Last but not leased? Commonhold to replace leasehold in latest Government plans
HM Government have said in their press release on capping Ground Rents – “New leasehold flats will also be banned and homeownership strengthened thanks to groundbreaking legislation that will give people control over their homes and calls an end to the feudal leasehold system which dates to medieval times”.
This builds on the Leasehold and Freehold Reform Act 2024 which seems to have already removed the ability to create new leases of houses in S.1 of that Act. This means we might be staring down the barrel of a brave new world without leasehold property.
The question is, what does this mean? It seems likely that, if the legislation goes through, we will see flats becoming part of what the Government is calling “a revamped commonhold model”. This is, essentially, where you have the freehold of part of a building with shared ownership of and responsibility for common areas and services. Interestingly though, as of 30 June 2023, there were only 184 registered commonhold properties (despite being around since 2004); this represents less than 0.01% of the total housing stock. The question, therefore, is: if it is so good, why has it not been used more?
It is likely that this is partly because new build developers would favour a leasehold model. It is, however, also true that many leaseholders have preferred to go down the more well-trodden share-of-freehold route (where you form a company to co-purchase your freehold and give yourself a 999-year lease), some leaseholders actually do not want to have to co-own and manage a building and there is probably some general reluctance towards embracing the unknown.
There are definitely opportunities for leasehold to be reformed. There is a discussion to be had regarding ground rents and there are currently unnecessarily complicated tax issues when extending leases that form part of a share-of-freehold which, if not navigated correctly, can create penal Capital Gains Tax consequences on a surrender and re-grant of an existing lease There is a question, however, over whether removing leasehold altogether is the sensible alternative.
We have lots of case law and societal experience with them, meaning that leases are known entities that have worked in some shape or form for hundreds of years. Just because leasehold’s origins are medieval (as are the origins of many of the UK’s institutions and laws), it does not make them inherently flawed.
We may also see the law of unintended consequences play out, based on a strict reading of the legislation and proposals. For example, families will seemingly no longer be able to create leasehold interests as part of tax planning initiatives, for example,by granting a long lease of a property from one trust to another. It is also going to be interesting to see how the owners of leasehold properties find being responsible for coordinating the maintenance and management of their buildings which, especially on larger buildings, may be much more of a headache than simply relying on a landlord and a service charge.
These are bold proposals from the Government. This may, however, turn into a much more complicated change than they think with consequences that were not anticipated. There is a consultation open until 24 April 2026 but, it is difficult to say what will come out of that and the direction of travel generally is certainly away from a leasehold model.
A quick interesting note to end on is that the truly “feudal” form of land tenure, copyhold, was actually abolished just over 100 years ago by the Law of Property Act 1925. If anyone wants to really know about feudal land ownership, that is the one to look into!
