In depth: PM takes to TikTok to announce leasehold shake-up

Social media platform TikTok is not where you might expect major reforms of leasehold law to be announced. But that is precisely where prime minister Sir Keir Starmer declared in a 29-second video this week that ground rents would be capped at £250.

The cap is part of what the government called, in the more traditional setting of a press release, ‘a major shake-up of the outdated leasehold system’. The shake-up will also involve banning new leasehold flats, ending forfeiture (whereby leaseholders can lose their home and the equity they built if they default on a debt as low as £350), and introducing a new process to make it easier for leaseholders to convert to commonhold.

The proposed changes can be found in the draft Commonhold and Leasehold Reform Bill, which was introduced to parliament on Tuesday for pre-legislative scrutiny.

But as the housing, communities and local government select committee prepares to examine the bill, what do the changes mean for property solicitors? 

Kate Stockdale, a partner in the residential property team at Wilsons Solicitors, said conveyancers will welcome the £250 ground rent cap as it should remove ‘one of the most persistent sources of delay and uncertainty’ in residential transactions. ‘Many long leases contain opaque or aggressively escalating rent review clauses, which can be difficult for buyers, lenders and practitioners to interpret and often trigger additional enquiries or lender conditions. A clear cap would simplify due diligence and make it easier to advise on future liabilities,’ Stockdale said.

However, conveyancers face a long wait to see the benefits of the ground rent cap on their workload – it is not expected to come into force until 2028.

Shabnam Ali-Khan, a partner in the property law and conveyancing team at Russell-Cooke, said the government’s plans to make commonhold the default tenure – by banning new leasehold flats and requiring developers to build commonhold properties – will present challenges for practitioners.

'Many solicitors have never worked with commonhold before. With fewer than 20 developments registered since its introduction over 20 years ago, there has been little opportunity for practitioners to gain practical experience in this area'

Shabnam Ali-Khan, Russell-Cooke

Commonhold allows a person to own a freehold flat and be a member of the company that owns and manages the building’s shared areas and structures.

This form of home ownership struggled to gain traction when it was introduced in 2002. The government said legal flaws hampered the use of commonhold for new builds, such as mixed-use developments. The original legal design required unanimous consent to convert an existing leasehold building to commonhold, making it unworkable in practice. Ground rents within the leasehold system provided a secondary income for developers and investors in new developments.

While commonhold is not a new concept, it will feel new to practitioners. 

Ali-Khan said: ‘Many solicitors have never worked with commonhold before. With fewer than 20 developments registered since its introduction over 20 years ago, there has been little opportunity for practitioners to gain practical experience in this area.

‘Solicitors will therefore need training to understand the new regime, including commonhold structures, processes, dispute resolution mechanisms, and the practicalities and difficulties of coordinating potentially large groups of existing leaseholders to embark on conversion. 

‘That said, if commonhold becomes more popular, it may ultimately become easier to advise on as we gain more experience. Commonhold community statements will operate in a similar way to leases by setting out rights, obligations and liabilities, but as largely prescribed documents, there should be less scope for interpretation. We all appreciate that leases with their “legalese” are not the easiest documents to understand. So in time, it may become easier for advisers to advise and clients to understand what they are dealing with.’

So what now? The bill will be examined in depth by the Commons housing, communities and local government committee before the final version is introduced to parliament. Committee chair Florence Eshalomi MP has already asked housing minister Matthew Pennycook for several pieces of information, such as an impact assessment of the policy to address unregulated and unaffordable ground rent, and any other evidence regarding the decision to cap ground rents at £250 before reducing them to a ‘peppercorn’ after 40 years.

Practitioners will have plenty of opportunities to have their say on the legislation. The committee will open its pre-legislative scrutiny inquiry with a call for written evidence next week and commence oral evidence sessions after the February parliamentary recess.

Law Society president Mark Evans, who spent three decades as a high street conveyancer, said Chancery Lane will obtain member input for its response to the government’s commonhold consultation, which closes on 24 April.