Leasehold reform in England and Wales… and the position in Scotland

On 27 January 2026 the UK Government published the Commonhold and Leasehold Reform Bill in draft form (the “Bill”).

The Bill provides for far-reaching changes in the ownership structure for residential flats in England and Wales, which will have profound implications for investors, developers and occupiers in the residential and mixed-use sectors.

The key changes set out in the Bill fall into five areas:

1. The conventional way of owning a residential flat – by way of a long leasehold interest – will be abolished and replaced with commonhold. This will apply to existing flats as well as new developments. 
2. An overhaul and reform of commonhold as a replacement for leasehold.  Commonhold has existed since 2004 (introduced by the Commonhold and Leasehold Reform Act 2002) but has not been widely adopted.
3. A cap on ground rents payable under residential leases, limiting them to £250 per annum and reducing to a peppercorn after 40 years.
4. The abolition of forfeiture as a remedy for breaches of residential leases and its replacement with a statutory scheme of enforcement.
5. The abolition of some of the more draconian enforcement measures (including the power to take possession of the property or grant a lease) available under estate rent charges, which affect freehold properties on managed estates.

There is no doubt that these changes once enacted will impact investors, developers and occupiers. Ground rent portfolios, once so popular with institutional investors, will eventually cease to exist as an investment product and in the meantime will become far less attractive. Residential developers should start thinking now about the introduction of commonhold and what this means in terms of their execution, management of, and exit from residential flat developments. Buyers and occupiers of residential flats may welcome the shift to commonhold tenure, which aims to resolve some of the problems associated with being a residential leaseholder. 

Meanwhile in Scotland…

There are few areas in law where the different approach on either side of the border is starker. None of these changes will apply in Scotland – because the law in Scotland has evolved quite differently.

The widespread use of long leasehold tenure is absent in Scotland because the underlying law does not require it. In Scotland, title conditions can be created and enforced amongst owners, including positive obligations e.g. to maintain a roof, contribute towards the cost of maintaining landscaped areas, etc. Heritable (freehold) ownership, supported by title conditions imposed on that ownership (and usually the ability to enforce title conditions amongst related properties) is the standard approach in Scotland, even within flatted properties, horizontally divided. Using leasehold obligations to control such matters has been unnecessary.

Scotland retained the feudal system far longer than England (and most countries), only taking steps to end this in the last 50 years. The feudal system led to many benefits, including beautiful townscapes, such as Edinburgh’s New Town, which clearly shows what this system could achieve in a way that modern planning systems have failed to do. The feudal system had its downsides, akin to the issues being tackled by the Bill in England and Wales. 

When Scotland took steps to reform its feudal system, it was determined not to see it replaced by long leasehold tenure. Residential leases in Scotland are capped at 20 years with a limit of 175 years applying to commercial leases. The nature of Scottish property ownership and investment meant there was far less risk of long leasehold tenure gaining a foothold in Scotland’s commercial property market. 

Be prepared

The reforms proposed in the Bill mark a profound shift in how residential property is owned, managed and enforced in England and Wales. While many of the details will evolve through consultation and the parliamentary process, the direction of travel is unmistakable: a decisive move away from traditional leasehold and towards a modernised commonhold framework, supported by more proportionate enforcement mechanisms and a rebalancing of rights between homeowners and landlords. Stakeholders across the sector – developers, investors, funders, management companies and occupiers – should begin assessing the operational, commercial and legal implications now, so they are well positioned to navigate the transition once the legislation comes into force. If managed proactively, the reforms also present opportunities for more transparent, sustainable and consumer‑friendly ownership structures in the years ahead.

If you would like to discuss anything raised in this article, please get in touch with Kirsty Morley or Richard Rennie, or your usual Burness Paull contact. 

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