In Detail, In Brief: Ending the Feudal Leasehold System

In 2024, nearly 30% of home sales in Bristol South were on leasehold properties

For far too many leaseholders in Bristol South, the reality of home ownership falls woefully short of the ideal they were promised. Escalating service charges, opaque fees and poor management can be daily stresses with many leaseholders feeling disempowered and at the mercy of a system that feels like it is extracting value from them rather than allowing them to enjoy the home they have dreamed of. Nearly 30% of home sales in Bristol South in 2024 were on leasehold properties so this is an issue that touches thousands of people in this constituency.

In our 2024 Manifesto, Labour promised to bring the feudal leasehold system to an end, and this year's King's Speech saw the announcement of The Commonhold and Leasehold Reform Bill following the publication of draft legislation earlier this year.

One of the most significant features of the Bill will be to end the sale of new leasehold flats, making commonhold the default tenure. While commonhold is rare in the UK at the moment, it is a model of ownership that is used in many places around the world, placing ownership and control in the hands of residents. Under commonhold, no ground rent is payable, stopping funds from being siphoned off to a freeholder who is providing no service, and owners are able to exercise much greater control over how their building is run.  

Much of the discussion around the publication of the draft bill centred on how existing leasehold agreements will be treated and what additional measures can be put in place to protect leaseholders from the unscrupulous practices that have hit the headlines in recent years.

The Bill will significantly lower the threshold for converting from leasehold to commonhold; under the Bill, the conversion to commonhold will be able to be initiated with the agreement of 50% of leaseholders where currently unanimous agreement is required. It also introduces practical provisions to manage the transition where some leaseholders do not initially consent. The Bill will abolish the draconian forfeiture regime meaning that no one should be thrown out of their home for defaulting on service charge payments. Ground rents will also be capped at £250, moving to a peppercorn rent after 40 years.

The Government is also in the process of implementing a raft of reforms introduced under the Leasehold and Freehold Reform Act 2024 passed under the last Government. Some measures have already come into effect, including removing the requirement for leaseholders to wait two years before extending a lease or buying the freehold, as well as the introduction of regulations on how leaseholders can exercise the Right to Manage (RTM) allowing them to take back control from a failing management company.

Further measures in the 2024 Act will work to bring down the cost of enfranchisement, including by scrapping marriage value — an additional premium which can make it significantly more expensive for leaseholders with shorter leases to extend their lease or buy the freehold.

Work is also ongoing following a consultation on strengthening leaseholders’ protections with respect to service charges, with proposals to mandate professional qualifications for managing agents, require the use of properly managed reserve funds to help towards the cost of major works as well as standardised service charge demands so that management companies have to be transparent about how leaseholders’ money is being used.

Some have criticised the Government’s approach for being insufficiently radical. In reality, winding down the feudal leasehold system requires careful work to ensure that new arrangements work in practice and don’t compromise on building safety and maintenance. We also know that freeholders will look to challenge any reform in order to protect their financial interests. Making sure that any changes are robust against legal challenge will give leaseholders confidence that there is a secure route to having the control over their home that they desire.

The Government’s approach strikes the right balance between ensuring a stable and orderly transition to the new system whilst also moving quickly to address the worst excesses of the current system and offering concrete routes for leaseholders to escape from exploitative arrangements.