Government to Abolish Leasehold System

The government plans to scrap the outdated and expensive leasehold form of property ownership for millions of homeowners.

Under a system dating back hundreds of years, a freeholder owns a property, such as a block of flats, and leases the right to occupy an apartment for a fixed term to a leaseholder.

Leasehold agreements generally include onerous terms, such as expensive service and management charges that often increase throughout ownership. Leaseholders must also seek permission to carry out home alterations.

However, this is set to change as the government wants to abolish leaseholds in favour of commonhold within a year.

Many other countries successfully manage homes through commonhold arrangements.

New law will abolish leasehold

Housing Minister Matthew Pennycook has published a White Paper outlining how newly built houses and flats will come under the new legal framework. A draft Leasehold and Commonhold Bill explaining how the commonhold will work will follow a consultation.

The new system will cover England and Wales, where the White Paper estimates five million homes are leaseholds, of which 3.5 million are flats.

The minister said: "This government promised not only to provide immediate relief to leaseholders suffering now but to do what is necessary to bring the feudal leasehold system to an end -- and that is precisely what we are doing.

"By taking decisive steps to reinvigorate commonhold and make it the default tenure, we will ensure that homeowners, not third-party landlords, will own the buildings they live in and have a greater say in how their home is managed and the bills they pay.

"These reforms mark the beginning of the end for a system that has seen millions of homeowners subject to unfair practices and unreasonable costs at the hands of their landlords and build on our Plan for Change commitments to drive up living standards and create a housing system fit for the twenty-first century."

Tougher rules for agents and freeholders

The minister added that progress is coming as quickly as possible to make buying a freehold or extending a lease cheaper and easier for leaseholders and to make challenging unreasonable service charges more affordable.

A code of practice will set out how commonhold costs should be apportioned to provide transparency and clarity to consumers. The government will also toughen the regulation of managing agents.

Currently, leasehold ownership gives homeowners the right to occupy land or property for a set period, which reverts to the freeholder once the lease expires. Leaseholders don't own their property, and many complain that they are forced to pay potentially escalating ground rents and have a landlord who determines how the building is run and how much the leaseholder must pay in service charges.

Commonhold will allow homeowners to own their properties without worrying about a lease expiring or paying ground rent.

Property owners will join a commonhold association when buying their home. The association will oversee the governance and management of the building unless a managing agent is brought in, which will be accountable to the commonholders, not to a landlord.