Written Statement by the Minister of State for Housing and Planning - Jan 27

Minister for Housing and Planning (Matthew Pennycook): As a government, we made a clear and unambiguous commitment in our manifesto to act where previous governments had failed and finally bring the feudal leasehold system to an end. We did so on the basis of a firm conviction that it is only by extinguishing fully the historical iniquities on which the present leasehold system rests that we can ensure that the dream of home ownership is made real for millions of households across the country.

Today, the government has published the Commonhold and Leasehold Reform Bill in draft for pre-legislative scrutiny by the Housing, Communities and Local Government Select Committee. This historic moment marks the beginning of the end for the feudal leasehold system that has tainted the dream of homeownership for so many.

The draft Bill will transform the experience of homeownership for millions of leaseholders across the country, modernise property law and deliver a modern housing market. It includes the following key provisions:

• A new legal framework for commonhold to reform and reinvigorate this radical improvement on leasehold ownership;
• A statutory restriction on new leasehold flats to ensure that in future commonhold is the default tenure;
• A new process for converting to commonhold aligned with wider enfranchisement processes to make conversion possible when at least 50% of qualifying leaseholders agree;
• The abolition of leasehold forfeiture as a means of ensuring compliance with a lease agreement and its replacement with a fairer system;
• The repeal of draconian powers relating to rentcharges on freehold estates; and
• The capping of ground rent for older leases at £250 per year, changing to a peppercorn after 40 years.

Reinvigorating commonhold

The draft Bill builds on the publication of the Commonhold White Paper in March last year, which confirmed the detail of our commonhold reform programme and responded to the Law Commission's thorough and expert review of commonhold law.

Commonhold is a modern homeownership structure that is used widely around the world. It is not merely an alternative to leasehold ownership, but a radical improvement on it. At the heart of the commonhold model is a simple principle: the people who should own buildings, and who should exercise control over their management, shared facilities and related costs, are not third-party landlords but the people who live in flats within them and have a direct stake in their upkeep.

In enabling flats to be owned on a freehold basis, commonhold ensures that the interests of homeowners are preserved in perpetuity rather than their value depreciating over time as it does under leasehold, and it transfers decision making powers to homeowners so they will have a greater say over how their home is managed and the bills they pay, as well as flexibility to respond to the changing needs of their building and its residents.

Commonhold was introduced in England and Wales in 2004 through the Commonhold and Leasehold Reform Act 2002, but for a variety of reasons it failed to establish itself and as a result there are fewer than 20 commonhold developments in existence today. The 2002 legal framework also quickly became outdated owing to the fact it was ill-suited for use in larger or mixed-use developments.

The draft Bill will reinvigorate commonhold through the introduction of a comprehensive new legal framework based on the vast majority of the recommendations made by the Law Commission in their 2020 report. It will enable commonhold to be used in the widest possible range of settings, enhancing the rights and protections of consumers while also supporting the needs of developers and lenders.

Banning new leasehold flats

To ensure that commonhold becomes the default tenure, the draft Bill also includes provisions to ban the use of leasehold for new flats. Once enacted, this will ensure that, other than in exceptional circumstances, all flats are provided as commonhold, as is the case in large parts of the world. The provisions in the draft Bill are intended to work in tandem with the ban on the use of leasehold for new houses contained in the Leasehold and Freehold Reform Act 2024 (the 2024 Act).

Alongside the publication of the draft Bill today, we have published a ‘Moving to Commonhold' consultation seeking input from industry and consumers on precisely how we implement the new ban. The feedback received will ensure we can proceed with a smooth transition to commonhold for new flats, while at the same time protecting the supply of new homes and determining whether there is a case for any justified exemptions.

Facilitating commonhold conversion

The draft Bill also includes measures to make it easier for existing leaseholders to convert their buildings to commonhold. The relevant provisions respond to proposals made by the Law Commission to make conversion more accessible by reducing the consent threshold for conversion.

The existing law sets out a process for conversion, but it is one that requires consent from everyone with an interest in the block. This sets an unacceptably high bar and means that commonhold is not achievable if even a single unit owner, lender or the existing freeholder objects. The draft Bill will introduce a new process for conversion, one which brings conversion into line with wider enfranchisement processes and will make conversion possible if at least 50% of qualifying leaseholders agree.

Abolishing forfeiture

The draft Bill also contains a number of vital reforms to the existing leasehold system that the previous government's Leasehold and Freehold Reform Act 2024 left untouched. Chief among them are provisions to end the disproportionate and draconian threat of forfeiture as a means of ensuring compliance with a lease agreement.

For too long, outdated forfeiture laws have allowed landlords to threaten people with losing their home and hard-earned equity over small debts of as little as £350, or any amount if left unpaid for three years. The draft Bill contains provisions to abolish forfeiture and introduce a modern, proportionate lease enforcement system that addresses breaches fairly, with appropriate safeguards and judicial oversight.

Repealing draconian powers relating to rentcharges

To better protect homeowners on freehold estates, the draft Bill will repeal draconian enforcement powers that apply to estate rentcharges on them. These powers, often difficult to find in deeds and poorly understood by buyers, can lead to rentcharge owners taking possession of or granting a lease over a freehold home as a result of small sums outstanding. That is not just unfair – it creates real barriers to home ownership and property sales. The draft Bill will remove those powers and the unnecessary obstacles that drive up costs and uncertainty for freehold estate homeowners.

Capping ground rent

The government is acutely aware that the cost of living remains a pressing concern for leaseholders across England and Wales and that those who remain subject to unfair and unreasonable practices need urgent relief.

That is why last summer we consulted, jointly with the Welsh Government, on a range of proposals to hold landlords and managing agents to account for the services they provide and the charges and fees they levy. At the heart of that consultation were measures to increase transparency over service charges and enhance access to redress, but it also included proposals to reform the section 20 ‘major works' procedure and strengthen regulation of managing agents. We thank all those who responded to the consultation and will set details of how we intend to implement the measures in question as soon as possible.

However, the government is determined to go further to alleviate the cost-of-living pressures facing leaseholders. In our manifesto, we committed to tackling unregulated and unaffordable ground rent charges and the draft Bill honours that commitment.

Historically, ground rents, which often entail no service being provided whatsoever, were of low or nominal value. However, over the past two decades, a practice has developed of freeholders including high and escalating ground rent clauses in leases. Such clauses are causing leaseholders considerable financial strain, and some are unable to sell or re-mortgage their properties as a result.

The draft Bill will cap ground rents at £250 per year initially, changing to a peppercorn after 40 years. This approach (which will apply to most long residential leases not already covered by existing legislation) will provide immediate financial relief for leaseholders with high and harmful ground rents, helping to support leaseholders currently struggling to get a mortgage, and removing unnecessary blockers to buying and selling. The longer-term change to a peppercorn cap will eliminate the two-tier market between new and older leases, delivering a fair and efficient modern housing market.

These reforms will necessarily have effects on existing contractual arrangements and investments, something which this government does not undertake lightly. However, the government has a mandate to tackle unregulated and unaffordable ground rent charges, and our approach has been designed to strike a fair balance between the interests of leaseholders, freeholders and investors, maintaining the reputation of the UK as a safe place to invest.

Rectifying flaws in the Leasehold and Freehold Reform Act 2024

As set out in the Written Ministerial Statement I made on 21 November 2024 (HCWS244), the 2024 Act contains a small number of specific but serious flaws that prevent certain provisions from operating as intended and that need to be rectified via primary legislation.

While not included in the draft Bill, our intention is to rectify those flaws in primary legislation. Among other things, this will allow us to commence the 2024 Act's enfranchisement provisions. Valuation rates used to calculate the enfranchisement premium will be set by the Secretary of State in secondary legislation. We will consult on valuation rates as soon as possible, ahead of commencing the relevant provisions.