The Draft Commonhold and Leasehold Reform Bill

The Draft Commonhold and Leasehold Reform Bill. What is it, what does it change, what does it mean

January 27th, 2026

What Does It Mean?

The Draft Commonhold and Leasehold Reform Bill. What is it, what does it change, what does it mean?

The draft bill has been published with the potential to change the property letting and investment landscape in the UK. Landlords and property investors need to start understanding what Commonhold means and how the rules on ground rents will change.

Ground Rent: Retroactive Caps and Phasing Out

The most immediate impact for investors holding portfolios of existing ground rents is the introduction of retroactive price controls. The existing business model for ground rent income is all change:

Universal Cap: Ground rents for existing leases will be capped at £250 per year.
Phasing to Peppercorn: After a 40-year transitional period, these ground rents will be reduced to a “peppercorn” rate (effectively zero financial value).
Valuation Impact: This change is expected to lower the cost for leaseholders to extend their leases or buy their freehold. The value to the freeholder is reduced, meaning less loss of income to sell.
Timeline: The cap is projected to come into force in late 2028, subject to parliamentary approval.

Shift to Commonhold: The New Default

The Bill reinvigorates the “commonhold” tenure to replace leasehold as the standard for multi-unit buildings:

Ban on New Leasehold Flats: The bill proposes that the grant or assignment of certain new long residential leases of flats is prohibited once the ban is fully implemented.
Simplified Conversion: The threshold for existing leaseholders to convert their building to commonhold is lowered to 50% of qualifying tenants, mirroring the threshold for collective enfranchisement. Previously, unanimous consent was often required, making conversion practically impossible. Whilst 50% remains a barrier, it appears a level at which changes are achieveable, meaning that 50% may be getting something they didn’t want – it may be a space to watch.
Unit Ownership: In a commonhold, investors (as unit-holders) own the freehold interest in their specific unit indefinitely, rather than a time-limited leasehold “wasting asset”.

The move to commonhold and how it impacts compared to decreasing leasehold terms will affect valuations, it will be a space to watch to see how RICS deal with the value of commonhold units.

Governance and Management Changes

For investors participating in commonhold developments, the management structure shifts from a third-party landlord to a Commonhold Association:

Democratic Control: Unit-holders are automatic members of the association and have a direct vote on annual budgets and “local rules”.
Reserve Funds: The Bill mandates the use of reserve funds for future major works, providing greater financial predictability for long-term investors.
Enforcement Powers: Associations gain a new “order for sale” power. If a unit-holder defaults on contributions above a specific threshold (between £500 and £5,000), the association can apply to the court to force a sale of the unit to recover debts.

It will be worth watching how buy to let mortgage lenders deal with the enforcement powers. It may be something that we see different lenders deal with differently, meaning how commonhold units are mortgaged changes.

Abolition of Forfeiture

A major historical remedy for freeholders—the right to forfeit a lease for breaches of covenant—is abolished. It is replaced by a new, more proportionate “lease enforcement claim” system under judicial oversight, where the court determines the appropriate remedy rather than the landlord triggering an automatic termination.

The Draft Commonhold and Leasehold Reform Bill, published in January 2026, introduces transformative changes for property investors. The legislation effectively signals the end of the traditional leasehold model for new residential flats and significantly curtails established income streams from existing leasehold assets.

How Will This Impact Mortgage Lending?

Lenders will now hold security over a permanent freehold commonhold unit rather than a time-limited lease that loses value over decades. In theory this should see lender become more comfortable with financing these units, the issue of short term leaseholds will disappear.

The other benefit to lenders is that they will have “standing” to apply to a tribunal to appoint professional directors to a commonhold association if the existing directors fail to maintain the building or comply with safety duties.

We watch this space.

By Dave Farmer

Frequently Asked Questions: 2026 Property Reforms

What is the main goal of this new Bill?

The Bill aims to end the “feudal” leasehold system in England and Wales. It does this by making commonhold the default ownership model for new flats and providing significant new protections and cost-savings for existing leaseholders. The bill is centered around benefits for the current leaseholders and remedying common issues with the leasehold system.

What is changing for existing ground rents?

Price Cap: Ground rents for most existing residential leases will be capped at £250 per year.
Future Reduction: After a 40-year transitional period, these ground rents will be further reduced to a “peppercorn”.
Timeline: These changes are anticipated to come into force in late 2028.

What exactly is “Commonhold”?

Commonhold is a form of freehold ownership for flats. Unlike leasehold, which is a “wasting asset” that expires over time, commonhold ownership is indefinite. You own your specific flat (unit) outright and share ownership of the communal areas through a Commonhold Association.

Can I convert my current leasehold flat to commonhold?

Yes. The Bill makes it much easier for existing leaseholders to switch. While the old rules often required 100% agreement, the new path allows conversion if 50% of qualifying tenants in a building agree, matching the threshold for collective enfranchisement.

Will new leasehold flats be banned?

Yes. Once, and if, the Bill is fully implemented, developers will generally be prohibited from selling new flats as leasehold. They must instead be built and sold as commonhold. Limited “permitted lease” exemptions may apply to complex mixed-use buildings or exclusively rental blocks, currently under consultation.

What is the “Commonhold Community Statement” (CCS)?

The CCS is the “rulebook” for a commonhold. It replaces the individual, varying leases found in old buildings with a standardised legal framework for the whole building. It defines everyone’s rights, responsibilities for repairs, and the “local rules” (like pet policies) agreed upon by the owners.

How are communal costs managed in commonhold?

Transparent Budgeting: Instead of opaque service charges set by a landlord, owners vote on a forward-looking budget.
Mandatory Reserves: All commonholds must maintain a reserve fund to save for major future works (like roof repairs or lift replacements), avoiding sudden, massive bills.
Fairer Sections: Buildings can be divided into “sections”. This ensures, for example, that car park maintenance is only paid for by those with a parking space.

Is my home still at risk if I have a dispute or small debt?

No. The Bill abolishes forfeiture, the draconian rule that allowed landlords to seize a home over debts as small as £350. It is replaced by a fairer, court-led enforcement scheme where the court decides on proportionate remedies.

David Farmer

Over 30 years finance experience. Former credit underwriter, founder of Lime Finance Solutions in 2012. Multi Award winning business, featured in Sunday Telegraph, Parliamentary Review, Sky TV and others. Regular contributor to press and business associations. FCA Authorised, ALIBF Qualified. Specialist in Commercial Mortgages, Business Lending, Property and Development Finance.