although the ultimate goal is for commonhold to replace leasehold, with the existence of millions of existing leasehold properties the leasehold system will have to continue for a long while.

Improvements to the leasehold system are welcome, but leasehold does work.

Moreover, leaseholders can collectively purchase the freehold of their building and manage the building and have 999 year leases of their flats with a peppercorn rent. This arrangement works well and in practice it is not so different from the commonhold arrangement.  Where there are issues with this leasehold arrangement many of these issues will still be encountered with commonhold. For example, disagreements about how the building is managed or about carrying out and paying for major works.

Therefore, whilst commonhold has merit, it is important that leasehold is not disparaged.  This will not benefit the millions of leaseholders. Also, commonhold even with the reforms will not solve all the problems that come with owning and managing a block of flats.

We cannot expect commonhold to be a magic bullet, but it is hoped that it will be an improvement and workable and worthwhile.

We keep a close eye on the progress of the Bill.

If you would like advice and assistance concerning leasehold and other property matters please feel free to email me or contact the Leasehold Enfranchisement team on 020 8858 6971.