The draft Commonhold and Leasehold Reform Bill: common by name, complicated by nature

The government’s draft Commonhold and Leasehold Reform Bill could mark the most significant shift in land ownership for a generation. However, while the proposed legislation is framed as protection for occupiers, our view at Davitt Jones Bould is that its impact on the built environment will run much deeper.

The direction of travel is unmistakable: a decisive move away from leasehold and towards commonhold. Promoted on TikTok, the reform carries the unmistakable feel of headline politics as well as significant change to land law.

The key proposals

Under consultation until April 2026, the draft bill builds on the Law Commission’s recommendations:

Ground rents on existing leases will be capped at £250 per year, with a longer-term move to a peppercorn arrangement.

Forfeiture will be abolished for residential leases and replaced by a lease enforcement scheme where the courts will decide the most appropriate remedy.

New long leasehold flats (more than 21 years) will be banned, subject to exceptions such as shared ownership leases (with staircasing to 100%) and regulated home reversion plans, with scope for further exceptions by regulation.

Converting leasehold blocks to commonhold will be significantly easier: only 50% of leaseholders must agree, replacing the current 100% unanimity requirement. Non-participating owners may remain leaseholders temporarily, but their units must convert to commonhold on sale. Existing leaseholders in converted commonholds will have no right to a leasehold extension; instead they will have to convert to commonhold.

Ground rent

Capping ground rents will probably be subject to judicial review as it raises a classic property rights vs public interest issue under Article 1, the right to peaceful enjoyment. Freeholds have long been bought and sold as income-producing assets, with ground rents structured to either double or rise with inflation. Investors valued them on the assumption of steady, rising income. Capping ground rent at £250 – and ultimately reducing it to a peppercorn – strips out that growth. When the income falls, so does the value of the asset, meaning the pricing model underpinning those investments has to change.

For developers, particularly on phased or mixed use schemes, this raises difficult questions about where the long-term value now sits. If ground rent income disappears, alternative mechanisms for capturing value must be carefully structured and defensible.

The message from Westminster is unmistakable: the era of passive income from ground rents is closing. The market is still working out what replaces it.

Commonhold: The unresolved question

Introduced by the Commonhold and Leasehold Reform Act 2002, commonhold has existed for more than two decades, yet there are currently fewer than 200 units.

The model replaces landlord control with collective decision making. This is challenging in large, mixed-use schemes. It also removes the residual freehold interest and the ability to generate ground rent, eliminating a predictable income stream and reducing developer incentives.

The bill plans to replace forfeiture with a new enforcement regime. If a unit holder fails to pay, the commonhold association can serve a notice requiring payment within at least 28 days. If the breach continues, the matter can be escalated to the court, which may order payment or, in more serious cases, the sale of the unit. Action will only be available once arrears exceed a threshold to be set by regulations.

Lenders have historically been cautious about commonhold, limiting demand and reinforcing slow uptake, although policy pressure means most are now lending. Perception has not helped either as ‘common’ is hardly an aspirational label.

The bill attempts to remove another barrier notably by lowering the conversion threshold from unanimous consent to 50% of leaseholders.

However, what happens if a commonhold association is dissolved? The liquidator or interested can apply to court for replacement but they don’t always do that as it goes beyond their core duties.

Mandatory reserve funds intend to ensure that commonhold associations have sufficient money to cover major, one-off, or emergency works. However, these may result in higher upfront payment obligations which owners cannot support.

Commonhold aims to fix genuine problems with leaseholds, but in practice it has never really taken off. A narrower reform, one allowing both restrictive and positive covenants to bind freehold land by overturning Austerberry v Oldham Corporation, might have delivered many of the same practical benefits and with less upheaval.

Despite these challenges, developers are already preparing for a commonhold future. They would be unwise not to.

What next?

At Davitt Jones Bould, we believe  that while the changes meet some of the problems in the original commonhold legislation, professional management will be required, especially in the more complex blocks.

In higher-risk buildings, the commonhold association will also carry significant responsibility. Under the Building Safety Act it will act as the principal accountable person, with potential criminal liability for non-compliance. The commonhold community statement will also be required to include provisions ensuring compliance with complex building safety obligations.

The draft bill seeks to fix long-standing problems with commonhold, yet real doubts – which we at Davitt Jones Bould share – remain about how it will function in large, mixed-use schemes that still require professional management. Commonhold associations are going to be expensive to run and the director of a commonhold association for a high-risk building under the Building Safety Act could be liable for all sorts of criminal offences.

As we have said, reform enabling enforcement of restrictive and positive covenants in freehold land may have achieved similar outcomes with far less disruption.

Richard Snape is head of legal training at Davitt Jones Bould