The Leasehold and Commonhold Reform Bill contains significant changes that are set to affect leasehold apartment blocks.
More details of the legislation – which will “take steps to bring the feudal leasehold system to an end”- should be available in the summer. New leasehold flats are to be banned as part of a drive to reinvigorate the commonhold tenure.
Ground rents for new leases have already been abolished. While this is good news for flat owners, anyone buying a leasehold flat will remain liable for service charges - which have made up an increasing chunk of household expenses.
Service charges, which cover bills for building maintenance and management, rose by an average of 11% in 2024, far outpacing the upward move in inflation. The annual average service charge in England and Wales is now £2,300. This reflects how rising utility bills, alongside higher wage and insurance costs, have added to leaseholder costs.
For the time being, we expect that the new law will not hit the sales prices of leasehold flats. In the future, however, the shift to commonhold could prove transformative for the values of flats in large blocks, especially those that are currently poorly managed at high cost.
On paper, commonhold will give owners more control over the management of the place where they live; theoretically they will be able to make more efficient running cost decisions and, potentially, reduce costs.
By contrast, the values of flats in leasehold blocks with ineffective management may suffer. Under the system, it can be difficult to challenge or improve poor standards. In fact, the values of flats in poorly run blocks where the charges are disproportionate to the services provided, are often already depressed. These costs deter buyers who prefer to seek out well-managed blocks with reasonable service charges.
If the owners of flats in leaseholder blocks gain more control, this should improve decision-making and reduce costs.
But management requires skills, and residents may not have the wherewithal to tackle the complex problems that can arise in larger buildings. As a result, even the owners of flats in commonhold blocks may still have to pay for professional expertise.
"Service charges, which cover bills for building maintenance and management, rose by an average of 11% in 2024."
Whatever the long-term impact of the Leasehold and Commonhold Reform Bill, there is likely to be a heightened focus on service charges, given the steep rises for all types of flats revealed in our research.
The amount of service charge payable on a flat is generally based on the area of the home, the age of the block and its amenities.
The annual average for a one-bedroom flat is now £2,007, 11.5% higher than a year ago. The average for a two-bedroom flat is £2,351, up 10.9% year-on-year, while the average for a three-bedroom flat is £2,977, up 7.7%.
The pace of increase has been most rapid in the North East, where the average has soared by 60.9% to an annual £2,048 over the past five years. In the North West, there has been a leap of 57.7% to £2,136.
This compares with rises of 39% in London and 21.5% in the South West. The annual averages in these regions are £2,663 and £2,028, respectively.
Residents of larger blocks with more facilities have been hit the hardest with the most substantial rises. There is a premium of 16% (£364) for the provision of a lift, and 24% (£561) for a gym. A concierge adds 39% (£561).
The extra sums payable for expensive services such as gyms and concierges are the reason why charges have jumped further in the North East and the North West. More city centre developments, equipped with all the extras, have been built in those regions. But given the scale of service charges today, new buyers are likely to become increasingly wary of such amenities, only buying into developments that offer features they’ll really use.
