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On 27 January 2026, the government published a draft Commonhold and Leasehold Reform Bill (the Bill). This overview outlines the key proposals and provisions of the draft Bill in its current form.
Residential leases – ground rents
Long leases (over 21 years) of single dwellings granted for a premium (Residential Long Leases) entered into on or after 30 June 2022 (1 April 2023 for retirement homes) must not reserve a ground rent that is greater than a peppercorn, as provided by the Leasehold Reform (Ground Rent) Act 2022 (GRA 2022).
The Bill builds on the provisions of the GRA 2022, retaining the above prohibition on new Residential Long Leases and capping ground rents for existing Residential Long Leases granted before 30 June 2022 (or before 1 April 2023 for retirement homes) at:
- £250 per annum for 40 years from the date the Bill is enacted; and
- A peppercorn after that 40-year period has expired.
If the ground rent is lower than £250 per annum for the 40-year period, it will continue to be payable at that rate; if it is higher, it is reduced to £250 per annum.
The change will be good news for owners of leasehold flats whose leases reserve ground rents that increase throughout the term to levels that make the properties difficult to sell and potentially unmortgageable. However, for investors, pension funds, and lenders, this change is less welcome. By introducing a cap for a 40-year period instead of an immediate reduction to peppercorn rent, the government has sought to appease their concerns. Whether that is enough to deter a legal challenge remains to be seen.
The provisions capping ground rent will not apply:
- Retrospectively, and
- To business leases, community housing leases and home finance plan leases.
Ban on new flat leases
The Bill proposes banning the grant of new long residential leases (over 21 years) of flats, effectively making commonhold the standard way to own new flats (subject to some limited exceptions).
Although commonhold was introduced in 2002 as an alternative to leasehold, it has seen very limited take-up, reportedly with fewer than 20 developments in England and Wales. The government now plans to replace the existing system with a new and updated commonhold legal framework through this Bill.
The government explains that “commonhold offers full freehold ownership for flats and other interdependent properties. Each homeowner owns their home outright with no time limit on ownership, and all owners have a say over how the building is managed, including the costs and responsibilities that come with it”.
“Commonhold Sections” will be permitted – for example, a commercial section and a residential section may be created in a mixed-use development with separate management structures.
Restrictions will not be imposed governing the terms of a lease of a commercial unit within a commonhold building. However, if the commercial unit owner is in arrears on payments owed to the commonhold association, such as service charge contributions, the association’s consent will be required before any lease is granted or varied.
Abolition of forfeiture for long residential leases
A long lease of residential property, whenever granted, will not be able to be terminated on the grounds of a breach of covenant (whether by forfeiture, re-entry, or any other means).
For this purpose:
- “Residential property” means a building or part of a building occupied or intended to be occupied as a separate dwelling (together with any yard, garden, outhouse, or similar).
- “Long lease” includes a lease of over 21 years and shared ownership leases.
A new procedure will be introduced for enforcing covenants in these leases. This will include a court order to sell the property, with the sale proceeds distributed in the following order: first, to cover the costs of the person handling the sale; next, to pay any amounts owed to the landlord; then, to settle any debts owed to charge holders; with any remaining funds paid to the tenant.
Other considerations for investors, landlords, and developers acquiring commercial properties with a residential element
The changes being made by the Bill, if implemented, will be factors to consider in the development or acquisition of a mixed-use asset. In the meantime, the following is a brief reminder of the existing rights for certain residential tenants if they meet the relevant criteria:
- Residential tenants of long leasehold flats are entitled to lease extensions of 90 years.
- Tenants of long leasehold houses are entitled to acquire the freehold or a lease extension of 50 years
- Tenants of long leasehold flats can act collectively to:
- take over management of a scheme where residential units comprise 50% or more of the internal floor area – “right to manage";
- acquire the freehold and any intermediary lease of the building in which the flats are contained, where the residential floor areas comprise 75% or more of the whole. The freeholder may request a leaseback of commercial units for a term of 999 years; and
- exercise any rights of first refusal granted to qualifying tenants of buildings containing two or more leasehold flats, prior to a relevant disposal by the landlord of an interest in the building or part of it. Where the building is mixed use, that right does not apply if the floor area of the non-residential parts exceeds 50% of the building’s internal floor area.
The laws governing these rights may change once the remaining provisions of the Leasehold and Freehold Reform Act 2024 (LFRA 2024), enacted on 24 May 2024, are brought into effect. These unimplemented provisions include the following:
- A ban on long residential leases of houses, except in certain limited circumstances.
- New valuation methods for lease extensions and freehold acquisitions, where that right applies.
- Lease extensions to be for 990 years, rather than the 90 years (flats) and 50 years (houses) referred to above.
- A right for certain tenants with at least 150 years remaining on their existing lease to reduce the ground rent to a peppercorn on payment of a premium. If this provision is enacted before the Bill is passed, such tenants may benefit from waiting for the proposed ground rent cap to apply.
Legislation governing the rights of residential tenants is complex and often inconsistently drafted. The above list is intended only as a high-level overview to highlight potential issues. Careful consideration is required in each case to determine which rights apply and to develop a structure that achieves the intended outcome for a development.
The government has stated that the Bill will “operate alongside the LFRA 2024 and GRA 2022”.
Timeline
The Bill is at a very early stage, with the government commenting that “The draft Bill will now move into pre-legislative scrutiny, expected to be carried out by the HCLG Select Committee after which the substantive Bill will be issued. Subject to parliamentary timings, the ground rent cap could come into force in late 2028.”
This highlights that while the proposals signal significant reform, stakeholders should prepare for a gradual process and stay alert to potential changes during legislative scrutiny.
Client Alert 2026-26