Why replacing leasehold may be easier said than done

Why replacing leasehold may be easier said than done When Sally, 74, bought her two-bedroom flat in 2021, she hoped it would be the home she could peacefully retire in. But she says buying a leasehold home has led to terrible stress. There are around five million leaseholders in England and Wales. Sally is one of over 1,000 people the BBC spoke to in an attempt to understand the pressures on leaseholders. Most said that fast rising service changes and ground rent costs make them feel they have little control over their own homes. When she moved into her London flat, Sally says service charges were around £2,600 a year. One year, they totalled more than £5,400. "That was a really bad year. Me and my fellow owners were very stressed and anxious. There were tears and I remember us talking about how we were going to pay." Now, the government wants to fundamentally change how flats are owned. Under its Commonhold and Leasehold Reform Bill, new leasehold flats will be banned and replaced with commonhold, a system where residents collectively own and manage their buildings. "The people who should own buildings, and who should exercise control over their management, shared facilities and related costs are not third-party landlords but the people who live in flats within them and who have a direct stake in their upkeep," said Housing Minister Matthew Pennycook, in a speech in April. Matthew Pennycook: "The people who should own buildings, and who should exercise control over their management...are not third-party landlords but the people who live in flats" Freeholders argue that the English Housing Survey suggests 93% of leaseholders living in flats are satisfied with being an owner occupier (the survey doesn't ask specifically about being a leaseholder). Despite this, the government is introducing reforms widely seen as the biggest shake-up of home ownership in decades. But as commonhold moves closer to becoming the default for new-build flats, questions remain over whether it can avoid creating a new set of challenges for homeowners. And can a system that has existed for centuries really be replaced - or will a whole new set of problems emerge? To understand the complexities of today's leasehold system, described by many, including Housing Minister Matthew Pennycook, as "feudal", we have to go back almost 1,000 years. In the Middle Ages, William the Conqueror took control of England's land and granted parts of it to loyal nobles, who leased it to others for a fixed term. While today's leasehold system is very different, critics argue the basic principle remains the same - homeowners pay for the right to occupy land they do not fully own. For almost 60 years, successive governments have tried to reform it, with one alternative repeatedly put forward: commonhold. It was first introduced into law under Tony Blair's government in 2004, but developers have rarely chosen it. According to the Land Registry, there are only 18 commonhold developments in England. Commonhold is a type of home ownership where flat owners have a share in running their building. There is no freeholder, and residents vote on decisions about shared spaces and maintenance. Homeowners are expected to pay into a reserve fund and either manage the property themselves or appoint a managing agent. Commonhold was introduced under Tony Blair's government in 2004, but it has rarely been used for new developments Nick Hopkins, Professor of Land Law at UCL and specialist adviser to the House of Commons Housing, Communities and Local Government Committee - the group of MPs scrutinising the draft Commonhold and Leasehold Reform Bill - says that after years of looking into the issue he is "convinced" commonhold is the right direction for the government to go in. He says flat owners would still have to pay towards the upkeep of their building, but they would have "much more autonomy" over decision-making under the proposals. John Bartholomew, 81, and his wife have lived in one of England's commonhold developments, in Somerset, for around 12 years. The development consists of two blocks of flats and five town houses. They have an annual general meeting and come together to discuss issues such as the shared car park. He says he has been lucky to live in a place where people agree on the work that needs to be done. "If a renegade came in, we might struggle," he says. "If we want something done, we have to agree that part of the fee will be put to that purpose, like the repainting of the sheds." Freeholders argue that they act as "stewards" of buildings. They point to research by the Royal Institution of Chartered Surveyors (RICS), which they say suggests Scotland's commonhold-like system has created "major hurdles" in carrying out essential building maintenance, with 28% of buildings in critical disrepair. Professor Nick Hopkins says he is convinced commonhold is the right direction for housing reform in England and Wales, with similar ownership models already common around the world. Similar concerns were raised in evidence to MPs scrutinising the draft legislation. Mari Knowles, a landlord and tenant lawyer, told the Select Committee there was a risk of a "stalemate situation" where residents may not agree on paying for maintenance and investment in a building. She said she had worked with resident-managed buildings that "traditionally have not paid into the reserve fund... now the buildings are severely dilapidated, and they are all looking at five-figure or six-figure bills." Under the leasehold system, the freeholder appoints a managing agent to maintain and service the common parts of a building. Flat owners are then given the bills. Leaseholders are also legally obliged to pay ground rent - a fee paid for the land beneath their building - to the freeholder. Depending on the terms of the lease, the amount can either double at fixed intervals or increase in line with inflation, which can make a property harder to sell, mortgage or remortgage. Freeholds can be bought and sold between investors who do not live in the building, and sometimes not even in the country, meaning the English system of flat ownership has become "financialised", according to Hopkins. He believes a move to commonhold would change that, ensuring "the only financial interest in the block is with those living in it." Under the proposed plans, ground rents will also be capped at £250 before falling to a "peppercorn" rate - effectively zero - after 40 years. In a debate in Parliament on Thursday, a number of MPs called for that process to be sped up - and described ground rents as "money for nothing". Freeholders say this overlooks the long-term oversight and legal accountability they provide, including maintaining buildings and acting as an independent party when disputes arise. The BBC wrote to all of the groups that run commonhold developments in England and Wales, and not all described a harmonious way of living. One resident described commonhold as a "nightmare". He says one flat owner has refused to pay towards maintenance and other residents now have to pay more to cover that share. The collective is now £10,000 in debt. "The government is pushing commonhold forward, but it's not the way to go. It's terrible - a disaster." Due to the ongoing dispute, the man did not want to be named for this article, but said the leasehold system would have offered more protection in his case because, "if a leaseholder doesn't pay there is something in the contract that will say 'you forfeit the lease'. With commonhold, that doesn't happen, so the payments fall on everyone else." The BBC contacted every known commonhold development in England and Wales, with residents describing mixed experiences of managing their buildings A freeholder can seek to repossess someone's home if a leaseholder doesn't pay service charges, something that will also be abolished under the reforms. In a commonhold, disputes between owners must be resolved through the courts. Under the changes, in the most extreme cases, homeowners who refuse to pay could be forced to sell their home to settle debt. Hopkins accepts that commonhold is "not a panacea for everything that can go wrong when you own a flat," but says it is "the right legal basis to have to deal with the issues that can go wrong". He says commonhold will require "a bit of a cultural change" and that people will need to view themselves as "stewards" of their building. One of the main arguments from Hopkins and many others is that commonhold, or similar forms of ownership, already work in much of the rest of the world. Dr Cathy Sherry, Professor at Macquarie Law School in Australia, has studied property law and ownership across the world. She agrees there is no perfect way of owning buildings but believes England and Wales should move to commonhold. Australia uses a system known as strata, which Sherry describes as a form of commonhold similar to the condominium model used in the United States and other countries. "The reason why we have strata and condominiums is ex-British colonies were settled by people, the working class of Scotland, England, Wales and Ireland, and they actively did not want the emergence of a landed aristocracy." Sherry, who was also a technical adviser to the Law Commission's review of commonhold, describes leasehold as "deeply unfair". Cathy Sherry says leasehold is "deeply unfair" and believes commonhold offers a fairer system of home ownership She says the Australian system is "much better than leasehold" because ownership and building management are set out in legislation, rather than relying on millions of different leases. Under the government's proposals, there would also be standard rules around how commonhold buildings are managed. The Residential Freehold Association (RFA) argue the picture is more complicated. They point to research from Your Strata Property suggesting only 30% of committee members in Australia's strata system considered themselves "very knowledgeable" about strata law, while 70% admitted to having limited or no confidence in their legal understanding. They argue this can result in poor governance, legal non-compliance and deferred maintenance - all risks in collectively owned building Although commonhold has been an option for developers for more than 20 years, they have continued to build leasehold blocks. One reason was reluctance from lenders to provide mortgages for commonhold properties because they were seen as an untested risk. John Bartholomew says that when he tried to draw equity from his home he was told: "We don't lend to commonhold." He believes one of the biggest challenges is getting institutions to treat commonhold owners "like any other householders" rather than "second or third-class citizens". Charles Roe, former Director of Mortgages at UK Finance, which represents around 120 mortgage lenders, told MPs in March that estate agents, valuers, surveyors and conveyancers would all need to be brought up to speed, and that the transition for consumers and the industry would be a "big piece of work". He said lenders' main concern is what happens when existing leasehold buildings convert to commonhold. And that is arguably the most complex part of the government's plans. Campaigners are calling for "commonhold now" and a select committee report released in May called for the government to "go further and faster". But Housing Minister Matthew Pennycook has sought to manage expectations. How population decline is exposing Germany's old divides Empty homes are on the rise. So why aren't they being used to solve the housing shortage? Why so many homes are still dangerously mouldy - years after this toddler died In April he said the "outright and immediate abolition of the leasehold system in England and Wales" would be "almost certainly impossible". Converting a block to commonhold means transferring ownership from the freeholder to the residents, and how existing freeholders should be compensated is disputed. The previous government tried to make buying a share of freehold cheaper through the Leasehold and Freehold Reform Act 2024. But those changes were challenged in the courts by freeholders, who argued the reforms breached their human rights. The government won that case, but the decision is now under appeal. Barrister Dr Douglas Maxwell told MPs it was "almost inevitable" that further legal challenges would be brought under human rights law once the new legislation is introduced. Meanwhile, court battles could slow attempts to make it easier for residents to convert their buildings. Despite what has happened in Australia and other countries, there is no direct comparison for dismantling a leasehold system on the scale of England and Wales. Scotland did not so much reform leasehold as remove a much smaller version of it. Ken Gerber, a solicitor in Glasgow, explains that most residential properties in Scotland are already owned outright after a feudal-style system of land ownership was abolished in 2000. Long leases were automatically converted to ownership in 2015. But he says the scale was very different. In 2006 there were around 2,500 long leases in Scotland - roughly 2% of all residential properties. "Leasehold in England is much, much more common than in Scotland," he says. Scottish landlords were entitled to compensation, but Gerber says it was relatively modest. "It was roughly 40 times the amount of annual rent. But it was only leases where the rent was less than £100 a year." Ken Gerber says Scotland's move away from long residential leases was on a much smaller scale than the reforms proposed for England and Wales The compensation likely to be sought by English freeholders would be far greater. On Scotland's current system, which has similarities to commonhold, Gerber says it "generally works". "You'll always find one that doesn't want to stump up their money... that can be a problem," he says. Most of the experts agreed there is no perfect system where multiple people share responsibility for a building. Hopkins believes commonhold will happen, regardless of further legal challenges. "The judicial review failed at first instance and failed quite comprehensively. A lot of the arguments, I think, have really been lost." He says there is now broad political support for reform. Former housing secretaries Angela Rayner and Michael Gove both backed reform when giving evidence together to MPs. The Liberal Democrats and Greens also support commonhold, while Reform UK has stopped short of supporting the complete abolition of leasehold. A spokesperson at the Ministry of Housing, Communities and Local Government said their reforms would "transform the experience of flat ownership in England by giving homeowners "more power and control over high costs". Professor Sherry accepts that "stuff can be tricky, but it's workable". "Commonhold is better because I don't believe that people who don't live in homes should own the underlying land and get the benefits that flow from that." Whether that vision becomes reality now depends on politics as much as policy. The likely next prime minister, Andy Burnham, has previously expressed support for leasehold reform, but who he appoints as housing secretary will matter. With the draft bill described as "technical and long", there is still a long way to go before the manifesto pledge comes to fruition. Top image credit: Getty Images BBC InDepth is the home on the website and app for the best analysis, with fresh perspectives that challenge assumptions and deep reporting on the biggest issues of the day. Emma Barnett and John Simpson bring their pick of the most thought-provoking deep reads and analysis, every Saturday. Sign up for the newsletter here Are you personally affected by the issues raised in this story?