BLOGS

The end of an era for leasehold flats

For over a century, leasehold has been the dominant form of flat ownership in England and Wales. That is about to change. The draft Commonhold and Leasehold Reform Bill, published on 27 January 2026, sets out the government's blueprint for making commonhold the default tenure for new residential flats — effectively banning the sale of new leasehold flats once the reformed framework is in place.

Under commonhold, flat owners will hold their units as freeholds rather than wasting assets with finite lease terms. A commonhold association, made up of all unit holders, will collectively own and manage the common parts of the building. The government has framed this as ending what Housing Minister Matthew Pennycook called a "feudal" system that has "tainted the dream of home ownership for so many."

The reforms also cap existing ground rents at £250 per year, with a phased reduction to a peppercorn (effectively zero) over 40 years. Forfeiture — the right of freeholders to repossess flats over small debts — will be abolished. For existing leaseholders wishing to convert, the consent threshold drops from 100% to just 50% of qualifying leaseholders.

What this means for developers and funding models

The shift to commonhold presents fundamental challenges for residential developers, particularly those whose business models have relied on the sale of freehold reversions and long-term ground rent income streams.

REalyse planning data indicates that a significant proportion of the current residential pipeline across England and Wales consists of flatted developments that would historically have been delivered as leasehold. Developers must now reconsider how to structure these schemes.

Ground rent revenue eliminated: Traditional development appraisals often factored in the sale of ground rent portfolios to institutional investors. With ground rents capped and trending to zero, this revenue stream disappears. For schemes in the planning pipeline, developers will need to revisit viability assessments and potentially adjust unit pricing or seek alternative funding structures.

Development finance restructured: Lenders have historically secured development loans against the freehold reversion. Without this security interest, the market will need to develop new financing products. The government has acknowledged this challenge, and the draft Bill includes provisions allowing developers to reserve certain rights during phased developments, but the practical mechanics remain untested at scale.

Exemptions to watch: The consultation proposes exemptions for purpose-built rental (BTR) schemes, student accommodation, and shared ownership housing. These sectors may continue to operate under leasehold structures, creating potential strategic pivots for some developers. REalyse data on BTR pipeline activity suggests this sector could see increased interest as a result.

Mixed-use developments: new complexity

The Bill introduces "sections" within commonhold structures to accommodate mixed-use developments — allowing separate governance and cost allocation for residential and commercial elements. This is essential given that REalyse analysis shows a substantial share of new residential supply in major UK cities comes forward as part of mixed-use schemes with ground-floor retail or commercial space.

However, the integration of commercial tenants within a commonhold framework introduces considerable drafting complexity. Commercial leases will remain permissible, but the Commonhold Community Statement must carefully delineate:

• Separate budgeting and reserve funds for residential and commercial sections

• Voting rights and decision-making boundaries

• Service charge apportionment between unit types

• Enforcement mechanisms that balance residential owner-occupiers against commercial tenants

For large multi-phase developments, developers will retain the ability to reserve rights within the Community Statement to complete future phases without requiring unit holder consent at each stage. This flexibility is critical for schemes delivered over several years, but it will require sophisticated legal documentation and early engagement with commonhold specialists.

Existing leaseholders: a two-tier market emerging?

The reforms explicitly target new developments — existing leaseholders will not be automatically converted to commonhold. While the government has simplified the voluntary conversion process, practical barriers remain:

• Financial costs: Converting a building to commonhold involves legal fees, Land Registry costs, and potential restructuring of existing mortgages.

• Lender consent: Many mortgage lenders are unfamiliar with commonhold, though the government expects this to change as the tenure becomes normalised.

• Building complexity: Older buildings with mixed tenure, historic lease variations, or complex service charge arrangements may find conversion challenging.

Property professionals have raised concerns about a potential two-tier market emerging. Buyers may prefer the clarity and permanence of commonhold, potentially depressing demand for existing leasehold flats — particularly those with short leases or onerous ground rent terms.

REalyse valuation data suggests that flats with short unexpired lease terms (below 80 years) already trade at significant discounts to comparable properties with longer leases. The reforms may accelerate this trend for leasehold flats, while creating a premium for new commonhold units.

For investors, the calculation shifts. Without ground rent income and with reduced enforcement powers, the traditional model of holding freehold reversions becomes significantly less attractive. The British Property Federation has warned that retrospective caps could "undermine confidence in investment in this country."

Market implications and outlook

The transition to commonhold represents the most significant change to English property tenure in decades. While the direction of travel is clear, implementation challenges remain substantial:

Timeline: The ground rent cap is not expected before late 2028, and the full commonhold framework will require extensive secondary legislation. Developers with schemes in the pipeline should plan for a transitional period where both tenures coexist.

Training and capacity: Industry bodies estimate that implementing commonhold at scale will require significant upskilling across the conveyancing, surveying, and property management professions. With fewer than 30 commonhold schemes currently in existence, practical expertise is extremely limited.

Housing supply risks: Some commentators have questioned whether the complexity of commonhold could slow housing delivery, potentially conflicting with the government's target of 1.5 million new homes this Parliament. A pragmatic transition, possibly including short-term leasehold with enhanced protections, may prove necessary.

Conclusion

The Commonhold and Leasehold Reform Bill represents a generational shift in how flats are owned and managed in England and Wales. For developers, the loss of ground rent income and the unfamiliarity of commonhold structures will require fundamental changes to business models and legal documentation. For existing leaseholders, the reforms offer a pathway to greater control and permanent ownership — but the journey will be neither immediate nor straightforward.

What is certain is that the property market must now prepare for a future where commonhold, not leasehold, is the default. Those who engage early with the new framework — understanding its implications for valuations, yields, and development viability — will be best positioned to navigate this transformational change.