The leasehold system in England and Wales has needed tearing down since the medieval era. It locks homeowners, especially those in flats, into an exploitative, serf-like relationship with the freeholder who owns the property and management rights to it.
The freeholder can exploit this power imbalance and, with the backing of the law, coerce the leaseholder to pay extortionate sums in ground rent and service charges. The former is a payment conferring no benefit or service to leaseholders, it is owed as tribute to the freeholder’s superior legal rights. Historically a trivial amount, ground rent has been gamed in recent years to extort more money from individual leaseholders. So destructive are ground rents that in 2022, parliament passed a law banning them on new homes.
The freeholder also appoints a building management company to handle maintenance, funded by a service charge levied on flat owners. In practice, this can lead to conflicts of interest and exorbitant fees. If leaseholders fail to meet demands for a payment above £350 they can face their home being claimed without compensation. The threat of forfeiture forces leaseholders to pay inflated fees – sometimes for services never received.
I’ve seen leaseholder exploitation at first-hand. My mum’s service charges to her freeholder have risen to an obscene £33,000 annually, as the no-frills building deteriorates and homes are rendered unsaleable.
Hamptons found that in 2023 alone, leaseholders in England and Wales paid a punishing £7.6bn in service charges. A 2011 study by Which? estimated leaseholders were being overcharged by £700m every year through inflated service charges. A recent government impact assessment considered this figure to be too low due to growth of the sector. Growing awareness of leasehold’s exploitative nature has widened the price gap between houses and flats. This gap is now at a 30-year high with buyers unwilling to become financial hostages.
The government’s new commonhold white paper promises to ban leasehold for future flats. New flats would be “commonhold”, a democratic structure whereby each flat-owner owns the freehold to their unit and, through a company, owns a share of the land with their neighbours. Commonholders would appoint their own managing agent and collectively decide how their money is spent. They would be free from ground rents and the risk of forfeiture.
However, the government has not committed to providing an assured pathway to commonhold for the millions, like my mum, already in leasehold flats. The proposals expect leaseholders to acquire the freehold before converting to commonhold. However, freehold purchase is extortionate, often costing tens of thousands of pounds a household. The government has suggested this won’t change, stating “the cost is likely to still be significant”. Labour has ruled out government-backed loans for commonhold conversion, a major Law Commission recommendation.
Beyond cost, many leaseholders are blocked from buying their freehold due to restrictions imposed by the Tories in the 1990s. Labour appears set to replicate these exclusions in their rules on who can acquire their freehold and convert to commonhold. These include the lack of a statutory right for leaseholders to retrospectively buy their freehold share if they did not participate in the original freehold buy-out with their neighbours, either because they couldn’t afford to or hadn’t yet bought into the development. Another exclusion harms leaseholders in flats structurally connected to commercial premises such as a shop.
Under the proposals, even qualifying leaseholders who secure majority support for commonholdwon’t be totally free of leasehold. Currently, the process requires 100% support from the leaseholders, lenders and freeholder. Although the government signals it will reduce the participation threshold to 50%, and ensure that only leaseholders decide, pure commonhold will only be secured if every single leaseholder votes and pays for it upfront.
Given that this is near impossible, commonhold will coexist with leasehold within individual buildings, potentially resulting in costly administration, disputes and even litigation. Why adopt a policy that the government itself recognises “might prove worse than the leasehold it replaced”?
The government’s half-baked intervention risks creating a new two-tier market, divided between shiny new commonhold flats and the legacy stock of leasehold debt traps. Elsewhere in the world, including in Scotland, flat-owners enjoy democratic self-rule without third-party landlords; it’s time we extended these rights to the rest of the UK – and that means commonhold for the many, not just the new.