UK & EU Practice

UK Leasehold and Commonhold Reform Bill 2026: Ground Rent Cap, Ban on New Leaseholds, and the Transition to Commonhold

The UK government published the draft Leasehold and Commonhold Reform Bill in January 2026, the most ambitious attempt in decades to overhaul the way people own flats in England and Wales. The Bill proposes to cap existing ground rents at £250 per year, ban the creation of new leasehold flats entirely, and make commonhold the default form of tenure for new multi-unit residential buildings. A public consultation on the Bill's provisions closed on 24 April 2026, with the government indicating that the reforms could come into force in late 2028, subject to parliamentary approval and the completion of secondary legislation.

This article explains what the Bill proposes, how it interacts with the Leasehold and Freehold Reform Act 2024 that has already received Royal Assent, and what leaseholders, freeholders, developers, and property investors need to be planning for.

Background: The Leasehold and Freehold Reform Act 2024

Before looking at the new Bill, it is important to understand where the existing law stands. The Leasehold and Freehold Reform Act 2024 received Royal Assent and introduced a series of changes to leasehold law, though the majority of its provisions are not yet in force. The provisions that have been commenced include the removal of the requirement that a flat owner must have lived in the property for two years before exercising the right to extend a lease, which came into effect in February 2025, and a ban on the granting of new leasehold houses, subject to limited exceptions.

However, the 2024 Act left several critical issues for later legislation. It did not introduce a cap on ground rents for existing leases. It did not ban new leasehold flats. And it did not address the fundamental question of whether England and Wales should transition from the leasehold system to commonhold as the primary form of flat ownership. The Leasehold and Commonhold Reform Bill is the government's answer to those unresolved questions.

The Ground Rent Cap

The Bill proposes to cap ground rents on existing residential leases at £250 per year. For leases where the current ground rent is already at or below £250, the practical effect will be minimal. But for leaseholders paying significantly more, particularly those caught in escalating ground rent clauses that double every 10 or 25 years, the cap represents substantial relief.

The issue of escalating ground rents has been a major driver of reform. A generation of flat buyers who purchased properties between roughly 2005 and 2017 found themselves locked into leases with ground rent clauses that doubled at regular intervals, sometimes reaching several thousand pounds per year within a few decades. These clauses were legal under the prevailing law, but they made properties difficult to sell, hard to mortgage, and increasingly expensive to hold. The Competition and Markets Authority investigated several major developers over these practices, and some developers agreed to vary lease terms voluntarily, but many leaseholders have remained trapped.

The Leasehold Reform (Ground Rent) Act 2022 already restricted ground rents on new leases granted after 30 June 2022 to a peppercorn (effectively zero), but that Act did not apply retroactively to existing leases. The new Bill extends the protection to existing leaseholders by imposing the £250 cap across the board.

Freeholders and ground rent investors will experience a direct financial impact. For institutional investors who purchased freehold portfolios specifically for the ground rent income stream, the cap will reduce returns significantly. The consultation has invited views on whether transitional provisions or compensation mechanisms should be included for freeholders who stand to lose income, but the government's stated position is that the cap is necessary to protect leaseholders from unfair charges.

The Ban on New Leasehold Flats

The most structurally significant proposal in the Bill is the ban on the creation of new leasehold flats. If enacted, developers in England and Wales will no longer be permitted to sell flats on a leasehold basis. Instead, new multi-unit residential buildings will be required to use the commonhold tenure, in which flat owners collectively own the freehold of the building through a commonhold association and each flat owner holds a freehold interest in their individual unit.

Commonhold has existed in English law since the Commonhold and Leasehold Reform Act 2002, but it has been used in practice on fewer than 20 developments. The reasons for its failure to take off are well documented: lenders were unfamiliar with the structure and reluctant to provide mortgages on commonhold properties, developers had no incentive to switch from leasehold when the existing system allowed them to retain the freehold and sell it as a separate asset, and the legislation itself contained technical gaps around the governance of commonhold associations and the handling of arrears.

The Bill addresses these obstacles by making commonhold mandatory for new developments, which removes the developer's choice in the matter. The government has also engaged with UK Finance and the major mortgage lenders to ensure that commonhold properties will be mortgageable from day one. The Bill includes updated governance provisions for commonhold associations, including clearer rules on voting, service charges, reserves, and the handling of disputes between unit holders.

Conversion of Existing Leasehold Buildings

One of the more complex aspects of the reform is the question of converting existing leasehold buildings to commonhold. The Bill does not mandate conversion, but it creates a facilitated pathway for leaseholders who wish to convert. Under the current law, conversion to commonhold requires the consent of all leaseholders and the freeholder, which is practically impossible in most buildings. The Bill is expected to lower the consent threshold, though the exact percentage has been the subject of consultation.

Conversion also raises practical issues around outstanding lease obligations, service charge reserves, existing mortgage arrangements, and the legal relationship between the commonhold association and any commercial leaseholders in mixed-use buildings. The government has acknowledged that secondary legislation and detailed guidance will be needed before the conversion pathway becomes operational.

Implementation Timeline

The government has indicated that the reforms in the Bill could come into force in late 2028, but this timeline is contingent on several steps: the consultation response, the introduction of the Bill in Parliament, its passage through both Houses, Royal Assent, and the preparation of the extensive secondary legislation required to operationalise the commonhold provisions. Any significant political disruption, parliamentary scheduling pressure, or technical difficulty with the secondary legislation could push the timeline further out.

In the meantime, the provisions of the Leasehold and Freehold Reform Act 2024 that have not yet been commenced are expected to be brought into force on a rolling basis. These include changes to the calculation of lease extension premiums, the right to manage, and the regulation of service charges. Leaseholders should monitor government announcements for commencement orders.

What This Means for Property Owners and Investors

For existing leaseholders, the direction of travel is clearly favourable: lower ground rents, easier lease extensions, and eventually the possibility of converting to commonhold. Those with escalating ground rent clauses should note that the £250 cap, once enacted, will override contractual escalation provisions. Leaseholders who are considering extending their lease should take advice on whether to proceed now under the existing law or wait for the new premium calculation rules under the 2024 Act to be commenced, which may reduce the cost of extension.

For freeholders and ground rent investors, the reforms represent a fundamental reduction in the value of the freehold reversion. Ground rent income will be capped, and if commonhold conversion becomes widespread, the freehold interest will be absorbed into the commonhold structure entirely. Investors should be reviewing their portfolios and factoring the regulatory risk into their valuations.

For developers, the ban on new leasehold flats will require a fundamental change in how multi-unit residential buildings are structured and sold. Developers will need to establish commonhold associations, draft commonhold community statements, and work with lenders to ensure mortgage availability. The transition period before the ban comes into force should be used to build internal capacity and test the commonhold model on pilot developments.

The leasehold system has been a defining feature of English property law for centuries, and its reform has been discussed for nearly as long. The Leasehold and Commonhold Reform Bill represents the most serious attempt yet to replace it with a system that gives flat owners genuine ownership of their homes.