Unpicking leasehold stitch by stitch …
As economist Dr Alexander Hamilton argues below, to demolish leasehold every stage of the present enfranchisement process – where freeholders have sought to quantify its value – needs to be unpicked, writes Sebastian O’Kelly.
Some of this is under the secondary legislation of the Leasehold and Freehold Reform Act 2024. And some – we have to trust – will be in forthcoming Leasehold and Commonhold Reform Bill.
The concern is that reforms – capping ground rents – will help some leaseholders, but leave others – and potentially even the majority – out to dry.
Most leaseholders don’t have highly aggressive ground rents: 23% don’t have ground rents at all, and of those that do the median is £120 a year.
Most leaseholders are unaffected by ending marriage value: only 13% of leases are under 80 years.
Of course, all leaseholders will benefit from no longer having to pay freeholders’ legal costs to enfranchise. And almost all leaseholders will benefit from higher – that is, more favourable – deferment and capitalisation rates.
But a massive obstacle to leasehold reform and adoption of commonhold is the development potential of a site, for which freeholders have to be compensated.
The Law Commission recommended that development uplift be deferred via an overage agreement. This would mean that only if the leaseholders themselves – by then, ex-leaseholders – chose to develop a site would the former freeholder be compensated.
But this was the only Law Commission recommendation unreferenced in LAFRA, although it was addressed in its impact assessment.
Was it scuppered by opaque lobbying, or always intended to be included in the Leasehold and Commonhold Bill?
Either way, an awful lot of sites are not going to make it to enfranchisement or commonhold without this reform.
It was made much worse – as LKP loudly complained at the time – by the Town and Country Planning Order (2020) giving freeholders the right to build two more storeys on most blocks of flats.
By Dr Alexander Hamilton
Dr. Alexander Hamilton is an economic adviser and development economist at the UK’s FCDO, where he specialises in the economies of the Middle East and North Africa. He writes on the economics of leasehold in a private capacity. The views in this article are his own, and do not necessarily reflect those of the FCDO or the UK government. His scholarly work can be found here: Alexander Hamilton – Google Scholar.
Key Points
- If current leaseholders are to benefit from the government’s plans to bring leasehold to an end, then enfranchisement needs to become significantly cheaper as a first step to the conversion of current leasehold properties into commonhold properties.
- The current plans to achieve this goal includes the commencement of relevant provisions of the Leasehold and Freehold Reform Act (2024), bolstered by the recent legal victory in the High Court, and new provisions in the upcoming Leasehold and Commonhold Reform Bill (2025).
- In this article we rank the different proposed reforms that should make enfranchisement cheaper by the impact they would have on the cost of the enfranchisement process, and also the proportion of leaseholders affected by each reform measure.
- As the decision to enfranchise is a binary choice, our ranking reveals that the failure to carry out two specific reforms, namely i) exempting leaseholders from paying development value and ii) setting the capitalisation and deferment rates at their current level or higher, would make enfranchisement prohibitively expensive for most leaseholders even if all other proposed reforms were to be enacted.
- Therefore, these two reforms should feature prominently in the upcoming reform process to ensure that the almost 5 million leasehold properties in England and Wales benefit from the revival of commonhold.
Background
The government has promised that, by the end of this parliament (2029), it will “take steps to bring the feudal leasehold system to an end” which, practically, is understood to mean that the government will: (1) ban the sale of new leasehold properties by commencing the relevant sections of the Leasehold and Freehold Reform Act (2024) for houses, and for flats via the proposed new Leasehold and Commonhold Reform Bill (2025); and (2) reviving commonhold as a viable alternative to leasehold via the Leasehold and Commonhold Reform Bill (2025).
While these two steps will help ensure that future homeowners do not have to deal with leasehold tenure, these steps do not provide a low-cost route for the almost 5 million current leasehold properties in England and Wales to be converted into commonhold properties.
There is a risk that if leasehold is banned for future properties but if it is too complex or costly for current leaseholders to enfranchise, then the plight of existing leaseholders could be exacerbated. A two-tier housing market could evolve in which the relative value of current leasehold properties falls compared to commonhold properties.
The government aims to tackle the issue of the cost of enfranchisement for current leasehold properties by taking the following steps: (1) commencing the existing provisions of the Leasehold and Freehold Reform Act (2024) designed to make enfranchisement cheaper and easier, a fact greatly aided by the government’s decisive legal victory in the High Court, and (2) passing the Leasehold and Commonhold Reform Bill (2025) into law.
The government has promised that the first draft of this bill will be ready before the end of 2025.
This leaves only 26 working days between now (03 November 2025) and when the House of Commons rises for Christmas on Thursday 18 December 2025.
Aside from reviving commonhold, the aim of the bill is also to tackle the cost and complexity of enfranchisement by: ‘enact[ing] remaining Law Commission recommendations to strengthen leaseholders’ rights to extend their lease, buy their freehold, and take over management of their building’ and regulate ground rents for existing leaseholders.
Given that both the Leasehold and Freehold Reform Act (2024) and Leasehold and Commonhold Reform Bill (2025) contain a multitude of reforms dealing with many aspects of leasehold, in this paper we focus exclusively on the key sections of the Leasehold and Freehold Reform Act (2024) that need to be commenced, and the proposed reforms that will be contained in the Leasehold and Commonhold Reform Bill (2025) that would make it easier for existing leaseholders to collectively enfranchise as a first step to converting to commonhold.
Our Approach
In trying to rank the impact of different reforms on the ability of existing leaseholders to enfranchise we take a simple approach that seeks to capture the ‘average’ impact of a reform on existing leaseholders. Specifically, each reform () is ranked based on: (1) the expected change
in the cost of enfranchisement that it would generate, and (2) the proportion of existing leaseholders affected by the reform.
This approach has limitations, as it is not always easy to estimate the average cost change of a given reform, or know precisely what proportion of leaseholders are affected. Nevertheless, the methodology allows us to provide an approximate ranking of the impact of different reforms on enfranchisement premiums for existing leaseholders. The Table below provides this ranking.
The analysis in the Table above has limitations. The most important one is that it is trying to capture the ‘average’ effect of a given reforms on the impact of the costs of enfranchisement. However, because there are so many different variables that affect the cost of enfranchisement, the experience of individual or specific subgroups of leaseholders may differ.
For example, the ranking of reforms would look quite different if we focused on a block in which there is no development value, but where ground rents were high and escalating aggressively. Also, the average effect sometimes disguises vastly different subgroup effects. For example, while lower deferment and capitalisation rates would make enfranchisement universally more expensive it would have little material impact on a leasehold property with say 990 years left on the lease and a peppercorn ground rent- because the premium payable would already be close to zero.
Furthermore, by focusing on the cost of enfranchisement the Table does not examine other important aspects of leasehold reform that may improve the welfare of current leaseholders but do not affect the cost of enfranchisement. For example, the end of forfeiture (which should be included in the Leasehold and Commonhold Reform Bill (2025)), or the new leaseholder rights that are likely to be shortly commenced, and are provided for in the Leasehold and Freehold Reform Act (2024), are not considered because they don’t affect the cost of enfranchisement even as they may provide other benefits to leaseholders.
Furthermore, our exercise does not address questions about the inherent values of some reforms. For example, given that ground rents are not made in exchange for the provision of any goods or services, there is a good argument for capping them at a peppercorn (i.e. abolishing them), even if, for most leaseholders, they are not the major cost driver of an enfranchisement claim.
However, despite clear limitations, our approach has significant merit in helping us think through the general impact of different reforms, and potential policy trade-offs on the cost of enfranchisement. This matters when arguments are used to support reforms that overlook most leaseholders’ interests.
For example, there is already some speculation that the freeholders who recently lost their case against the Leasehold and Freehold Reform Act (2024) could offer to not appeal this decision if, as compensation for ending marriage value and/or capping ground rents for valuation purposes and/or making freeholders pay their own valuation costs the government set the deferment and capitalisation rates in a manner that was more favourable to freehold interests (lowered them) .
A quick review of our Table shows that, such a ‘compromise’ would have the universal effect of raising the costs of enfranchisement for all leaseholders (including those who benefited from the abolition of marriage value and the capping of ground rents). In fact, if the deferment rate was lowered to 3.5% the leaseholders who benefited from the abolition of marriage value (13%) would see the premium payable for a lease extension or enfranchisement claim increase to almost the same cost as if marriage value was still in place, but the deferment rate stayed at 5% for flats/4.75% for houses.
While many leaseholders (20%) who have modern (aggressively increasing ground rents) would also find that the 0.1% cap on ground rent valuation was largely negated by the lower capitalisation rate. While the legal cost reform would benefit all leaseholders, even a small decrease in rates would see the premium payable for most leases rise more than the government’s own estimated average cost of these fees.
In fact, this apparent ‘trade-off’ would make enfranchisement more expensive for all leaseholders, including the 87% who have more than 80 years left on their lease and the 80% of leaseholders who do not have aggressively escalating ground rents. This means that rather than being a policy-trade-off, such a compromise would result in a net transfer of wealth from all leaseholders to freeholders – albeit to different degrees (see:half-of-all-leaseholders-could-be-left-worse-off-by-unfavourable-deferment-and-capitalisation-rates).
Furthermore, the Table can also help assess whether the specific reforms enacted make enfranchisement materially more feasible for a majority of leaseholders. It may take several reforms for the overall cost of enfranchisement to come down sufficiently to make it possible for a critical mass of leaseholders to be able to undertake this process.
The Table alerts us to the fact that, even if all the proposed reforms were commenced, excluding the reform of development value and holding steady or increasing deferment and capitalisation rates, a majority of leaseholders might still not have the financial means to enfranchise because of the material impact of these two factors have on the cost of enfranchisement.
Thus, our approach provides existing leaseholders with a quick way of assessing whether policymakers are making enfranchisement materially easier and cheaper. In fact, we can condense the above Table into a quick ‘summary Table’ that identifies the policies that decision-makers need to enact to make enfranchisement cheaper for leaseholders.
Summary
If current leaseholders are to benefit from the government’s plans to bring leasehold to an end, then enfranchisement needs to become significantly cheaper as a first step to commonhold conversion.
The current plans to achieve this goal includes the commencement of relevant provisions of the Leasehold and Freehold Reform Act (2024), and provisions in the future Leasehold and Commonhold Reform Bill (2025).
Given the substantial number of measures that should make enfranchisement cheaper, we have ranked these reforms by the impact they would have on the cost of the enfranchisement process and also the proportion of leaseholders affected by each reform measure. Our ranking reveals that stopping leaseholders from paying development value and the setting of the capitalisation and deferment rates at current or higher levels should be considered as the highest priorities, due to the materiality of their effects and the proportion of leaseholders they affect.
Therefore, these two reforms must feature prominently in the overall reform process if the almost 5 million leasehold properties in England and Wales are to benefit from the reinvigoration of commonhold.
[1] Dr. Alexander Hamilton is an economic adviser and development economist at the UK’s Foreign, Commonwealth and Development Office (FCDO), where he specialises in the economies of the Middle East and North Africa. He writes on the economics of leasehold in a private capacity. The views in this article are his own, and do not necessarily reflect those of the FCDO or the UK government. His scholarly work can be found here: Alexander Hamilton – Google Scholar.
Related posts:
Freeholders’ development rights stand in the way of leaseholder enfranchisement – and the future of commonhold
Enfranchisement, commonhold and managing agent regulation are first up for the Law Commission
Even if government wins Judicial Review, half of all leaseholders could be left worse off by unfavourable deferment and capitalisation rates. (And conversion to commonhold would be toast, too)
If you want to reform enfranchisement push government hard, is message of Law Commission
No ‘clarity or concern’ over Law Commission proposals on enfranchisement reform, says ground rent fund Time Investments
Across from Pennycook’s office: Bad defeat for leaseholders as Court of Appeal says ‘reasonableness’ of costs means they followed a reasonable process. Not that they might be madly inflated
We disagree that the abolition or making more fair the marriage value element will be insignificant in the bigger picture. The lease on our family flat has 20 years remaining and, as ordinary people on very ordinary incomes and living in a average size flat, just wanting to remain in it and sell only if we can’t afford to live here, we can’t afford it as it runs into hundreds of thousands of pounds.
It may ‘only’ be 13% of leases below 80 years (another outrageous perk of a number given to mostly hereditary peers by the Tories in the 90s) but that number represents many individual lives currently on hold as the situation stands, and possibly 13% of leaseholder-households facing homelessness in the not so distant future.
Thank you, I couldn’t agree more. 13% is still a lot of people – whose lives are on hold because legislation is not being enacted.
If a 0.1% cap on ground rents was instituted, how would that affect Leaseholders with existing ground rents that equate to (in our case) 0.216%?
Would our ground rents of £250 pa be reduced to £125 pa which is perhaps what they should have been back in 2003?
Our freeholder ‘bought’ our freehold of 19 flats for a mere £52,250 in 2005 from the developer instead of going Commonhold which was available in law by then. As a consequence they have more than doubled their money since then and with a capital value review coming in 2028, will likely get even more unless LAFRA and all the other reforms SO NECESSARY take place before then. Meanwhile the misery continues …
Hi Ray,
The 0.1% cap in LAFRA, when commenced, will not cap the ground rents you pay right now. The cap only comes into effect when you undertake a lease extension or collective enfranchisement. In that case, and assuming the freeholder cannot prove that the flats were sold at a discount due to this ground rent, the premium payable would be calculated assuming that ground rents were capped at 0.1% of the value of the property for the purposes of calculating this premium.
Of course, the government has promised the regulation of current ground rents will form part of its draft Leasehold and Commonhold Reform Bill, but we don’t yet know what that means in practise.
They aim to ensure that ground rent remains affordable. This implies that the initial ground rent—agreed upon by the original leaseholder as affordable at the time—should stand. Any increases exceeding inflation should be disregarded, meaning that rent should only rise in line with what is set out in the lease or the Retail Prices Index (RPI).
To argue otherwise would only lead to further disputes, legal challenges, and appeals to the High Court or even Strasbourg. Large investment funds could absorb such battles, but this approach would particularly benefit leaseholders with 10- or 15-year doubling ground rent clauses.
The only objections are likely to come from those who initially agreed to high ground rents and now regret that decision, or from buyers of second-hand leases who believe the previous leaseholder accepted an unreasonably high initial rent. However, can we really accommodate such grievances without undermining the principles of contract law that uphold our legal system?
For the vast majority of leaseholder the ground rent is less than 85 pennies a day and if what I suggest is proposed then they see that rent never getting bigger in real terms throughout the term – The real problem with leasehold is over management and forfeiture and this is where the focus needs to be
Stephen,
You may of missed my reply to you with regard to the article by Mr Liam Spender titled “Losing their £5M judicial review against the leasehold reforms threatens freeholders long era of primacy. So, what next?
Reposted.
I would like to draw your attention to Luc Bowies post from October 27, 2025 on this site. I consider that analysis of the recent judgement on LAFRA to be exceptionally thorough and insightful.
Personally, I view leasehold and freehold as an outdated form of property servitude, originally intended to exploit leaseholders throughout the duration of their lease, and, in my opinion, should be abolished as soon as possible, and consigned to history’s dust bin.
If leasehold and freehold truly represents the ideal way to hold property, as some suggest, why is it that only England and Wales continue to use this medieval archaic system of tenure in the entire world?
The answer might be that this form of tenure provides vast sums of cash in return for nothing. Freeholders, Managing Agents and others have, in many cases, made a fortune out of the misery of leaseholders for decades and longer in my opinion.
It is worth noting Mr Spenders view with regard to the “Bottom Line” in which he writes “The freeholders business is rotten. It is exploitive. It brings misery to many leaseholders who find themselves paying all the bills with no control. And paying twice for the same flat when they come to extend their lease”.
I look forward to your reply and trust you will answer point by point.
You appear to be conflating ground rent with service charges. The qualification criteria for forming a Right to Manage (RTM) company have been relaxed, with the threshold reduced to 50%, and leaseholders are no longer required to pay the landlord’s costs.
Ground rent, being a contractual term, should generally be upheld, as all parties were professionally represented at the time the lease was agreed. However, I acknowledge that where the lessor was aware that the ground rent terms would not be fully appreciated—such as in cases of 10- or 15-year doublers—those provisions should be revised.
For instance, a leaseholder who purchased a flat valued at £250,000 with a ground rent of £350 would see only a modest reduction if the rent were lowered by £100. That leaseholder would have been aware of the ground rent obligation from the outset, their lender would have factored it into affordability assessments, and their solicitor would have reviewed and advised on it. It was a component of the overall financial package negotiated by the developer. Therefore, the imposition of restrictions on ground rents above 0.1% seems unwarranted. It is unsurprising that the decision will likely be appealed, with further challenges expected in the courts concerning capitalisation and deferment rates.
Had the Government addressed only the genuinely problematic rent structures, progress could already be underway. Allowing rent increases in line with the lease terms—or, where lower, the Retail Price Index (RPI)—would have resolved the 10- and 15-year doubling issue. Institutional investors holding large portfolios of index-linked rents would have accepted this approach, and the integrity of contract law would have been preserved.
Marriage value, of course, arises as a consequence of an excessively high deferment rate. If the deferment rate were aligned with the decline in the Ogden Rate (the recognised risk-free rate), it would stand at around 3.5%. Should the Government wish to assist leaseholders by setting it nearer to 4.25%, this would still deliver meaningful savings on lease extension premiums, while potentially appeasing the Great Estates—who hold firm views on marriage value—and, crucially, enable the Act’s implementation.
I do, however, support the proposal for freeholders to bear their own costs, particularly where they acquired their interest post-1993, as the risk of lease extension or enfranchisement was already known. For interests acquired prior to 1993, there remains a strong argument that landlords’ costs should be recoverable, at least in part.
It is important to remember that the primary purpose of the 2024 Act was to empower leaseholders to take greater control of their buildings. The qualifications for forming an RTM company have been significantly simplified, and freeholders must now bear their own costs. Accordingly, the justification for further interference in the costs associated with enfranchisement becomes increasingly difficult to sustain.
You are now reduced to quoting the appreal judges observations! Which proves you and your arguments are “finished”!
How would leaseholders withing council owned properties, mainly block of flats of different shapes and sizes, can get rights to manage, or buy freehold, etc. Councils are not stupid, they always keep amount of leasehold properties under 50% in a given block so leaseholders would not be able to buy. More over, it is difficult to get all leaseholders to agree to buy freehold because it is too expensive for someone.
I suggest that the new law should prohibit lease forfeiture, prohibit any leaseholder obligations to contribute for major works and repairs to the communal parts – at the end it is the freeholder’ property ( freeholder is not obliged to contribute to repairs and renewals of leasehold properties, why leaseholders should?) and prohibit reselling services including in service charged, only recharges of the costs to allow with transparent and fully disclosed service supplier bids to eliminate bribery and contract fixings.
The reforms have to be radical. Not to fluff around with a duster.
Comment Reply – Leasehold Knowledge Article
Harry Smith Taylor – Leaseholder [REDACTED] / Correspondent to Rachel Blake MP
This article rightly identifies development value as the core structural barrier to fair enfranchisement and the wider adoption of commonhold. In practice, “development uplift” has become a speculative instrument — routinely inflated by freeholder-appointed valuers and used to lock existing residents out of ownership of their own homes.
Many leaseholders are simultaneously confronting the same imbalance in another arena: the Building Safety Act 2022. Here, managing agents and freeholders are reclassifying large-scale improvement or redevelopment schemes as “maintenance,” ensuring recoverability through service charges. This mirrors the same enrichment mechanism that enfranchisement reform is supposed to dismantle. Unless government aligns both frameworks, wealth will continue to transfer upwards through disguised development value, eroding residents’ confidence and capital.
The Law Commission’s proposal for deferred overage was a balanced solution — ensuring former freeholders could only realise value if leaseholders themselves later redeveloped. Its omission from the Leasehold and Freehold Reform Act is therefore not a drafting gap but a policy failure that frustrates the government’s stated goal of ending feudal tenure.
Alongside legislative reform, an interim fiscal package is now essential to shift the economics of the freehold market and accelerate transition to commonhold. This could include: - A development value levy on bulk freehold portfolios to neutralise speculative uplift; - A progressive capital gains surcharge on freehold disposals to fund a National Commonhold Transition Fund, used to finance enfranchisement and collective conversion; and - Tax credits for resident-led acquisitions, incentivising collective ownership and disincentivising corporate warehousing of ground rent income.
These measures would immediately begin to devalue the residential freehold asset class, making enfranchisement financially viable while generating revenue to fund reform. Real change depends on integrating fiscal levers with legal reform, ensuring that commonhold is not just a legal construct but a financially deliverable outcome.
The forthcoming Leasehold and Commonhold Reform Bill is an opportunity to deliver this alignment. Without fiscal intervention, development value will remain the economic firewall protecting speculative freeholders and excluding the very homeowners the legislation was designed to empower.
It is also important to recognise that freeholders have enjoyed a windfall over the past two decades.
They never expected to gain such large premiums from ground rents, enfranchisement and lease extension payments — all magnified by a booming housing market and lucrative service charge commissions.
These unearned gains should now be subject to higher rates of taxation designed to devalue the leasehold system itself, with safeguards ensuring that no element of such tax burdens can be passed on to leaseholders.
This would represent a fair and fiscally responsible recalibration of property wealth, restoring balance between owners and occupiers – until such a time as the leasehold system is decommissioned as no longer fit for purpose.
Hear, hear!!!