Property investors holding leasehold flats have been told they could be left sitting on near-unsellable assets if Labour pushes ahead with its flagship overhaul of the leasehold system, according to submissions filed to the Government’s commonhold consultation.
The warning comes as ministers move to deliver the manifesto pledge to dismantle what Sir Keir Starmer’s party has repeatedly branded a “feudal” system of tenure. Under the proposals, all new flats would be sold as commonhold rather than leasehold, ground rents on existing leases would be capped at £250, and the system would be wound up entirely by 2068. Forfeiture, the controversial mechanism by which freeholders can repossess a flat over relatively modest debts, would be scrapped.
The closed consultation drew 187 written responses from leaseholders, campaign groups, lawyers, lenders and institutional investors. A recurring theme, according to submissions seen by Property Portfolio Investor, is that the reforms in their current form would create a sharp split between desirable commonhold stock and tainted legacy leasehold flats, with buyers shunning the latter.
One leaseholder told the Government the draft Leasehold and Commonhold Reform Bill would, far from liberating them, “condemn” them to a two-tier market in which their flat became materially harder to shift. Another argued that a two-tier market is already emerging following the 2022 ban on ground rents in new leases, leaving owners of older leases with onerous ground rent clauses at an obvious commercial disadvantage.
Caroline Wild, a lawyer at the firm Forsters, said the draft bill “prioritises future commonhold developments” while failing to give existing leaseholders a workable, affordable and time-limited route to convert. The risk, she warned, is that commonhold quickly comes to be regarded as the superior tenure, leaving leasehold flats harder to sell and harder to mortgage.
For investors, the implications are already showing up in pricing. The average value of a flat or maisonette in London has slipped from £450,000 in January 2025 to £431,000 a year later, a fall of around 4.2 per cent, according to official figures. There are an estimated five million leasehold homes across the UK, the overwhelming majority of them flats, and London is disproportionately exposed.
Critics also question whether commonhold itself, in which residents jointly own and run their building through a Commonhold Association rather than answering to a third-party freeholder, will work in practice. Simon Carne, chairman of RG Kensington Management Company, told the Government that the proposed framework was “utterly naïve” about how quickly relations between neighbours can sour without skilled stewardship at the top.
Mortgage lenders have raised separate concerns. UK Finance, the industry trade body, said updating systems and processes to accommodate commonhold lending could cost individual firms many millions of pounds, costs that may ultimately filter through to borrowers.
Pension funds and other long-term institutional investors have gone further, warning that the retrospective capping of ground rents undermines the UK’s reputation as a stable home for capital. Nationwide, which oversees a £7bn pension scheme, said such interventions damage the country’s international standing as an investment destination.
A further headache is that much of the package depends on the smooth implementation of the Leasehold and Freehold Reform Act, passed in May 2024, which has been bogged down in legal challenge. The campaign group Justice for Property Rights was launched earlier this month to mount a case at the European Court of Human Rights, while at the beginning of April the Court of Appeal handed a victory to major freeholders, including Cadogan Estates and Grosvenor, in the domestic courts.
The Ministry of Housing rejected the suggestion that leaseholders would be left worse off. A spokesman said the reforms would in fact make buying and selling leasehold flats easier by capping ground rents, improving transparency on service charges and ultimately handing control to homeowners. Too many people, the department said, had been “victims” of the existing system, and ministers were determined to end it.
For property investors weighing exposure to the UK flats market, the practical question is no longer whether reform is coming but how to position for it. The risk-reward calculation on legacy leasehold stock, particularly in London, looks materially different now that lenders, lawyers and leaseholders themselves are openly warning of a two-tier market. Investors with significant leasehold holdings will want to scrutinise lease terms, ground rent profiles and the realistic prospect of conversion to commonhold long before the bill reaches the statute book.
