Last week Labour published its Leasehold and Commonhold Reform Bill. It is an unquestionable triumph. Ground rents are capped at £250, commonhold is reinvigorated as a realistic tenure, and issues around forfeiture are put to rest.
Most importantly, it sets out a new mechanism for leaseholders to convert to commonhold without the previous requirement to have unanimity between all residents.
This week is the start to the end of this nightmare, but it is a complex route. It will be up to leaseholders to transition buildings over to commonhold one-at-a-time, and this will be easier on some sites than others.
The Government has also clearly set out a different strategy for reform than their Conservative predecessor. While the Tories set out most of their reforms in two pieces of legislation, the Ground Rent Act (2022) and the Leasehold and Freehold Reform Act (2024), Labour’s programme is running on bespoke tracks, with varied primary and secondary legislation to address the wide variety of issues within leasehold.
So, taking a step back, what is Labour doing to end the leasehold nightmare and what will these changes mean for residents?
What is Commonhold? And how does Labour’s Bill change it?
Currently, most flat owners in the UK are leaseholders. They own everything within the walls of their home, but the overall site is owned by a ‘freeholder’, usually a larger company like a developer or a pension fund. This freeholder is responsible for shared communal areas, and the overall building.
Freeholders can appoint whatever organisation they want to manage the building (a ‘managing agent’), who often charge high fees while delivering a poor service. And freeholders themselves are often unresponsive and fail to act proactively to respond to leaseholders’ needs.
Commonhold is an alternative model introduced by Labour in 2002. Homeowners collectively own the whole site, and decide on things like which managing agents to appoint collectively.
However, a number of issues with commonhold mean that it was not widely adapted. It requires the consent of all leaseholders and their mortgage lenders, and there are a number of governance issues with commonhold that make it difficult for homeowners to manage buildings effectively.
Finally, without any incentive to build commonhold sites, developers have almost never done this, and instead can either keep the freehold to take some income themselves, or sell this off to another organisation.
Labour’s Bill fixes commonhold in three key ways:
- It bans all new leasehold flats except in exceptional circumstances, on which the Government is consulting currently.
- It introduces a new mechanism by which leaseholders can convert to commonhold with 50% of leaseholders consenting (or with unanimity if less than 50% of residents are ‘qualifying leaseholders’, such as in shared ownership blocks or where a freeholder lets out flats within a block).
- It has a wide array of fixes to commonhold which sort out its governance issues, from helping to appoint directors, to regulating dispute resolution and ensuring more responsible governance.
This will allow substantially more blocks across the UK to convert to commonhold, as thousands of sites have already reached the 50% threshold for other mechanisms within leasehold, such as collective enfranchisement and obtaining the Right to Manage.
What else is Labour doing on leasehold?
Within the Bill there is a lot more to be excited about. The ground rent cap will lower costs for nearly a million leaseholders paying over the £250 level, as well as eliminating the issue of homeowners being unable to sell properties with escalating ground rents. The new framework for forfeiture will prevent freeholders from being able to repossess homes for minor breaches of contracts or debts as low as £350.
The Housing Minister Matthew Pennycook also confirmed further primary legislation to make it easier for leaseholders to renew or ‘buy out’ their lease through reforms to the process of setting valuation rates.
And, outside of the Bill, Labour is acting to fix leasehold.
In order to tackle escalating service charges, new regulations are pending which will see a new regulatory regime for managing agents, increased transparency and scrutiny of costly major works, and a ‘right to veto’ managing agents which will make it easier for leaseholders to both request a change of managing agent and to decline a freeholder’s suggestion.
And a response is also pending to a consultation held over the winter period for freehold owners paying service charges on unadopted communal infrastructure (otherwise known as ‘fleecehold’).
After this – what will the challenges be?
Three main challenges exist for the Government less in enacting this reform.
First are the courts, the major residential freeholders are famously litigious and have already successfully held up delays to leasehold reform over the past year through launching a judicial review. While the appetite for further action is uncertain, the risk is present for freeholders to attempt this again, particularly over measures retroactively capping ground rent and overriding existing leases.
Second will be ensuring a smooth transition for the leaseholders who do want to move to commonhold. Getting rid of often distant, unresponsive and exploitative freeholder will be a huge improvement in the lives of millions of leaseholders. But shifting to making complex decisions about building management and safety in partnership with your neighbours also has difficulties. Reems of advice and support will be needed for new commonholders, particularly in blocks which do not have a long history of collective enfranchisement.
And finally will be what remains for the leaseholders who cannot convert. Even the reinvigorated commonhold, shared ownership will still be a separate permitted lease, and many blocks struggle to reach the threshold of 50% support for changes such as the Right to Manage because a large portion of the block are buy-to-let landlords. The Government does have an extensive reform programme to make leasehold fairer for these cohorts, but it will be worth monitoring the conversion process to see what more can be done for them.
Labour’s Commonhold Bill is the biggest change to housing law in years, and fundamentally challenges the concept of land and housing as an asset which underpins much of our problematic housing system. Such a bold change will require political will and expert attention to get right, and it is up to all of us in the Labour movement to get it over the line.