Why rushed leasehold reform could destabilise the housing market

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Why rushed leasehold reform could destabilise the housing market

Reform of the leasehold system is long overdue. It’s broadly agreed that the current model, with its layers of complexity and its potential for abuse, has required reform for some time. The Leasehold and Freehold Reform Act (LAFRA), which was enacted in a rush under the last government, represents a major step towards fairer ownership structures.

It includes provisions to reduce lease extension and freehold purchase premiums for leaseholders, greater transparency on service charges and accounts as well as enabling more buildings to qualify for the Right to Manage (RTM).

However, save for the RTM changes, many provisions are yet to come into force and may indeed change as we await further legislation. This includes the Leasehold and Commonhold Reform Bill which is expected imminently. We certainly do not want this to be rushed as was the case with LAFRA, which created much uncertainty in the market particularly amongst leaseholders (ironically the very group it seeks to assist).

Politicians’ promises (many of which have been diluted), unimplemented legislation and awaited further legislation has caused ructions throughout the sector that currently underpins over 5 million homes, not only affecting leaseholders and freeholders but also developers, lenders and managing agents.

The value of stability

Leasehold ownership accounts for around 20% of England’s housing stock and in London that figure rises to more than 50%. It encompasses not just privately owned flats but shared ownership homes, retirement developments and mixed-use schemes where complex management structures are essential. This is not a niche tenure but a mainstream form of home ownership which has been embedded in our legal and financial systems for centuries.

For all its faults, the current leasehold system allows leaseholders, subject to qualification, to acquire the freehold of their buildings collectively and take over the management through a no-fault process: something commonhold has yet to achieve at scale. That framework gives lenders confidence, sets out responsibilities for maintenance and provides the mechanism through which large multi-occupancy buildings can function safely. Reforming it requires consideration and continued consultation.

Moreover, it is absolutely agreed that the current regime is riddled with ambiguity and legal jargon, meaning that proper guidance and legal advice is often needed. However, provided leaseholders are fully informed and supported many buildings run well and leaseholders are happy. We must move away from rushed legislation.

Lessons from the LAFRA

The LAFRA itself demonstrates the tension between good intentions and practical reality. The legislation has been appreciated in principle, but many of its provisions remain unimplemented or require secondary legislation to become effective. This has created challenges in the sector for professionals when advising clients. The picture is still blurry.

The Act’s complexity means that conveyancers, valuers and managing agents are already having to navigate a transitional landscape. The risk is that before this new framework has bedded in, further reform could layer uncertainty on top of uncertainty. The next phase must therefore be about consolidation and consultation, not just another wave of change.

Commonhold’s promise and practicalities

The government’s renewed enthusiasm for commonhold is understandable. It promises a simpler, fairer system of ownership in which flat owners control their building collectively rather than holding time-limited leases from an external freeholder. Many practitioners, including members of ALEP, welcome this in principle. Indeed, it is a structure which has worked in many other countries for many years.

However, as ALEP and others have consistently emphasised, commonhold is not yet ready to replace leasehold wholesale. The model requires extensive legal, financial and cultural adaptation. Mortgage lenders remain cautious, developers have little incentive to adopt it, and most managing agents are more familiar with leasehold processes. Without addressing these structural issues, a rapid shift towards commonhold could stall housing delivery and undermine confidence across the market.

Therefore, reform should be evolutionary, not revolutionary. The government must test commonhold in new developments, provide robust guidance for lenders and set realistic timescales for transition. Only through incremental progress can confidence grow organically rather than by imposition.

Reform through collaboration

The solution lies not in halting reform but in managing it responsibly. Government, legal professionals, surveyors, lenders and leaseholders must work together to ensure that the next phase is both fair and functional.

Organisations such as ALEP are well placed to contribute, bringing together practitioners who work within the leasehold system at every stage including valuation, litigation and conveyancing.

A genuinely collaborative process could also help soften the process. Otherwise, leasehold reform risks becoming a ‘them and us’ landscape which is not necessarily healthy or helpful. Leasehold reform has too often been reduced to headlines about exploitation or profiteering, obscuring the reality that most ownership structures function effectively.

By focusing on evidence rather than ideology, policymakers can target the specific problems that remain, such as excessive service charges, opaque management, exploitative leases, without undermining the many developments where leasehold works well.

Avoiding unintended consequences

From a property investment point of view, the financial implications of poorly managed reform, the media frenzy and unnecessary scaremongering in some cases are significant. Uncertainty around valuation, proposed capping of ground rents for valuation purposes, and commonhold are impacting the market. We are yet to see a huge take up from developers to consider commonhold until the landscape is much clearer.

Getting reform right

Leasehold reform is absolutely necessary and welcome. The challenge is to balance ambition with realism. A modern, fair and transparent system is achievable, but only if changes are supported by consultation, education and clear regulation.

Professionals share the government’s desire to make home ownership simpler and fairer, but as was demonstrated at ALEP’s annual conference in October, we believe en masse that effective reform cannot be achieved through haste. The industry must be given the time and clarity to adapt, and leaseholders deserve a system that works in practice as well as in principle.

Reform done well can restore trust and strengthen the market and achieve the growth that the government aspires too. But done badly, reform could destabilise it for years.

Shabnam Ali-Khan is a Partner at Russell-Cooke and a member of ALEP (Association of Leasehold Enfranchisement Practitioners).

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