Why the UK is preparing to change its leasehold laws

IF YOU buy an apartment in England, the chances are you are not actually “buying” it at all. In most cases, you are paying the real owner for the right to live there for a set period.

“Leaseholds” are one of the oddest, and most contested, quirks of Britain’s ancient property laws. Critics who see them as a licence for landlords to rip off their tenants have convinced the Labour government to overhaul the system.

Purchasing a lease confers the right to live in a property for a set number of years.

The arrangement is different to a regular rental, known as an assured shorthold tenancy, as the term is generally far longer (between 21 and 999 years) and the tenant cannot be evicted unless they have breached the terms of the lease. They effectively “own” the property for that term, but not the land on which it is built. 

The arrangement dates back to the period following the Norman invasion when the country’s new aristocracy began renting land for fixed periods to agricultural labourers, who would provide food and services to those higher up the social order in return. 

Leasehold ownership has spread since the 1950s as the number of new apartment buildings grew. Outright ownership was not deemed to be possible in the case of apartments as full “freehold” ownership requires a land boundary that is visible on a map. 

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There are several issues for leasehold owners:

• The freeholder can block significant alterations to the building.
• If you bought your leasehold property with borrowed money, its value for mortgage purposes begins to fall dramatically as the lease approaches expiry.
• While freehold owners are often responsible for maintaining the fabric of a building, the final cost often sits with the leaseholder, and there are no rules on how much the freeholder can charge for repairs and upgrades. With apartment blocks, especially newer ones, the result can be extortionate maintenance fees that only grow as each year passes.
• Property developers have even begun to charge significant “ground rents” to leaseholders as a way of extracting more revenue from projects. Ground rent was traditionally so low that it was often referred to as a “peppercorn rent”.

The Leasehold and Commonhold Reform Bill announced in the King’s Speech in 2024 would take steps to bring this ancient system to an end, making it easier for leaseholders to buy the freehold on their home.

Plans by the new Labour government to restrict the sale of new leasehold flats go a step further than the previous Conservative administration’s now-redundant Leasehold and Freehold Reform Bill, which only pledged to forbid the sale of leasehold houses. 

The legislation will aim to protect leaseholders against losing their homes to freeholders if they breach their lease agreements. It will increase regulation of ground rents for existing leaseholders to protect them from unaffordable costs. 

The new government has also promised to modernise the legal framework to encourage commonhold agreements for all types of development. These allow residents to jointly own and control the communal areas of a property and make decisions by democratic vote, an arrangement similar to the US condominium system. 

The government also wants to strengthen the management of commonholds, with new rules around appointing directors and having clear standards for repairs.

Since a London apartment block fire blamed on substandard exterior cladding killed 72 residents in 2017, leaseholders have been on the hook for expensive upgrades to their properties and in many cases have been unable to sell their homes.

The Labour government is under pressure to improve conditions for homeowners and would-be buyers, who have been squeezed by the highest interest rates in 15 years. 

Campaigners took to social media after the King’s Speech in July, calling it a “seismic day for the leaseholder liberation movement”.

However, plans to abolish leaseholds on new flats but not existing ones have drawn criticism from campaigners. They are concerned that existing leaseholders will be trapped, unable to sell their flats. 

Nearly 80 per cent of real estate agents say that leasehold properties with a ground rent that increases over time are hard to sell, according to a survey published in 2023 by Propertymark. It also noted that an increased awareness of issues related to leaseholds has encouraged some buyers to negotiate harder on pricing.

Propertymark said that any future change in legislation – such as capping ground rent – would ease buyers’ concerns and potentially lead to a rise in leasehold prices.