Leasehold ban: What does it mean for flat owners now – and in the future?

The Labour Government has said it will ban the sale of new leasehold flats in England and Wales.

If the proposal becomes law it would mean those buying flats would purchase them under a lesser-known ownership structure called commonhold, rather than leasehold.

Announcing the policy, housing minister Matthew Pennycook described the leasehold system, where homeowners purchase a lease on their flat for a certain number of years and pay service charges and ground rent to a freeholder or landlord, as ‘feudal’.

He said the 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.’

The announcement has also raised questions for the 5million homeowners in England and Wales who are already in leasehold agreements.

Transferring these to a commonhold, something the Government says it will consult on, could prove a challenge – and there are concerns this might have a knock-on effect on the value of leasehold homes.

We explain what commonhold is, how the proposals will affect future flat buyers and what those who already own leasehold properties need to know.

New era: Labour’s plans will make commonhold the default tenure for new flats – but it won’t apply to those buying properties with existing leasehold arrangements

When will the changes happen?

The Government has said it plans to make commonhold the default tenure by the end of the current parliament in 2029. 

This statement was made in a Commonhold White Paper published by the Ministry for Housing, Communities and Local Government and the plans still need to be approved by parliament to become law. 

‘The Government’s white paper aims to reform the current commonhold framework to make it a “preferred and workable alternative to leasehold”‘, explains Lorna du Sautoy, partner in the residential property team at the law firm Broadfield.

‘Draft legislation is proposed for later 2025 alongside the next phase of consultation on leasehold reform.’

The rules will only apply to new flats, not houses, and won’t change the ownership structure for existing leaseholders. 

What is leasehold?

Leasehold is the most common legal ownership structure for flats in England and Wales. A small proportion of houses are leasehold, normally on private estates. 

A freeholder, usually a company, owns the building and the land it is built on. Leaseholders then purchase the right to occupy their flat or house on a ‘long lease’ which is commonly 99 or 125 years, but can be up to 999. 

Leaseholders pay a service charge to the freeholder to maintain the building and any common areas such as hallways and gardens. They may also pay a ground rent, but was banned on new leases from 2022.

The typical owner of a one-bed paid £2,000 per year in leasehold service charges in 2024, according to research from the estate agent Hamptons. 

The freeholder will normally appoint a third-party managing agent to co-ordinate repairs and maintenance and collect the service charge.

In some cases, leaseholders will collectively own the freehold of their building. 

Record: Leasehold service charges for owners of two-beds hit £2,000 per year in 2024 for the first time, according to data from the estate agent Hamptons

If not, they are able to club together and purchase it – though if the freeholder doesn’t want to sell it to them, they will need to go through a legal process to prove they have the right to do so which can be costly. 

Leaseholders who own the freehold may have an experience similar to owning commonhold, with more of a say in how the building is run.  

Separate from the commonhold plans, leaseholders are also set to be handed additional rights later this year under the Leasehold and Freehold Reform Act 2024.

According to the Leasehold Advisory Service, this will make it easier and cheaper for leaseholders to buy their freehold, increase standard lease extension terms to 990 years for houses and flats, and provide greater transparency over service charges.

This will also ban the sale of new leasehold houses other than in exceptional circumstances.

What are the problems with leasehold? 

Service charges have come under fire in recent years, as some leaseholders argue that their service charge is too high and the way it is calculated isn’t transparent. 

Says Du Sautoy: ‘Leasehold reform has been high on the political agenda for several years now with many flat owners battle-weary from cladding and fire safety issues, rising energy and utility costs, escalating ground rents, service charge bills and disputes.’ 

Lease length also causes problems. Leases can be renewed, but it requires paying a fee – often many thousands of pounds – to the freeholder, as well as legal costs. 

For this reason, properties where the lease has fallen below 80 years tend to decline in value and it can be harder to secure a mortgage. 

Freeholders can also set rules about what can and cannot be done in the building, including in individual owners’ flats. 

This might include a ban on owning pets or on certain types of renovations. 

What is commonhold?

Commonhold is the default tenure for flat owners in several countries around the world, and Scotland uses a very similar system.

The Government white paper states that under the new plans, commonhold will be ‘reinvigorated’ through a new legal framework.

Under the current commonhold system in the UK, which applies to a very small minority of homes, each flat owner owns the freehold of their home and shares ownership of the building and the land it sits on with all of the other owners through membership of a ‘commonhold association’.

They have joint financial responsibility for maintenance and upkeep of shared areas, which is administered by a company in which all owners in the building have a share.

They can appoint a management company to help with this if they choose. 

When someone buys a commonhold property, they sign up to a ‘commonhold community statement’ – a legal document which sets out how the building is run. 

Something in common: Under commonhold, flat owners have joint financial responsibility for maintenance and upkeep of shared areas, set out in a ‘commonhold community statement’

Du Sautoy explains: ‘This is the legal document that defines the rights, responsibilities, and rules for all unit owners within a commonhold. 

‘It is essentially the governing framework for the commonhold association, outlining how the shared areas, structures and facilities will be managed, maintained, and funded, as well as setting out the obligations of all unit owners.’

Commonhold property owners have no lease, and therefore no limit on how long they can own their home before they need to renew. 

The pros of commonhold

Proponents of commonhold say the Labour plans offer flat owners more control and security. 

Frank Smith, managing partner at Frank Smith & Co solicitors, says it will mean that flat owners are ‘no longer treated as second-class property owners.’

Specifically, it means they will be able to approve the annual service charge budget, and directly appoint managing agents rather than having these chosen for them by the freeholder. 

It also means they will no longer need to worry about paying to extend their lease, or about a short lease devaluing their property.  

Cath Williams, a retired university lecturer from Liverpool and co-founder of campaigning organisation the National Leasehold Campaign says: ‘A move to commonhold fundamentally changes the nature of homeownership – one where every flat or unit is owned by two parties, the landlord and the tenant, whose interests often don’t align; to one where each unit is owned by one party – the unit owner.’

‘For too long, leaseholders have been burdened with escalating ground rents and opaque service charges, leaving them feeling trapped and disempowered. 

‘Making commonhold the default will empower flat owners, giving them greater control over their building and their finances, fostering a stronger sense of community and long-term security.’

The cons of commonhold 

While homeowners have more control over work done to their building and costs, commonhold relies on neighbours to work together to look after the building and make sure everyone pays their share. 

This will require flat owners to take charge of their building’s administration, at least to the extent that they will need to appoint a managing agent if they choose. 

Disagreements between neighbours on what work is required and how much should be paid could also cause problems. 

Natalie Chambers, director of the freeholder advocacy group the Residential Freehold Association says: ‘We firmly believe that leasehold is the most effective way of managing large complex apartment buildings.

‘In the absence of the leasehold system, residents would face greater financial and legal responsibilities for block maintenance and management – which the previous government’s own research suggests a majority of leaseholders are unlikely to be in favour of.’

Risk: Lawyer Mark Chick says commonhold can lead to disrepair if flat owners don’t agree on what maintenance needs to be done

Some argue that a single freeholder has a stronger financial incentive to keep a block of flats well-maintained than a disparate group of commonholders, who might hold different views on what maintenance needs to be done and how much they should pay. 

‘If a majority of flat owners are reluctant to spend on necessary maintenance, that can lead to issues of longer-term disrepair and lack of proper investment,’ says Mark Chick, director of the Association of Leasehold Enfranchisement Practitioners and a Partner at law firm Bishop & Sewell.

‘In Scotland where blocks of flats are owned collectively as freeholds, there have been examples of these falling into disrepair as a result of poor management by the flat owners.’

While the switch to commonhold would eliminate ground rents, this has already been banned on new leaseholds since 2022. 

It also doesn’t guarantee that service charges will be vastly lower than they would on a leasehold block.

‘Contractors’ costs will remain high, and there will be limited insurance products available,’ says Emma Hardman, partner and head of housing management at law firm Anthony Collins.

In addition, mortgage lenders currently have reservations about offering mortgages on commonhold properties. 

The Government has said it will address this before the switch to commonhold as the default tenure is made. 

How will it affect existing leaseholders?

The changes don’t apply to current leaseholders, but some may wish to explore converting their building to a commonhold structure. 

Switching a leasehold building to commonhold is already possible under UK law, but rarely happens because it is complex and…