Knight Frank has warned that aspects of the government’s leasehold reform agenda could create uncertainty across the housing market, despite backing the broader objective of giving leaseholders greater control over their homes.
Responding to the latest proposals on commonhold and ground rents, the agency said there were a number of “red flags” that policymakers should address to avoid unintended consequences for leaseholders, freeholders and lenders.
Among its chief concerns is a proposal that would allow leaseholders to convert a building to commonhold with the support of just 50% of owners. Knight Frank argues that such a threshold could result in significant changes being imposed on leaseholders who voted against the move or chose not to participate, potentially creating disputes and complicating ownership structures.
The agency said reform remains necessary, but warned that the detail of the legislation will be crucial if ministers are to avoid disrupting confidence in the apartment market while transitioning away from the traditional leasehold model.
Jeremy Dharmasena, head of Leasehold Reform & Litigation at Knight Frank, commented: “We support the Government’s ambition to empower leaseholders fairly, but there are clear red flags within the cross-party HCLG committee report that should be addressed.
“In particular, trying to make commonhold the default tenure following a collective claim raises concerns for ‘opting out’ leaseholders because under the proposals, only a 50% vote could result in those non-participants being effectively bounced into commonhold – forcing them down a path they have little control over, with uncertain implications for future value and resale appeal of their property. It could even deter enfranchisement altogether. There is a misconception that commonhold will resolve all problems for leaseholders, but in reality it won’t fix the underlying issue of the rising costs involved in running a building and its inevitable repairs – costs that will still fall on residents under a commonhold model.
“There are also inconsistencies between the proposed £250 ground rent cap and existing provisions in the Leasehold and Freehold Reform Act 2024, alongside concerns about retrospectively altering lease terms and the message this sends to investors. A 40-year period to reduce ground rents represents a fairer solution, but the suggested 20 years risks being overly punitive to freeholders. Proposals for tenants to defer development value in collective claims could restrict future development and undervalue freeholders’ assets at the point of enfranchisement.
“Finally, while we would encourage the regulation of property managers, questions remain around how this would be effectively enforced. Overall, while some recommendations are positive, the bill in its current form risks creating uncertainty and unintended consequences for both leaseholders and freeholders.”
MPs urge government to accelerate and strengthen leasehold reform
