Outright ban on new leasehold flats in England and Wales moves closer

The UK and Wales are on the verge of a major reform as the government plans to ban new leasehold apartments, aiming to completely transform the homeownership system. This move is designed to bring the UK's homeownership model more in line with the rest of the world, shifting towards a model known as "commonhold." This transition aims to modernize property ownership and empower homeowners.

Currently, under the leasehold system, a third-party owner (i.e., the freeholder) owns the building, while leaseholders purchase the right to live in an apartment for a fixed term. The government hopes to give homeowners ownership and control over the buildings they live in by promoting commonhold. However, freeholders argue that the leasehold system is the most efficient way to manage large and complex apartment buildings. This debate highlights the complexities of reforming the existing property ownership structure.

The government has not yet announced specific plans for converting existing leasehold properties to commonhold, but has stated its determination to simplify the process. A white paper released on Monday clearly states that the sale of new leasehold apartments will be prohibited, and commonhold will be "revitalized" through a new legal framework. A draft of the Leasehold and Commonhold Reform Bill is expected to be published later this year, detailing how the new system will operate. This legislative action signals a significant shift in housing policy.

Housing Minister Matthew Pennycook stated that the current leasehold system is "inherently unfair" and needs to be reformed to give leaseholders better control over their homes and related costs. Many existing leaseholders feel they lack control over the costs of external repairs and maintenance of the building. Approximately 1,000 people contacted the BBC to express their concerns following a BBC investigation into leasehold apartment service charges last year. These concerns underscore the need for greater transparency and accountability in property management.

Many leaseholders are facing the predicament of rising service charges. Kasia Tucker, who bought a one-bedroom apartment in Southall, West London, saw her service charge bill increase from around £65 per month in 2022 to over £200 per month this year. She feels helpless, unable to afford these costs, and says she may have to sell the apartment or face homelessness. Another leaseholder, Jane Hopkin, said that the service charges on her three-bedroom apartment in Sheffield had risen by 356% in four years, from £106 to £483 per month, making the apartment difficult to sell. Janie Baker in Southampton is also struggling to find a buyer due to "unreasonable" service charges, which have reached as high as £7,200 per year. These real-life examples illustrate the financial strain leaseholders are experiencing.

Companies managing these buildings say that rising costs are due to legitimate expenses such as rising energy prices and inflation rates. However, many leaseholders believe these fees are unfair. Under the current system, freeholders or landlords have the right to appoint management agents. The government says that under the commonhold system, residents will have greater autonomy over their payments and who is appointed to carry out maintenance. This shift aims to empower residents and ensure fair and transparent property management.

Natalie Chambers, director of the Residential Freehold Association (RFA), said that these measures "should not be seen as a trade-off between leasehold and commonhold." She argues that millions of leaseholders are happy with their current leasehold rights and that the leasehold system is the most efficient way to manage large and complex apartment buildings. She added that the commonhold system means "residents will face greater financial and legal responsibilities, responsible for the upkeep and management of the block." This perspective highlights the potential challenges and responsibilities associated with commonhold ownership.

The National Leasehold Campaign (NLC) expressed "delight" at the announcement and called today's white paper an important step forward. But NLC founder Katie Kendrick said it is "crucial" that those currently living in leasehold buildings are not forgotten. She stated: "While focusing on preventing future leasehold abuses, it is equally important to address the plight of existing leaseholders currently trapped in an unfair system. A commonhold conversion mechanism is essential to provide an escape route for those who are trapped." This emphasizes the need for a comprehensive approach that addresses both current and future leasehold issues.

Pennycook stated that the government will "continue to implement reforms to help the millions of leaseholders who are currently suffering." He told the BBC: "We don't want a two-tier system." He added that the government will introduce a system that is "very easy" to implement, allowing "leaseholders in all existing blocks to convert to commonhold," with draft plans to be published later this year. He acknowledged that once new leaseholds are banned and a new system for converting existing leaseholds to commonhold is introduced, there will be a "residual of existing leasehold blocks," but said that these remaining leaseholders will still have "greater protections." This commitment aims to ensure a fair and equitable transition to the new system.