Understanding the Prime Minister’s Proposal to Ban the Sale of New Leasehold Flats

Banning the Sale of New Leasehold Flats

Introduction

The UK government's recent proposal to ban the sale of new leasehold flats marks a significant shift in property law, aiming to replace the traditional leasehold system with commonhold as the default tenure for flats. This move is part of a broader effort to reform the housing market, addressing longstanding concerns about fairness, transparency, and affordability for homeowners. This proposal will not impact existing flats where the lease has already been granted. However, for prospective buyers, current leaseholders, and property professionals, understanding the implications of this proposal is crucial.

The Current Position

Under the existing system, many flats are sold as leasehold properties, where buyers purchase the right to occupy the property for a set period, typically 99 to 125 years. The freeholder retains ownership of the land and often manages the building, charging ground rent and service fees. This arrangement has led to various issues, including escalating ground rents, lack of control over maintenance, and challenges in extending leases or buying the freehold.

In May 2024, the Leasehold and Freehold Reform Act received royal assent, introducing measures to address some of these concerns. Notably, it banned the sale of new leasehold houses and made it easier and cheaper for leaseholders to extend their leases or purchase their freeholds. However, the sale of new leasehold flats remained permissible, prompting the government's latest proposal to extend the ban to include flats.

Proposed Changes

The government's proposal aims to make commonhold the default tenure for new flats, with leasehold arrangements only permitted in exceptional circumstances. Under commonhold, flat owners collectively own and manage the building, eliminating the need for a separate freeholder and associated ground rents. This shift is intended to provide homeowners with greater control, transparency, and fairness.

A consultation is planned for later in 2025 to determine the best approach to implementing this change, including potential exemptions and measures to minimize disruption to housing supply. The government also plans to address existing leasehold arrangements, aiming to make it easier for leaseholders to transition to commonhold or extend their leases on more favourable terms.

Advantages and Disadvantages

Advantages:

· Enhanced Control for Homeowners: Commonhold allows residents to collectively manage their building, leading to more responsive decision-making and potentially lower service charges.

· Elimination of Ground Rent: With no freeholder, the issue of escalating ground rents is removed, reducing financial uncertainty for homeowners.

· Increased Transparency: Commonhold structures often have clearer governance and financial arrangements, improving transparency for residents.

Disadvantages:

· Implementation Challenges: Transitioning from leasehold to commonhold requires significant legal and administrative changes, which could be complex and time-consuming.

· Potential Market Disruption: The shift may affect property values and mortgage lending criteria, as lenders may be less familiar with commonhold arrangements.

· Need for Active Participation: Commonhold requires active involvement from all residents in managing the building, which may be challenging for some individuals.

Conclusion

The proposal to ban the sale of new leasehold flats represents a bold step towards modernising property ownership. While the proposal will not impact existing flats where the lease has already been granted, for new leasehold flats the transition to commonhold offers several potential benefits. Careful consideration and planning will be essential to address the challenges and ensure a smooth implementation. For prospective buyers, current leaseholders, and property professionals, staying informed about these developments and seeking legal advice when necessary will be crucial in navigating the evolving landscape of property ownership.