Leasehold Flats to be Banned: What Does It Mean for UK Property Auctions?

The UK government has announced plans on Monday March 3rd to abolish the leasehold system for flats, marking a significant shake-up in property ownership laws. The proposed reforms will replace leasehold with a commonhold system, giving flat owners more control over their properties and how buildings are managed. But what does this mean for the property auction market?

The potential end of Leasehold – A Long-Awaited Reform

Under the current leasehold system, homeowners buy a lease on their property but do not own the building or the land it sits on. This often results in hefty service charges, ground rent, and restrictions imposed by third-party landlords. Many leaseholders have faced spiralling costs, making selling their properties at auction or on the open market difficult.

The government’s proposed commonhold system will change this by allowing flat owners to collectively own and manage their buildings rather than being at the mercy of a freeholder.

What is commonhold?

Commonhold is an ownership model that enables flat owners to have joint control over their buildings without being tied to a landlord. It provides a democratic structure where decisions on maintenance and service charges are made collectively. This system is widely used in other countries, but it has remained rare in the UK—accounting for just 0.01% of housing stock in 2024.

How Will This type of reform Impact Property Auctions?

For property investors and auction buyers, this reform could have significant implications:

– Increased Buyer Confidence: One of the biggest deterrents for buyers at auction has been the uncertainty surrounding leasehold properties—hidden costs, unpredictable ground rents, and diminishing lease terms. A move to Commonhold could make flats a more attractive and secure investment.

– More Transparent Pricing: Leasehold properties often have complications affecting their auction guide price and final sale price. With Commonhold, pricing may become more straightforward, as buyers will have fewer financial liabilities to consider beyond their purchase such as extending the lease and all the legal requirements that it entails immediately after the property is purchased at Auction.

– Short-Term Market Uncertainty: While the reforms are promising, they are not law yet. Until the new system is in place, cautious buyers will scrutinise leasehold flats. Investors may take a ‘wait and see’ approach, leading to fluctuations in demand at auctions.

– Potential Increase in Commonhold Listings: If the reforms pass into law, we may see a rise in commonhold properties appearing at auction. As developers adjust to the new rules, new-build flats will be sold as standard, creating fresh opportunities for auction buyers.

When Will the Changes Take Effect?

The government has released a Commonhold White Paper outlining its intentions, but the Leasehold and Commonhold Reform Bill is still in development. Once the draft bill is published, it will be scrutinised before being introduced to Parliament. The timeline remains uncertain, but property professionals should prepare for significant shifts in the market.

What’s Next for Investors and Auction Buyers?

Understanding these changes is crucial for those active in the property auction space. If Commonhold replaces leasehold, investors must adapt their strategies and reassess the value of existing leasehold stock. In the meantime, leasehold flats will continue to be auctioned, with buyers needing to conduct thorough due diligence on terms and costs before bidding.

As always, expert advice is key. If you’re considering purchasing a leasehold or commonhold property at auction, consult a legal professional and monitor government updates.

Stay informed, stay ahead by reading our Leasehold Blog or contact us and we will be happy to answer any questions you might have.