187 reasons to take a closer look at leasehold reform
The draft Commonhold and Leasehold Reform Bill has generated extensive engagement across a broad cross-section of the property sector, reflecting both the scale of the proposed reforms and their impact on a wide range of stakeholders. 187 written submissions were received by the government, in response to its consultation. While most stakeholders welcome the concept of leasehold reform, the responses from leaseholders, institutional investors, pension funds, developers, lenders and housing associations raise legitimate concerns about a hasty move to commonhold and they challenge the government’s proposed policy on a number of grounds.
Leaseholder criticism
Some of the most significant criticism of the draft Bill comes, rather unexpectedly, from the very group that the reforms are designed to support: leaseholders themselves. While the direction of travel towards commonhold is appreciated, there is a strong consensus that the draft Bill falls short of addressing the real source of leasehold harm, namely entrenched power imbalances – focusing on symptoms rather than the underlying problem. They argue that current proposals overlook the operational, governance and systemic changes required to make commonhold work in practice, and call for the draft Bill to be significantly strengthened to address this.
Some leaseholders are also concerned that they will have less security under commonhold than they do now. They state that moving to a commonhold system creates “unacceptable uncertainty” because the rights and obligations attached to a commonhold unit can be changed by a majority vote, in stark contrast to having a long leasehold with a share of freehold, which provides fixed, reliable contractual terms. Additionally, with only an 80% vote needed to terminate a commonhold, leaseholders argue that the new framework undermines the principle of perpetual freehold ownership.
Avoiding a two-tier market
A general criticism is that the proposals risk creating a two-tier market in which commonhold is seen as superior and leasehold properties become harder to sell or mortgage. This is because the draft Bill is seen as prioritising future commonhold developments while offering no practical, affordable or time-bound route for existing leaseholders who could be left trapped. Lenders share these concerns, warning that mandating commonhold could destabilise the mortgage market, slow transactions and create “mortgage prisoners” unless the sector is given time to adapt.
Some have raised concerns that, while the government promotes greater leaseholder control, it continues to impose increasingly heavy regulatory burdens that risk making self management unworkable. They argue also that the complex – and at times fractious – realities of communal living are often overlooked. Lenders are also concerned about the challenge of shifting building safety liabilities onto inexperienced commonhold associations.
How to solve a problem like the ground rent cap
One of the most contentious aspects of the proposals is the cap on ground rents – an area in which stakeholders appear united only in opposition, albeit from fundamentally different perspectives.
In light of the Competition and Markets Authority’s finding that there is no persuasive evidence that ground rents are legally or commercially necessary, leaseholders have questioned the rationale for the preservation of the capped rents until 2068, arguing that this still leaves leaseholders paying “money for nothing”, benefitting developers and freeholders while offering no meaningful relief to leaseholders already under financial pressure. They believe any residual ground rent will distort the market and create another two-tier perception, with buyers avoiding affected flats in favour of newer, rent-free alternatives.
Landlords and pension funds, predictably, continue their strong opposition to the ground-rent cap altogether, arguing that this move retrospectively rewrites freely negotiated contracts without fair compensation. The unindexed, blanket rate of £250 is seen as arbitrary and disproportionate, particularly for high-value properties, while the cap could also trigger loan covenant breaches, insolvencies and corporate failures, undermining long-term building management, safety obligations, insurance arrangements and remediation works.
Over the longer term, landlords are concerned that the proposals in the draft Bill may undermine market confidence and damage the UK’s reputation for legal certainty. Pension funds argue this point even more strongly, stating that the cap could trigger a major transfer of value away from pension beneficiaries, wiping value from ordinary workers’ retirement savings.
Ironically, those who have already collectively purchased their freehold interests (the very thing the government is trying to encourage) could also be worse off. For tenants who have already collectively enfranchised and paid to acquire the ground rents of non-participating flats, the ground-rent cap will have significant unintended consequences – drastically reducing the value of their investments, and thereby unfairly penalising affected leaseholders for their proactivity. These groups caution that the draft Bill could threaten the financial solvency and functionality of leaseholder-owned freehold companies, and call for policymakers to fully consider the impact on such entities before legislating.
Finally, there is strong concern – raised by legal practitioners – that the proposed £250 ground-rent cap is a blunt instrument that may be challenged on human-rights grounds. The new framework fails to adequately distinguish between reasonable and problematic ground rents, inequities across regions and negotiated “quid pro quo” arrangements. They call for more targeted, evidence-based reform rather than an indiscriminate market-wide cap.
Forfeiture and building safety
Forfeiture also divides opinion among stakeholders. Managing agents caution that, although forfeiture is used in only 0.02% of cases and operates largely as a deterrent, abolishing it without a strong replacement mechanism may severely weaken service-charge recovery. They are concerned that this could extend arrears timelines, increase costs for compliant leaseholders, and undermine building safety – meaning that a reform meant to protect leaseholders may in theory leave them worse off.
Unsurprisingly, leaseholders criticise the proposed replacement for forfeiture as “forfeiture by another name” and claim that the alternative does not meaningfully rebalance their rights.
So what do all these groups want to see from a new framework?
The short answer is: a lot, and not all of it is aligned. To increase the successful adoption of any new framework, stakeholders argue that the practical implementation of commonhold must be more fully developed, with a focus on realistic participation thresholds, lower enfranchisement costs, and stronger disclosure and enforcement mechanisms, alongside the regulation of managing agents. Some also argue that commonhold will only work if developments are allowed to design their own governance rules rather than being forced into a one-size-fits-all template – in order to ensure that any new framework reflects the often challenging realities of neighbours living together.
To avoid the emergence of a two-tier market, stakeholders note that any policy changes need to benefit both new commonhold and current leasehold homes. As such, the draft Bill must provide clear pathways to remove existing practical barriers to commonhold conversion, while allowing the property industry time to adapt to these significant changes. Some respondents favour a phased approach over the next seven to 10 years, beginning with a move to commonhold for new-build flats, followed by a carefully designed conversion process for existing stock. That phased implementation, they say, should be supported by updated lender and insurer guidance and crucially, targeted training. Taking a slower but more assured approach is more likely to imbed lasting cultural and educational change, and better serve those the new system is intended to protect.
Finally on ground rents, the government will have its work cut out to marry such opposing viewpoints. Leaseholders want a removal of the 40-year sunset clause while landlords are calling for an indexing of the cap with certain exemptions, giving weight to the old adage that a good compromise is one where no one is happy.
As Labour’s drive to end what it characterises as the “feudal” leasehold system continues to pick up pace, these submissions represent compelling considerations that the government will need to address when bringing forward any forthcoming legislation. Without recalibration, the draft Bill risks entrenching the very inequities it seeks to dismantle: destabilising the market it is intended to improve and leaving leaseholders no closer to meaningful relief.
This article was originally published in Estates Gazette, read here.
