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17/12/25 3:30 pm
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What’s happening and when?
While successive governments have committed to reforming the leasehold system, progress has been very slow. That’s because it’s more complicated than many leaseholders, ministers and campaign groups expected.
Labour entered government pledging to completely reform the leasehold system away from what it described as an “outdated and unfair” feudal tenure system. However, translating political commitments into workable legislation has proven significantly more challenging than their promises suggested.
One of the main reasons for the delay lies in the legal and financial complexity of leasehold itself. Unlike many areas of housing policy, leasehold is deeply embedded in centuries of property law, contractual rights and investment stakes.
Reforming it requires balancing consumer protection with the preservation of legally enforceable property rights, many of which are held by pension funds, insurance companies and other powerful institutional investors.
The leasehold system is deeply rooted in the historical development of land ownership in England and Wales. Its origins lie in the feudal land structure established after the Norman Conquest of 1066, when all land was ultimately owned by the Crown and granted down through a hierarchy of tenants and tenures.
By the eighteenth and nineteenth centuries, leasehold had become more of a practical urban development tool. Large, landed estates, particularly in London and other growing cities, used long leases – often 99 or 125 years - to allow development, while enabling aristocratic landowners to retain long-term incomes and control (ownership) of their estates.
Areas such as Belgravia, Mayfair and parts of Bloomsbury were built almost entirely using leasehold structures. The system allowed estate owners to impose building maintenance standards, control land use and ensure that valuable urban land would always revert to the estate at the end of the lease term.
In today’s housing market, where transparency, consumer protection and long-term security are increasingly expected, leasehold comes under scrutiny. Critics argue that for leaseholders it creates complexity, high costs and power imbalances. These concerns resulted in calls for reforms and a renewed push for a better system. This is where commonhold as a potential replacement ownership model comes in.
Government policy therefore is moving steadily towards reducing reliance on leasehold and encouraging commonhold as the default ownership model for flats and other multi-occupancy developments.
For landlords, leaseholders, freeholders and institutional investors, the reforms will significantly alter their interests, property values, income streams and long-term investment strategies. While the change of policy aims to improve fairness and transparency for homeowners and leaseholders, it will also reshape the economics of residential property ownership.
Leasehold ownership involves buying the right to occupy a property for a fixed period, while the freeholder retains ultimate ownership of the land and building. Historically, this structure has been widely used for flats, but in recent decades it was increasingly applied to houses, sparking much criticism as some developers abused the system.
Consumer groups, politicians and industry stakeholders raised concerns about alarmingly escalating ground rents, opaque service charges, expensive lease extensions and the threat of forfeiture for relatively minor breaches of lease terms. Leaseholders have also historically faced complex and costly legal processes when attempting to extend leases or collectively purchase the freehold of their buildings and some found the resale value of their properties severely diminished.
The first major reform to leasehold in modern times came under the Conservatives: The Leasehold Reform (Ground Rent) Act 2022, effectively banned ground rents on most new residential leases, reducing them to a peppercorn (effectively zero). This reduced the attractiveness of creating new leasehold incomes for developers and investors.
The next stage came again under the Conservatives: The Leasehold and Freehold Reform Act 2024. This introduced changes designed to strengthen leaseholder rights. These include allowing leaseholders to extend their leases to 990 years with zero ground rent, removing “marriage value” from lease extension calculations, and abolishing the requirement that leaseholders must have owned their property for two years before extending a lease or purchasing the freehold.
The Act also introduced greater transparency around service charges and banned the creation of most new leasehold houses as opposed to apartments / flats. However, some provisions of this Act still require secondary legislation to implement them.
In January 2026, the Labour government published a draft Commonhold and Leasehold Reform Bill which signals a longer-term shift towards making commonhold the default tenure for flats. The draft legislation proposes further limitations on ground rents, including a cap on existing leases. This resulted in a recent government announcement that ground rents were to be capped at £250.
The draft proposals also seek to simplify the process of converting existing leasehold buildings into commonhold and to replace forfeiture powers with “more proportionate enforcement mechanisms”. The government has also consulted on banning the use of leasehold for new flats entirely in the future.
Ground rent has traditionally provided a predictable income stream for freeholders and institutional investors – insurers and pension funds. Proposed caps and eventual removal of ground rent will significantly reduce the value of these investments creating a major issue for these stakeholders. For landlord-leaseholders, however, lower or eliminated ground rents will be welcome and could improve profitability and increase their property’s liquidity.
Reforms reducing costs and simplifying procedures for lease extensions and collective enfranchisement could allow more leaseholders, including buy-to-let landlords, to gain greater control over their buildings. This may improve long-term asset security for these landlords while reducing income streams for freeholders.
New requirements to provide transparent service charge accounts are intended to improve trust between landlords, managing agents and leaseholders. While beneficial for leaseholders, these requirements may increase administrative costs for landlords and managing agents.
The removal or reform of forfeiture powers will reduce the ability of freeholders to reclaim properties following breaches of lease conditions. While seen as a fairer approach by campaigners, freeholders and indeed commonhold associations may view this as weakening enforcement powers.
Clearly, private leaseholders and buy-to-let landlords who own leasehold properties are likely to benefit from reduced ground rents and easier lease extensions. Longer leases can increase property values and improve mortgage availability. Greater rights to challenge or manage service charges may also reduce costs where management standards are poor. However, commonhold arrangements may introduce new governance responsibilities.
Freeholders face the most significant changes. The removal or reduction of ground rent income, combined with easier enfranchisement rights, may reduce the long-term value of their freehold investment portfolios. Freeholders may also lose control over building management as leaseholders gain more power.
It is unlikely these reforms will happen overnight. They will likely be gradual. Existing leasehold arrangements will most likely continue for many years, and some freeholders may even find opportunities in managing commonhold developments or providing professional management services.
Institutional investors have traditionally viewed ground rent portfolios as low-risk, long-term dependable income investments. Reforms threaten this business model, potentially leading to reduced asset valuations and a reduced appetite for these safe leasehold-based investments in the future.
It is possible, on the other hand, that commonholds could create a standardised and more transparent ownership model that would attract different forms of institutional investment, particularly where professional management services are clearly defined.
Commonhold will allow flat owners to own their individual units outright, while jointly owning and managing communal areas through a commonhold association. Unlike leasehold, there is no ground rent, and ownership is akin to freehold, that means indefinite ownership.
Commonhold eliminates many structural conflicts inherent in leasehold ownership. Property owners have direct control over their building’s management, and there is no external landlord extracting value. It means common holders have an incentive to maintain the building properly while keeping costs low and increase transparency. Commonhold also completely removes the effect of diminishing lease terms affecting property values.
Converting existing leasehold buildings can be legally and financially complex, particularly where multiple leaseholders or mixed-use developments are involved. Despite its introduction under the 2002 Commonhold and Leasehold Reform Act, commonhold has struggled to gain any traction.
Commonhold governance also relies on collective decision-making, which can be challenging in large or diverse developments. Disputes between unit owners may become more difficult to resolve when neighbour is pitched against neighbour, without a central freeholder.
Property owners should review their portfolios considering potential ground rent caps and lease extension reforms. They should consider whether participating in enfranchisement or exploring commonhold conversion could improve their long-term asset value. Building relationships with other leaseholders and understanding evolving governance rules is important.
Monitor the government’s programme of secondary legislation and implementation timetables carefully, as these details will determine the financial impact of reforms.
Leasehold reform represents a fundamental shift in how residential property (particularly apartments / flats) is owned and managed in England and Wales. While the reforms are intended to improve fairness and transparency, they will inevitably create winners and losers across the leasehold property sector.
Commonhold appears likely to play a much larger role in the future, particularly for new flat developments. However, the transition from leasehold to any new structure such as this is likely to be slow and take many years. It may yet involve significant legal, financial and operational challenges.
For landlord leaseholders and investors, adapting early and understanding the evolving regulatory regime will be key to protecting and enhancing their property values.
UK Parliament Commons Library – Leasehold reform in England and Wales: What’s happening and when?
https://commonslibrary.parliament.uk/leasehold-reform-in-england-and-wales/
GOV.UK – Draft Commonhold and Leasehold Reform Bill
https://www.gov.uk/government/publications/draft-commonhold-and-leasehold-reform-bill
GOV.UK – Beginning of the end for the feudal leasehold system
https://www.gov.uk/government/news/beginning-of-the-end-for-the-feudal-leasehold-system
GOV.UK – Reforming the leasehold and commonhold systems consultation outcome
https://www.gov.uk/government/consultations/reforming-the-leasehold-and-commonhold-systems-in-england-and-wales
Leasehold Reform (Ground Rent) Act 2022 overviewhttps://www.legislation.gov.uk/ukpga/2022/1/contents
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