Leasehold Reform News: Draft Leasehold and Commonhold Reform Bill announced
Now, this is fairly ‘Big News’ in the residential sector. After months of waiting, the day has finally arrived with the Government introducing the draft Leasehold and Commonhold Reform Bill to Parliament.
While many leaseholders will be overjoyed and relieved, the Housing, Communities and Local Government Secretary, Steve Reed MP, somewhat downplayed the news, describing it as “quite an historic moment for leasehold reform”. He was speaking before Matthew Pennycook addressed Parliament, so perhaps he was deliberately downplaying the bill. I think many commentators will agree that this is most definitely an historic moment for leasehold reform.
Ground rent to go – and to be capped at £250 for all existing leases (from a date to be set)
The headline grabbing change is the capping of ground rent at a maximum of £250, changing to a peppercorn after 40 years – so effectively an abolition. In essence, this means that, once passed through Parliament, nearly one million leaseholders will see their ground rent reduced and nearly five million will know their ground rent will never exceed £250. This change is not set to come in until 2028 at the earliest and may well still attract a challenge to this in the courts (see below).
In recent weeks the government has been subjected to intense lobbying from freehold organisations, led by the Residential Freehold Association, which said that capping ground rent was “wholly unjustified” and warned about potentially serious and negative implications for investors.
On the other side of the fence, there has also been increasingly vocal internal pressure on the Government from ‘Free Leaseholders’, the ‘National Leasehold Campaign’ (NLC) and the ‘Leasehold Knowledge Partnership’ (LKP) with the debate becoming quite fractious at some points. Even the Greens have got involved in the requests for a complete ban on ground rents, something that, for a number of reasons, the government (as it spells out in its policy statement introducing the ground rent cap), knows that it cannot do. We also saw strong representations made by former Deputy Prime Minister Angela Rayner. I am not going to stray wider into current speculation about leadership challenges, but clearly internal politics has had a lot to do with the timing and the nature of this announcement.
In summary, though the government has stuck to its guns and kept to its manifesto promise of delivering a piece of (draft) legislation that tackles ground rents.
The risk and cost of a challenge – (the need to balance speed with care?)
Behind all of this there has been rumour of an intense debate between No.10 and the Treasury, as the risk of ‘getting it wrong’ on ground rents might potentially expose the government to a compensation bill running into billions of pounds. However, as the policy paper shows, the government feels that it has got the balance about ‘right.’ Whether this is the case remains to be seen but as the summary table that accompanies the draft legislation shows, the transitional ‘switch off’ period for all ground rents of 40 years represents a value transfer of around 55 to 61% from freeholders to leaseholders. Clearly advice will have been sought about this around the ‘margin of appreciation,’ and the extent to which the state can control the use of private property rights and ‘market abuses’ as a matter of Human Rights law.
Will there be a challenge? Only time will tell, but a number of the arguments are likely to be similar (but not identical) to those raised in ARC Time v Secretary of State [2005] EWHC 2751. It is quite possible that there could be delays in the implementation of the ground rent ‘switch off’ if there are challenges, and perhaps this is another reason why a time line of two years hence has been set at the outset when the government looks to begin consultation on this legislation.
The government will rightly say that there has been intense scrutiny and consultation not only in the original work of the Law Commission, but also in the ground rent consultation, carried out by the Conservatives in 2023.
Forfeiture no more
The draft bill also abolishes forfeiture, whereby leaseholders can lose their home by defaulting on a debt as low as £350, by introducing a “new, fairer and more proportionate lease enforcement scheme benefitting both leaseholders and landlords.” Finer details of the new system will follow and are as set out in the draft bill.
And what about leasehold in residential property?
Despite ground rent grabbing the headlines, surely the most significant part of the bill is the government’s stated intention “to abolish leasehold within this parliament”. A new consultation has been launched on the banning of new leasehold flats as part of the move to the new, revamped system of commonhold. The new process outlined in the bill will also make it easier for existing leaseholders to convert their property to commonhold.
Crucially, the government says that the new commonhold system will work for all types of development, “as well as mortgage lenders”. The government hopes that the draft bill will help to unlock the housing market for leaseholders, whose sales have been put on hold because of the ground rent terms putting buyers off and concerns from mortgage lenders, which has slowed (some claim stalled) the housing market.
All this and service charges too
On service charges, the government has stated it will make changes following consultation and that announcements will be made over the coming weeks. The so-called ‘fleecehold’ charges have been at the centre of leaseholders’ angst, and we will wait to see the proposed changes when they are announced. These charges affect freehold houses that are subject to a ‘rentcharge,’ effectively imposing a service charge with the legal issue that these are not currently within scope of the First Tier Tribunal where their reasonableness can be assessed (unlike a service charge). There are measures in LAFRA that seek to address this, and the draft bill also seeks to water down the enforcement options under rentcharges, meaning that the threat of taking someone’s title away for unpaid charges of this nature will be removed.
So, where next?
As with all things legislation related, leaseholders and freeholders will need to remain patient for a little longer. The draft bill will now be scrutinised by MPs on the Housing Committee and then will need to make its way through Parliament. It is expected that the ground rent cap could come into force in late 2028, so effectively leaseholders will be waiting for a further three years before changes are implemented.
Commonhold is the biggest sea change in English property law in over 200 years, and we will digest with interest the proposals to make it fully viable. This will supply many of us with hours of happy reading and discussion in the weeks and months ahead.
In the short term this is good news for leaseholders and bad news for portfolio owners, particularly those with ground rents over £250, who will see a significant erosion in value.
In the immediate term, we will have to see how the news of this proposed cap will affect existing calculations and in particular the likely approach to valuation. This is all the more so when considering the proposed deemed 0.1% cap on ground rents for valuation purposes under LAFRA. This is likely to see renewed interest in the enfranchisement.
As ever watch this space.
Mark Chick
Mark Chick is the Joint Head of our expert Landlord & Tenant team.
If you have a query concerning leasehold property, then please contact the experts at Bishop & Sewell’s Landlord & Tenant team by emailing leasehold@bishopandsewell.co.uk or call on 020 7631 4141.
The above is accurate as at Tuesday 27 January 2026. The information above may be subject to change. The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis
