A long-awaited moment for leasehold reform
On 27 January, the Prime Minister announced (via TikTok of all places!) the publication of the long-promised Draft Commonhold and Leasehold Reform Bill with proposals that have been years in the making, and already well debated (as well as diluted and delayed).
Whilst much of the content feels like familiar territory, now that draft legislation is finally on the table, the scale of the reforms should not be underestimated, with potential to end leasehold ownership of residential property altogether – certainly the most significant change to land interests in recent memory.
The proposals specifically target two themes: tackling unpopular ground rents, and perhaps even more importantly, remodelling of commonhold ownership. And what’s more, if commonhold can finally be made to work, the Government’s endgame is clear: a promised ban on new long leasehold flats.
Direction of travel and who will be affected
Whilst final legislation is still some way off (extensive consultation lies ahead), the direction of travel is clear, and whilst the policy focus is residential, the consequences extend beyond that sector – the new rules will impact the full range of players from residential homeowners to existing commercial investors, pension funds, lenders and developers in that space, especially those planning, or with exposure to, multi-occupied or mixed-use schemes.
So, what’s actually being proposed?
Ground rents to be capped (not abolished… yet) expected in force: late 2028
Existing residential ground rents would be capped at £250 per annum, then reduced to a peppercorn after 40 years (effectively an abolition, but in 40 years). This is a significant climb down from earlier Government proposals for an immediate retrospective ban on existing residential ground rents (noting that ground rents for new long residential leases were already banned by the Leasehold Reform (Ground Rent) Act 2022). That said, it remains a retrospective change to a fundamental term of all such leases, which are essentially contracts between a landlord and a tenant, entered into by both parties with knowledge of the contract terms and understanding that they would apply for the length of the lease.
The current proposal no doubt hopes to strike an acceptable compromise: offering relief to leaseholders who are paying more than £250 per annum in ground rent, whilst reducing retrospective interference with existing leases by retaining a limited ground rent for the lease term. This may alleviate investors’ concerns somewhat, although the changes would still affect valuation assumptions, income streams, and financing models that are predicated on income from ground rents, such as future capital from lease extensions or enfranchisement.
Freeholder challenge remains a real possibility, and the final shape of these provisions is far from settled.
Reviving commonhold: a bold ambition
Alongside the draft Bill is a consultation on a revamped commonhold model, largely following the Law Commission’s 2020 recommendations and the 2025 White Paper.
The Government’s ambition is bold: to make commonhold the default tenure for multi-occupied buildings by the end of this Parliament. Existing leaseholders would be able to convert, and the new commonhold would replace centuries-old leasehold structures for future residential developments. The problem is that the model needs to work effectively not just for small residential blocks but also for larger and more complex mixed-use estates – a tall order!
Making conversion viable
Commonhold has technically existed as an option since 2002, but uptake has been virtually nil, with the main obstacle being the near-impossible requirement for unanimous consent from leaseholders to convert. Lower thresholds (based on the levels required for enfranchisement) and possible leasebacks to non-consenting parties are now being explored to make conversion viable even if the necessary consent thresholds are not met. Even so, success will still depend on enough residential owners being willing to take on management and provision of services, and obvious questions arise around management control and lender protection. Developers have been reluctant to embrace commonhold to date, as the model is untested and they know and understand the leasehold model, along with their professional advisers.
Put simply, the proposed new model still needs wide consultation and careful consideration to avoid a re-run of previous failed attempts, and this consultation is restarting that process.
A future ban on new long leasehold flats
Assuming (a bold assumption) that the new commonhold model proves workable, the Government intends to ban the creation of new long leasehold flats, making commonhold the default tenure.
Developers of mixed-use schemes will need to factor this into future structuring decisions. There are likely to be some carve-outs, which may result from the consultation process currently underway.
Other notable proposals
The draft Bill also proposes the abolition of:
- Forfeiture as an enforcement remedy for long residential leases, to be replaced by an alternative enforcement regime; and
- Rentcharge enforcement powers on freehold estates, which are widely used and viewed as unfair.
The takeaway
This is not the final word. There is no settled law yet, but the policy intent is clear, and the reforms are firmly back on the agenda for 2026.
Even if implementation remains some way off, the implications for property owners (both landlords and leaseholders), investment models and development strategies are likely to be significant. Now is the time to take stock of exposure, assumptions and future plans and to prepare for the shift when it comes.
How Tees can help
Tees’ Real Estate team disputes team advise across all aspects of residential, commercial and mixed-use property, and is well placed to support clients as leasehold and commonhold reform gathers pace. We can help landlords, developers, investors and funders assess exposure to proposed ground rent reforms, review existing lease and estate management structures, and factor anticipated changes into future development and asset management strategies. As the consultation process unfolds and legislation evolves, our real estate specialists will continue to provide clear, pragmatic advice to help clients navigate the transition and manage risk in an increasingly reform-driven property landscape.
