Residential Ground Rent Caps, Commonhold and More – the Commonhold and Leasehold Reform Bill is here

The Government published the draft Commonhold and Leasehold Reform Bill (the “Bill") on 27 January 2026 for pre-legislative scrutiny, marking a significant step in its manifesto commitment to bring the "feudal leasehold system to an end" in England and Wales.

The Bill, which follows significant reform to the residential sector (including the introduction of the Leasehold and Freehold Reform Act 2024 and the Renters’ Rights Act 2025), is a comprehensive piece of draft legislation that repeals and replaces the existing commonhold regime, bans new leasehold flats, caps existing ground rents, abolishes forfeiture of residential leases, and regulates estate rentcharges.

Commonhold Reform: Making Commonhold the Default for New Flats

The Bill repeals and replaces Part 1 of the Commonhold and Leasehold Reform Act 2002 ("CLRA 2002") which first introduced commonhold as a form of tenure. Despite its introduction in 2004, commonhold has been taken up at fewer than 20 developments in England and Wales.

Commonhold is a system of freehold ownership that gives flat-owners perpetual ownership of their individual units and collective control over shared areas, removing issues associated with leasehold such as ground rents, diminishing lease terms, and lack of management control (see our previous Law-Now on the proposals here: Proposals for Commonhold to Replace Leasehold for New Flats)

The Bill incorporates extensive amendments, including:

• Allowing conversion with the consent of only 50% of qualifying leaseholders, instead of unanimous agreement
• Introducing “sections” within a commonhold, allowing for the management of mixed-use buildings
• Introducing the Commonhold Community Statement to codify governance
• Introducing provisions to appoint directors through the First-tier Tribunal (Property Chamber) (“FTT”)
• Limiting developer voting power to reflect the units they still own
• Reserving rights for developers where a site is not complete, with FTT power to review proposals
• Enhancing enforcement by permitting a Commonhold Association to apply for an order to sell a flat to realise funds owed

Ban on New Leasehold Flats

Once in force, the Bill will prohibit the grant or assignment of new long residential leases of flats in relevant buildings. The ban applies to:

• Long residential leases (exceeding 21 years).
• Flats in buildings that are wholly on commonhold land, completed after the ban comes into force, or buildings where no part was demised by a relevant lease before the ban.

Existing leasehold flats and their leaseholders are unaffected; the ban being prospective.

Certain categories of leases will be "permitted" and exempt from the ban, as set out in Schedules 2 and 8. These are expected to include:

• Shared ownership leases (allowing staircasing to 100% ownership).
• Home finance plan leases (e.g. home reversion plans and home purchase plans).

The final categories will follow the conclusion of the "Moving to Commonhold" public consultation which has also been published today (https://www.gov.uk/government/consultations/moving-to-commonhold-banning-leasehold-for-new-flats)

Ground Rent Reforms

Following the Conservative Government’s consultation in 2023 (Modern leasehold: restricting ground rent for existing leases - GOV.UK) the Labour Government has introduced a cap on ground rents into the Bill.

This will cap ground rents at £250 per annum for a 40-year transitional period, after which ground rents will reduce to a peppercorn. This extends the protections under the Leasehold Reform (Ground Rent) Act 2022 (which applied to new leases) to pre-2022 Act leases.

Abolition of Forfeiture

The Bill abolishes the landlord's remedy of forfeiture for breaches of long residential lease covenants and replaces it with a new statutory enforcement scheme, to include the introduction of new Court powers to make remedial orders, orders for sale or costs orders.

Estate Rentcharges

The Bill repeals sections 121 and 122 of the Law of Property Act 1925, removing disproportionate remedies (such as taking possession or granting a lease) previously available to rentcharge owners for arrears.

A new section 120AA will require rentcharge owners to serve a notice demanding payment on the landowner, including specified information and allowing 30 days before any enforcement action can commence. Rentcharge owners may still recover arrears through proportionate means, such as cost recovery clauses, the small claims court, or a breach of covenant claim.

Comment

The Bill follows the Leasehold and Freehold Reform Act 2024 (The Leasehold and Freehold Reform Act is here (just)) to continue the most significant reform to leasehold and commonhold law in over two decades. By reinvigorating commonhold, banning new leasehold flats, capping existing ground rents, abolishing forfeiture, and reforming rentcharge enforcement, it signals a fundamental shift away from the leasehold model for flats in England and Wales.

While the Bill is currently in draft form and subject to consultation and parliamentary passage, the direction of travel is clear. Investors, developers, freeholders and leaseholders alike should begin considering the implications for existing portfolios and future transactions.

We will be publishing greater detail on each of the relevant parts of the Bill in the coming weeks.