Commonhold and Leasehold Reform Bill Draft: what you need to know

Draft legislation, not immediate change

The Bill has been published as a Command Paper for pre-legislative scrutiny. This means it is a developed proposal intended to be examined by Parliament, rather than binding legislation. Many of its provisions would rely on further secondary legislation before coming into force.

As a result, existing leasehold buildings continue to operate under current law, and managing agents are not required to make immediate changes to their practices. However, the Bill signals a clear direction of travel. Leasehold is no longer presented as the preferred long-term model for flat ownership, with commonhold positioned as the alternative framework for the future.

Why leasehold is being reformed

Leasehold has been the subject of sustained criticism over a number of years. Concerns around financial imbalance, opaque charges, weak consumer confidence and the use of forfeiture have driven successive waves of reform.

Alongside structural change, the draft Bill also builds on recent ground rent policy. It proposes further restrictions on ground rent for existing residential leases, including the introduction of a monetary cap in certain circumstances. While these provisions are not yet in force and would not apply retrospectively, they form part of a wider policy effort to rebalance the leasehold system and improve confidence among flat owners.

Commonhold revisited

Commonhold has existed in law since 2002 but has seen very limited take-up. In practice, the original framework struggled to accommodate the complexity of modern developments, including mixed-use schemes, phased construction and shared ownership.

The draft Bill seeks to address these limitations by rebuilding the commonhold framework. Proposals include clearer governance structures, defined budgeting and approval processes, tribunal oversight and more realistic pathways for conversion from leasehold.

Rather than simply encouraging commonhold in principle, the Bill aims to make it workable at scale. For managing agents, this suggests a future where owner-led governance becomes more common, even where professional management continues to play a central role.

Governance and budget approval

One of the most notable features of the draft Bill is the emphasis on formal governance and approval processes within commonhold. Budgets are expected to be subject to member approval, with mechanisms to revisit proposals where agreement cannot be reached.

In practice, this is unlikely to transform how competent managing agents already prepare budgets. However, it does raise the standard of explanation expected. Assumptions, increases and allocation decisions are more likely to be scrutinised, and the ability to evidence how decisions were reached may become increasingly important.

This represents a shift towards greater visibility and accountability rather than a transfer of operational responsibility away from managing agents.

Reserve funds as a baseline expectation

The Bill proposes mandatory reserve funds within the reformed commonhold framework, supported by clearer rules around their purpose and use. For block managers and service charge accountants, this aligns with existing best practice in many developments, where reserve planning is already used to manage long-term maintenance obligations.

If implemented, this approach is likely to encourage earlier engagement with owners about future costs and reduce reliance on reactive or emergency funding. At the same time, it may increase scrutiny of how reserve levels are calculated and how funds are applied.

Service charges and cost allocation

Despite the scale of the proposed reforms, the financial mechanics themselves remain familiar. Contributions towards shared costs, percentage-based allocations and service-charge-style structures all continue to exist within the draft framework.

The principal change lies in governance rather than accounting. The Bill introduces more structured approaches to ensure that costs align with benefit, particularly in complex or mixed-use developments. For managing agents, this may result in increased focus on how allocation methodologies are justified and communicated.

Practices that are already well documented and consistently applied are likely to be better placed to adapt.

Enforcement without forfeiture

One of the most significant proposed changes is the abolition of forfeiture for long residential leases, replaced with a court-controlled enforcement model. This does not remove the ability to pursue arrears or breaches, but it does place greater emphasis on proportionality and due process.

As enforcement becomes more process-led, the ability to evidence decisions and actions is likely to carry greater weight. Clear records of arrears, communications, approvals and budget decisions will be important, particularly where matters escalate to tribunal or court review. In practice, many managing agents already rely on property management software to support record keeping and financial reporting, and the draft Bill reinforces the importance of those systems being accurate, consistent and transparent.

Converting leasehold buildings to commonhold

Historically, the requirement for unanimous consent has made conversion from leasehold to commonhold extremely difficult. The draft Bill proposes reducing this threshold to 50 per cent, while allowing non-consenting leaseholders to remain temporarily and be phased out over time.

While conversion would remain voluntary, this change could make commonhold a realistic option for some buildings. Managing agents may increasingly be asked to support exploratory discussions or transitional arrangements, particularly in mixed-tenure developments where leasehold and commonhold coexist.

In such scenarios, clear communication, consistent record keeping and robust financial histories are likely to be particularly important.

What does not change

It is important to note what the Bill does not do. It does not bring immediate operational change, it does not abolish leasehold overnight, and it does not remove the need for professional managing agents.

Day-to-day block management continues largely as it does today. The principal shift is one of expectation. Transparency, governance and evidence of decision-making are likely to become more prominent features of residential property management as reform progresses.

Author:

Emma Thorne 

Marketing Executive, Grosvenor Systems