Leasehold Reform in England and Wales: Risks for Existing Leaseholders

The UK property market is facing its most significant ownership-structure change since the medieval feudal land system. Under the draft Commonhold and Leasehold Reform Bill, published for pre-legislative scrutiny on 27 January 2026, England and Wales would ban most new leasehold flats and make commonhold the default tenure for new-build flats; as of September 2026 the bill has not passed and is not yet law. This reform would reshape the ownership structure of UK residential property and would have far-reaching effects on pricing, the financial system, and urban governance. This article looks at the impact of this structural change.

The Structural Flaws in the Leasehold System

The UK’s leasehold system traces back to the medieval feudal land system, and its core feature is the long-term separation of ownership from the right to use. This long-standing arrangement has produced several structural tensions:

• Uncertainty over ground rent — ground-rent clauses often include indexation mechanisms that leave leaseholders facing unpredictable cost growth. Some contracts specify that ground rent automatically doubles every 10 years, adding further financial pressure on owners.
• Shrinking lease terms erode property value — once a lease has fewer than 80 years remaining, the property’s value begins to depreciate faster and its mortgageability may be affected. Lenders typically require owners to pay a large lease-extension premium, or may refuse to lend at all.
• Separation of management and ownership causes legal disputes — because management of the building remains with the landlord, leaseholders have almost no say in management decisions. According to a 2019 UK Law Commission report, 38% of flat owners had been in a legal dispute over how maintenance costs were split.

In 2002, the UK government passed the Commonhold and Leasehold Reform Act 2002, attempting to introduce “commonhold” to break this unequal structure. In practice, however, take-up was very limited and its impact on the UK property market stayed low. According to UK government data, as of 2021–22 England had 4.98 million leasehold properties, 20% of the overall housing market, with flats making up 72% of that leasehold stock — reflecting leasehold’s dominant position in the flat market, largely because it suits developers managing shared areas under one structure.

With that in mind: the Leasehold and Freehold Reform Act 2024 received Royal Assent on 24 May 2024, but most of its substantive provisions (including abolition of marriage value and the 990-year lease extension) are not yet in force; it does not itself mandate commonhold for new homes — that proposal belongs to the separate draft Commonhold and Leasehold Reform Bill (2026), which is also not yet law. Under that draft bill, commonhold unit owners would hold freehold title outright, and manage shared areas collectively through a Commonhold Association. This change would effectively hand full ownership of the property to the people living in it, eliminating the scope for a third-party landlord (freeholder) to extract value.

The Impact of Moving to Commonhold

As the new legislation takes effect, how the UK property market operates will change fundamentally, with particularly direct and significant effects on developers and existing owners.
Under the leasehold model, developers earn a steady income stream by selling the freehold and collecting ground rent, which has given property companies a long-term, stable source of passive income. Berkeley Group’s financial reports, for example, show that ground-rent sales have historically accounted for about 6–8% of the company’s total revenue. In 2015, Berkeley Group sold a batch of ground-rent contracts worth £152.8 million, equal to 7.2% of that year’s total revenue.

However, once commonhold takes hold, this stable income source will be cut off. New homes will no longer be sold with a separate freehold, and developers will no longer be able to collect ground rent as a source of cash flow, forcing them to adjust their business models and look for new sources of profit.

The Impact on Leaseholders

Beyond the impact on developers, this reform has equally far-reaching consequences for leaseholders, particularly around ground rent and property valuation.

At the heart of the legislation is a full ban on ground rent for new properties, along with an opportunity for existing leaseholders to extend their lease, both of which bring a direct financial benefit to owners. New properties will be fully banned from charging ground rent, ensuring new owners no longer face the risk of rising ground-rent costs. For owners who already hold a leasehold property, the law allows them to extend the lease term to 990 years, with no ground rent payable once the extension takes effect.

The core of the legislation:

• New properties: ground rent is fully banned, so new owners no longer face the risk of rising ground-rent costs.
• Existing leasehold properties: owners can extend their lease to 990 years, with no ground rent payable after the extension.

The Direct Financial Benefit of the Reform

Take London as an example: average ground rent there is about £400 a year. If 50 years remain on the lease, based on current ground-rent growth trends, an owner could save about £128,000 in future ground-rent payments:

£400 × 50 = £20,000 (present value)

If ground-rent indexation doubling every 10 years is factored in, the total savings would exceed £128,000.

This legislation effectively removes the risk of rising ground rent, especially where a lease has an indexation clause (such as doubling every 10 years) — the financial burden owners might otherwise have faced in future is eliminated entirely. It also removes the risk of a property losing value simply because its lease is running down.

More importantly, the legislation also removes the valuation discount that comes from a shrinking lease term. Under the leasehold system, a property’s value typically falls as the remaining lease term shortens, and once the remaining term drops below 80 years, lenders often require owners to pay a large lease-extension premium, or refuse to lend altogether. By extending lease terms and abolishing ground rent, the new legislation removes this risk, giving owners more stable property values and room for the asset to appreciate.

How Full Ownership Lifts Valuations

This combination of full ownership plus no ground-rent burden has a direct, positive effect on property valuations. In the past, a leasehold property gave the owner only the right to use it, while the underlying land ownership stayed with the developer or a third party. This incomplete form of ownership limited a property’s valuation potential, particularly in high-value areas.

The Leasehold Reform (Ground Rent) Act 2022 abolished ground rent and extended lease terms, giving owners full ownership and lifting the property’s market valuation. Full ownership boosts valuation and gives a property stronger market appeal. Because a fully-owned property is no longer constrained by a ground-rent contract, transactions become more flexible, market demand naturally rises, and property values become more stable.

Removing ground rent also lowers future financial risk, so valuation models no longer need to factor in a ground-rent burden, which further lifts property value. This effect is particularly noticeable in cities with strong rental demand from people moving in from elsewhere and high commercial value, such as London, Manchester, and Birmingham.

According to property consultancy Knight Frank’s estimates, average valuations for central London flats are set to rise by about 12–15%, mainly reflecting the premium from full ownership; suburban terraced houses, which already had a higher proportion of freehold ownership, are expected to see a more limited adjustment of only about 5–8%.

That said, this reform is not entirely without cost: as full ownership increases, owners may face higher management fees, maintenance costs, and legal expenses.

Challenges and Risks for Leaseholders

Under the current leasehold system, converting a leasehold to commonhold may bring owners a range of challenges, including high legal costs, compensation issues, and market risk. Although the law now provides a clear conversion mechanism, owners may still face real financial and coordination pressure in practice.

Compensation and Conversion Costs

First, converting from leasehold to commonhold requires paying a series of legal and transition costs. Owners need to hire a solicitor to handle contract re-drafting, land registration, and document updates, and these costs can be considerable. If the remaining lease term is short (particularly under 80 years), conversion costs climb further.

In this situation, owners may need to pay a substantial compensation fee, particularly where a ground-rent clause or other unfavorable terms are already in place. For example, some lease contracts include clauses for automatic ground-rent increases or adjustable maintenance fees, which may require a one-off compensation payment during conversion, adding further financial pressure on the owner.

In addition, for some older contracts that include a “Marriage Value” clause, even though the new legislation has in principle abolished it, contracts signed before May 2023 still need to be handled case by case, which may trigger additional compensation disputes.

Future Market Risk

The pricing system for commonhold has not yet fully developed, which could bring valuation volatility and price-correction risk. In the short term, the market value of commonhold units may be unstable, and because market participants are not yet highly receptive to this form of ownership, selling could prove difficult. In addition, if co-owners disagree on management fees, maintenance, or financial decisions, this could negatively affect property value. For example, if one co-owner runs into financial difficulty and cannot pay maintenance or management fees, it could affect the other co-owners and the property’s overall market value.

Practical Difficulties

Legally, current rules require at least 75% of owners to agree before a leasehold can be converted to commonhold. In practice, though, coordinating this is often very difficult. In a large block of flats, hundreds of owners’ interests may be involved, so the negotiation process can take a long time. Research from the University of Manchester found that this kind of coordination takes an average of 18 months to complete, with legal advice fees often accounting for 15% to 20% of total cost.

In addition, some banks may impose a “mortgage restriction,” requiring any existing loan to be paid off in full before conversion. For owners with high leverage or limited cash flow, this can be an obstacle they simply cannot clear. Handling historical clauses is also a major challenge: some older lease terms (such as “Marriage Value”) may have been legally abolished, but if the lease was signed before May 2023, those clauses may still be binding under the existing contract, ultimately requiring negotiation or legal proceedings to resolve.

Management Responsibilities Under Commonhold — A Double-Edged Sword

Under commonhold, owners need to self-manage shared areas through a Commonhold Association. While this model gives owners more control over how the property is managed, it also brings a higher level of participation cost and financial pressure, creating a classic double-edged effect.

More Time Required

Commonhold requires owners to actively participate in managing and deciding on the property, which can become an invisible source of pressure for owners with limited time or busy jobs. In one London pilot project, owners were shown to spend an average of about 5 hours a month on association meetings and management decisions, covering:

• Drawing up maintenance plans
• Managing shared areas
• Discussing budgets and how costs are split

This means owners not only need to spend more time, but also need to understand property-management-related expertise, which can be a real challenge for owners without management experience.

Higher Financial Burden

To keep the property running smoothly, the legislation requires Commonhold Associations to build a reserve fund equal to 25% of the annual budget. This money is mainly meant to cover unexpected repair or management costs, such as: repairs to shared facilities, emergency financial needs, and maintaining common areas.

This new requirement has directly driven up management costs for commonhold properties. Compared with traditional leasehold properties, management fees for commonhold properties are on average about 18% higher. For example, if a traditional leasehold property’s management fee is £2,000 a year, it could rise to about £2,360 after converting to commonhold. For owners already under financial strain, this adds real economic pressure.

Skills Gaps and Reliance on Professionals

Managing a commonhold property requires a fairly high level of management and negotiation skill, which not every owner has. Research shows that only about 35% of first-time buyers have basic budgeting or contract-negotiation experience. Facing issues like maintenance-fee rates and how management costs are split, owners may have no choice but to rely on a professional property management company to help with day-to-day management and financial matters.

However, hiring a professional property management company also means paying additional management fees. Property management companies typically charge a percentage-based fee, which further raises the overall running cost of a commonhold property and could even weaken owners’ enthusiasm for choosing commonhold in the first place.

How Financial Markets Are Responding to Commonhold

As commonhold is rolled out, banks remain cautious. Because commonhold involves multiple co-owners, with maintenance, management, and financial decisions all resting with the Commonhold Association, this introduces a degree of uncertainty into the market. Banks are mainly concerned that this management structure could lead to disagreement within the association over cash management or maintenance decisions, which could in turn affect property value and repayment ability. As a result, banks may take a more conservative lending approach when assessing risk on commonhold properties.

To reduce these potential risks, the legislation has introduced a set of safeguards. First, Commonhold Associations are required to build a reserve fund equal to 25% of the annual budget, to ensure the association can keep functioning normally if financial problems or emergencies arise. Second, the legislation also requires associations to carry full public liability insurance, to cover third-party losses or disputes that could arise from management or maintenance issues.

The UK’s shift from leasehold to commonhold is a far-reaching change that is reshaping the structure of the market. As the market gradually adapts to the new system, full ownership should bring stronger market appeal and room for valuation growth. However, coordination issues during the transition period, financing challenges, and uncertainty in market pricing will be real tests for both owners and developers. In the years ahead, as the market gains experience and the legal framework matures, commonhold is expected to become an important driver of sustainable development in the UK property market.

Additional Reference: Key Reform Milestones and “Marriage Value”

Key milestones in leasehold reform:

2017: The government began consulting on unfair practices in the leasehold market, marking the start of the reform process.
2019: The government announced a ban on selling new houses on a leasehold basis, except in special circumstances.
2022: The Leasehold Reform (Ground Rent) Act 2022 took effect, abolishing ground rent on most new residential leases.
2023: The government confirmed plans to phase out leasehold ownership of houses and address the “Marriage Value” issue.
2024: The Leasehold and Freehold Reform Act passed, legislating a ban on new leasehold houses and simplifying the lease-extension process.
2026 (January): the government publishes the draft Commonhold and Leasehold Reform Bill for pre-legislative scrutiny, proposing to ban most new leasehold flats, make commonhold the default tenure for new-build flats, and cap ground rent on existing leases at £250/year; as of September 2026 the bill remains before a House of Commons select committee and has not passed.

“Marriage Value”

This is a term in the UK leasehold system referring to the increase in market value that comes from the greater completeness of ownership after a lease extension. When the remaining lease term is under 80 years, the law requires the leaseholder to share 50% of this increase in value with the landlord.
Marriage Value has long been a point of dispute between leaseholders and landlords. Leaseholders argue the mechanism is unfair, since the cost of extending a lease can far exceed the landlord’s actual loss. Recent legislative proposals have suggested abolishing Marriage Value to lower the cost of lease extension and reduce the financial burden on leaseholders. This change is likely to face opposition from landlords, however, since they would lose the compensation mechanism that Marriage Value currently provides them.

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Sources

• Financial Impact Analysis of Leasehold Reform in England and Wales on the Property Market (briefing)
• Commonhold and Leasehold Reform Act 2002
• Beginning of the End for the “Feudal” Leasehold System
• Berkeley Group Holdings plc: Annual Report 2015 / 2023