Four key changes proposed in the published Commonhold and Leasehold Reform Bill and why they matter

Existing ground rents will be capped at £250 per year, reducing to a peppercorn (a nominal rent or a token amount) after 40 years. This may come into force in 2028. 

Why it matters

• Leaseholders will benefit from lower ongoing costs and reduced exposure to escalating ground rents.
• Crucially, it will reduce premiums payable for lease extensions and freehold purchases where the ground rent is higher
• Freeholders and investors may see a reduction in income from ground rents.
• Lenders may benefit from the removal of onerous ground rent provisions.
• There may be a potential impact on pensions funds where reliance has been placed on ground rent investments. A cap could affect pension funds which in turn could detriment some leaseholders. 

In most cases, new flats will be commonhold or freehold rather than leasehold.

Why it matters

• It marks a structural change in how new residential property is owned.
• Commonhold as a default tenure aims to give owners greater control and security.
• It will shift England and Wales to a system which is in use world-wide, including in neighbouring Scotland.

Commonhold is promoted as the default tenure with easier conversion requirements than the current 100% agreement rule, which currently requires all leaseholders and their lenders to consent before a building can convert to commonhold. Commonhold community statements will set out repair and maintenance obligations, rights on expenses and control of management and budgeting.

Why it matters

• Commonhold becomes a more practical alternative to leasehold.
• There will be increased transparency and control for property owners.
• Practitioners will need to adapt to a tenure that has seen limited use so far.

The draft Bill proposes abolishing forfeiture where a breach has occurred, such as service charge arrears or failure to maintain property. It will be replaced with a softer system which includes similar provisions to remedy the breach, ultimately leading to a forced sale via a court order. The freeholder will no longer repossess the flat, with the proceeds of sale instead being used to pay off professional costs related to the sale and service charge arrears if these form the breach, with the remainder applied to settle any mortgage. 

Why it matters

• Leaseholders will gain greater security of tenure.
• The risk of losing a home for certain breaches is removed.
• Lenders may view properties as lower risk without the threat of forfeiture.

As this is a draft Bill, it forms part of a consultation process involving industry experts and consumer groups. We will then await the final Bill and details on implementation, which are likely to be staged.

The draft Commonhold and Leasehold Reform Bill is available on the Government's website here.