What Happens When Leasehold Flats Get Banned In The UK? What You Need To Know

The UK's property market could be on the brink of a major change, as discussions around banning leasehold flats gain momentum. This has left many homeowners and prospective buyers uncertain about what lies ahead.

England and Wales are set to ban new leasehold flats as part of the government's efforts to reform home ownership. Under the current system, freeholders—third-party landlords—own the building, while leaseholders pay to live in a flat for a fixed period.

The government plans to introduce commonhold, a model widely used elsewhere, which would give homeowners greater control over their properties. However, freeholders argue that leasehold remains the most effective way to manage large, complex apartment buildings.

What's Next When Leasehold Flats Go Away?

The government has not yet released clear plans for changing current leasehold properties to commonhold, but it expresses strong resolve to facilitate this change. A white paper published on Monday revealed plans to stop the sale of new leasehold flats and to boost commonhold with updated laws.

According to the government, we can expect to see a draft of the Leasehold and Commonhold Reform Bill later this year, explaining how the new system will function. These new rules will affect England and Wales. About five million properties are leasehold in England alone, with flats making up roughly 70%.

Housing Minister Matthew Pennycook explained to the BBC that the current system is 'inherently unfair' and changes are necessary to provide leaseholders with 'better control' over their residences and expenses.

Those currently holding leases may feel powerless regarding the costs of exterior building upkeep and fixes. '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,' said Pennycook.

According to The Guardian, this change is the result of 'years of complaints' from leaseholders concerning 'crippling service charges and crumbling buildings.' To fully understand the potential impact of these changes, it's essential first to clarify what the current leasehold system actually entails.

Understanding Leasehold: How Does It Work?

Speaking with The Guardian, Pennycook pointed out that the English leasehold system had origins in the Domesday Book when serfs were given the ability to work tracts of land. He said, 'It's land owned by someone else who grants the right of use of that land to another person.'

Leasehold means you own the property itself but not the ground beneath it. A separate owner, the 'freeholder,' holds that land and rents it out for a set duration.

Once the lease runs out, the land and anything built on it will be returned to the freeholder. Roughly five million homes in England and Wales are leasehold. Unlike leasehold ownership, freehold ownership grants the buyer complete ownership of the property and its land.

Leasehold: Where Do Things Go Wrong?

In 2023, The Telegraph warned that purchasing a leasehold property 'might be the worst mistake you'll make.' Contracts can require buyers to pay yearly ground rent, sometimes with terms that let the freeholder double the cost 'every 10 years or so.'

Also, the freeholder can charge service fees, 'which cover everything from building insurance to management costs, running costs, repair and maintenance.'

These fees can also fluctuate. As the BBC reported, property firm Hamptons found that leaseholders' costs for shared upkeep and services increased by 11% from 2023 to 2024, now averaging £2,300.

Selling a leasehold property can also present challenges. A short lease tends to deter potential buyers, so owners frequently have to include the cost of extending the lease in their selling expenses.

Commonhold: A New Way to Own

Along with the ban on new leasehold flat sales, the government's proposals would simplify homeowner co-ownership of buildings using commonhold. The Ministry of Housing sees this form of ownership, 'used all over the world,' as a 'radical improvement' to the existing system.

In a commonhold arrangement, every flat owner possesses the freehold of their individual property and collaborates with the others to manage shared spaces and maintenance. According to Inside Housing, removing the fixed lease period lets people fully own their properties and also provides them with input on how their building is run.

Under this system, ground rent is eliminated, and flat owners gain voting rights on service charges. Maintenance and repair expenses are distributed solely among the flats rather than the entire structure.

As ITV noted, the government's plans also contain strong regulations for managing commonhold buildings, designed to reassure mortgage providers that the properties won't fall into disrepair.