BLOGS

The leasehold system in England and Wales is facing its most significant overhaul in generations. The draft Commonhold and Leasehold Reform Bill, published on 27 January 2026, sets out plans to ban new leasehold flats, cap existing ground rents at £250 per year, and make commonhold the default form of flat ownership. For developers, buyers and existing leaseholders alike, the implications are profound.

With approximately five million leasehold homes in England and Wales and over 187,000 flat transactions recorded in the past 12 months alone, the reform touches a substantial portion of the UK housing market. REalyse data shows the average flat sold for £281,073 over the past year at £396 per square foot—figures that may shift meaningfully as the market adjusts to a new ownership paradigm.

How developers will need to rethink pricing

For housebuilders, the loss of ground rent income represents a material change to development economics. Under the current leasehold model, developers have historically capitalised ground rent streams—selling them to investors or retaining them as long-term income assets. The draft Bill eliminates this revenue source for new developments entirely.

REalyse analysis shows that new-build flats currently command a significant premium over resale properties, with average prices of nearly £500,000 compared to £278,000 for existing stock—a differential of approximately 80%. Much of this premium reflects specification, location and developer branding, but the embedded value of ground rent-free commonhold tenure may become an additional selling point that justifies higher prices.

Developers will need to recalibrate their gross development value (GDV) assumptions. Without ground rent income to offset costs, some may increase unit prices; others may reduce specification or seek sites with lower land values. The exemption for build-to-rent and social housing schemes provides some flexibility, but the mainstream for-sale market will need to adapt quickly once the ban takes effect.

A shift in buyer preferences

Consumer sentiment is already tilting against leasehold. The government has framed the reforms as ending a "feudal" system that has "tainted the dream of home ownership" for millions. Buyers increasingly associate leasehold with escalating ground rents, opaque service charges and the risk of forfeiture—all issues the Bill seeks to address.

Commonhold offers a cleaner ownership structure: flat owners hold their units as freeholds with no wasting asset, no lease expiry date and no third-party freeholder. Decision-making rests with a commonhold association comprising all unit holders, who collectively own and manage the common parts of the building.

For mortgage lenders, the transition will require adjustment. Historically, lender caution around commonhold has limited its uptake—only around 20 developments adopted the model since its introduction in 2004. The government expects this to change as commonhold becomes normalised and lender products evolve accordingly. Early engagement from conveyancers, valuers and brokers will be critical to ensuring transactions proceed smoothly.

Implications for the existing leasehold resale market

Perhaps the most significant uncertainty surrounds the five million existing leasehold properties. These will not automatically convert to commonhold; instead, leaseholders may choose voluntary conversion under a simplified process that reduces the consent threshold from 100% to 50%.

However, practical barriers remain. Conversion involves legal fees, Land Registry costs and potential mortgage restructuring. Older buildings with mixed tenure, complex service charge arrangements or short unexpired leases may find the process challenging.

REalyse valuation insights suggest that flats with short unexpired lease terms—particularly those below 80 years—already trade at meaningful discounts to comparable properties with longer leases. As commonhold becomes the standard for new developments, a two-tier market may emerge where existing leasehold flats face subdued demand relative to newly built commonhold units.

The cap on existing ground rents at £250 per year, reducing to a peppercorn after 40 years, will provide some relief to current leaseholders burdened by escalating charges. But it will not eliminate the structural disadvantage of owning a depreciating asset compared to outright freehold ownership.

What comes next

The draft Bill is currently undergoing pre-legislative scrutiny by the Housing, Communities and Local Government Select Committee, with a consultation period running until 24 April 2026. Further amendments are likely before formal introduction to Parliament, with implementation expected no earlier than late 2028.

For property professionals, the message is clear: the market must prepare for a future where commonhold, not leasehold, is the default. Developers need to model viability without ground rent income. Agents and valuers should anticipate shifting buyer preferences and potential price divergence between tenure types. Lenders must develop products suited to commonhold ownership.

Those who engage early with the new framework—understanding its implications for valuations, yields and development viability—will be best positioned to navigate this generational shift in how flats are owned and managed in England and Wales.