Government publishes proposals for major reform of residential leasehold in England & Wales

Heralded by the Prime Minister's TikTok video, the Ministry of Housing, Communities and Local Government has today (perhaps slightly earlier than anticipated) published details of its proposals for major changes to the system of ownership of residential property in England & Wales. 

The Bill aims to move residential flat ownership away from the so-called “feudal” leasehold system by mandating the use of an improved version of commonhold tenure and banning most new leasehold flats, capping existing ground rents along the way.   

A brief summary of the reforms proposed:  

Commonhold reform (making it workable and the default): 

The Bill repeals and replaces the 2002 commonhold regime, seeking to simplify registration, enable mixed‑use or multi‑block commonhold schemes, improve the commonhold community statement, streamline dispute resolution, and to create a route to conversion from leasehold to commonhold ownership for existing blocks.

Cap on ground rents (including existing leases): 

There will be a cap on ground rents of £250 per year, switching to a peppercorn after 40 years, for pre‑2022 Act leases. This is expected to come into force in late 2028. Any leases granted since the Leasehold Reform (Ground Rent) Act 2022 was implemented cannot reserve a ground rent. 

 Abolition of forfeiture and new enforcement regime: 

The landlord’s right to forfeit a long residential lease for breach is to be abolished and replaced for specified breaches of covenant (not all) with a statutory enforcement scheme allowing a court to order proportionate remedies (e.g., remedial orders or orders for sale). 

Ban on most new leasehold flats (grant or assignment): 

The Bill introduces a statutory ban on the grant or assignment of most new long residential leases of flats once the legislation is in force, with limited exemptions (“permitted leases”) supported by marketing/warning notice rules, trading standards enforcement, and redress. This is to make commonhold the default legal tenure for new flats, save for exceptional cases.  To reinforce this policy, assignments of prohibited new long leases of flats are also to be restricted. MHCLG are consulting on these proposals until 24 April: Moving to commonhold: banning leasehold for new flats — GOV.UK.

Estate rentcharge reform: Sections 121 and 122 of the Law of Property Act 1925 (which allow for disproportionate remedies for non-payment) will be repealed, and specific notices will be required before enforcing estate rentcharge arrears.

The stated aim of the Bill is to deliver a fairer, more modern system for existing and future homeowners in England and Wales by removing some of the well-publicised problems experienced by residential leaseholders. But, of course, there will be consequences for landlords arising out of restrictions on traditional remedies and for investors impacted by the diminution and eventual abolition of any rental income from residential leaseholds.  

We expect to publish more detailed commentary when we have had time to consider the draft Bill and the associated consultation. Please get in touch with your usual contact at Burges Salmon if you would like to discuss any of the proposals outlined above. 

The draft Commonhold and Leasehold Reform Bill will bring forward reforms designed to modernise, strengthen and reinvigorate the commonhold and leasehold framework

https://www.gov.uk/government/publications/draft-commonhold-and-leasehold-reform-bill