Leasehold System Reform: What’s Coming in 2025
The government has committed to significant leasehold system reform in England and Wales, promising major property ownership changes. New legislation is expected to take effect in 2025. Its goal is to give leaseholders more rights, protections, and control over their homes. In this article, we will explore the details of the proposed changes. We’ll also examine their impact on homeowners and the property market.
The Current Leasehold System: An Overview
Leasehold ownership has long been a feature of the property landscape in England and Wales. In fact, approximately 72% of all leasehold properties in England are flats. A freeholder owns the land where the property is built under a leasehold arrangement, while the flat owner holds a lease for a specified period—usually many decades or even centuries. However, the flat owner may still need to pay a service charge that covers building maintenance, repairs, insurance, and other shared costs.
While leasehold has been an established system, it has also attracted significant criticism over the years. Many describe the leasehold system as outdated and feudal. It often leaves leaseholders exposed to rising ground rents and unfair charges. The government plans to introduce reforms aimed at modernising the system. Consequently, properties will transition to freehold or commonhold ownership.
The Government’s Plan for Reform: Leasehold System Reform
In response to widespread concerns, the government has set out clear goals for reforming the leasehold system, including the introduction of new laws that will empower leaseholders and provide them with greater control. Last year, the government published its intentions to introduce sweeping changes, and deputy prime minister Angela Rayner recently reiterated that new legislation is expected to be introduced within the current parliamentary year. This will involve a range of measures aimed at tackling the issues currently faced by leaseholders.
Simplifying the Right to Manage
One of the key areas of reform is the right to manage. Currently, leaseholders can take control of the management of their building through the ‘Right to Manage’ process, but this is often complex and expensive. Under the forthcoming reforms, the process will be simplified to make it easier for leaseholders to take over management responsibilities from freeholders. Leaseholders claiming this right will no longer need to cover the freeholder’s legal costs in most cases. As a result, it becomes a more accessible option for homeowners in mixed-use buildings.
Removing the Two-Year Rule
Under the Leasehold and Freehold Reform Act, another significant change is the removal of the existing two-year rule. At present, leaseholders must wait for at least two years after purchasing a property before they can extend their lease or exercise their right to buy the freehold. The reform will eliminate the waiting period. As a result, leaseholders can act sooner and secure more favourable terms.
The Rise of Commonhold: A Key Component of the Reforms
One of the most notable aspects of the upcoming reforms is the proposed move towards commonhold as an alternative to leasehold. The government has announced plans to phase out leasehold for new-build flats and instead sell these properties on a commonhold basis.
What Is Commonhold?
Commonhold allows flat owners to hold a freehold interest in their units. Additionally, they jointly own and manage the shared areas. In commonhold, there is no fixed lease term, and owners of individual flats or units become members of a commonhold association. The association manages and maintains the communal parts of the property. This includes the structure, external areas, lifts, and stairs.
Each unit owner in a commonhold property can participate in decision-making. They vote on key matters, such as appointing directors and approving improvements. This system offers flat owners greater autonomy and more control over the management of their properties compared to the traditional leasehold model.
The Benefits of Commonhold Ownership
Commonhold ownership offers several advantages over leasehold, most notably the ability to avoid escalating ground rents and long-term lease concerns. Unlike leasehold, where the lease term can run out, potentially leading to a decrease in property value, commonhold allows owners to retain indefinite ownership of their units. The system encourages a collaborative approach to property management. Furthermore, unit owners work together to maintain shared spaces and the building.
Although commonhold is already a widely adopted system in countries such as the United States and Australia, it remains relatively rare in England and Wales. The government’s upcoming reforms aim to modernise the commonhold framework. This will ensure it works effectively for all flats and buildings.
The Commonhold White Paper and Consultation: Leasehold System Reform
In addition to the planned leasehold ownership reforms, the government will publish a white paper on commonholds in the coming months. This document will outline proposed changes to the commonhold framework. It will also detail how the system can modernise for today’s property market. The white paper will provide a roadmap for the leasehold to commonhold transition. It will address challenges and outline legislative changes.
As part of this process, the government is expected to launch a consultation aimed at banning the sale of new leasehold flats. Under this new proposal, developers will no longer be able to sell new flats as leasehold, and instead, properties will be sold under the commonhold system. The consultation will also consider banning the sale of new houses under leasehold tenure. This practice has been controversial in recent years.
Timeline for Implementation: What to Expect
While the proposed reforms are still in the planning stages, they are expected to be implemented gradually over the next few years. Homebuyers and property investors looking to purchase flats in England and Wales should note the changes won’t take effect immediately. However, they will come into force eventually. The new legislation will phase in over time. Therefore, new properties will not immediately phase out leasehold ownership.
However, once the reforms take effect, they will significantly impact the property market. For leaseholders, the ability to extend leases, purchase freeholds, and manage properties through commonhold ownership will provide greater security and control. The removal of fees and restrictions on the Right to Manage will benefit leaseholders. This change will reduce their financial burden.
The Future of Property Ownership: Looking Ahead
The proposed reforms to the leasehold system will transform property ownership in England and Wales. The reforms offer greater protections for leaseholders and promote commonhold ownership. Additionally, they provide easier routes to purchasing freeholds.
For prospective homebuyers, investors, and property owners, these changes represent a positive shift in the way property is managed and owned. However, it is important to stay informed about the latest developments, as the details of the reforms will continue to evolve over the coming months. The government is working to introduce these legislative changes. As a result, property ownership will prioritise fairness, transparency, and homeowner control.
Stay up-to-date with the latest leasehold and commonhold reforms by following government announcements. Additionally, check property news outlets for details.
Conclusion: A New Era for Property Ownership in England and Wales
In conclusion, the reforms to the leasehold, freehold, and commonhold systems mark a significant move towards modernising property ownership in England and Wales. The government is reforming leasehold arrangements and promoting commonhold ownership. This will give leaseholders more control, protections, and flexibility. The new legislation will take time to come into force. However, these reforms signal a positive shift towards a fairer, more transparent property market. For those looking to buy or invest in property, staying informed about these changes will be crucial as the landscape evolves in the coming years.