"Leasehold reform undoubtedly marks the end of certain traditional investment approaches. However, it does not signal the end of residential property as an attractive asset class. Instead, it represents a rebalancing of risk and reward"
- Simon Mydlowski - Clarion
The Government’s proposed reforms to the leasehold system in England and Wales represent a shift in how residential property assets will be owned, valued and managed in the future. While much of the public narrative has been centred on improving outcomes for homeowners, the reforms have significant implications for property investors, developers and fund managers with exposure to leasehold stock.
At their core, the changes signal a move away from historic investment models that relied on complexity, control and ground rent income, and towards a more transparent and standardised framework. For investors, this will not remove opportunity from the residential sector, but it will change where value is derived and how risk is assessed.
A structural shift in income models
One of the most immediate impacts for investors is the effective dismantling of traditional ground rent-based income streams. Ground rents have long been treated as a low-risk, long-term return, particularly attractive to institutional investors seeking predictable cash flow. However, they have also become a regulatory and reputational flashpoint.
The proposed cap on ground rents will significantly reduce the value of assets where income projections were heavily reliant on rent escalation clauses. In practice, this means that portfolios acquired based on future ground rent growth may face valuation pressure, particularly as buyers and lenders factor the reforms into pricing models.
That said, many investors have already been moving away from ground rent dependency, focusing instead on capital appreciation, service charge recoverability and operational efficiency. For these investors, the reforms may have a more limited financial impact and could even enhance asset liquidity by removing an increasingly unattractive feature for purchasers and mortgage providers.
Valuation, liquidity and lender confidence
From a valuation perspective, the reforms are likely to create greater differentiation between assets. Properties with simple, transparent lease structures and nominal or peppercorn ground rents are expected to perform more strongly, as they align with lender expectations and consumer demand.
Conversely, assets with complex leases, unfavourable or restrictive rent review clauses or limited enfranchisement rights may become harder to sell or refinance. This will place pressure on investors to actively review their holdings and consider whether lease variations or restructurings are commercially justified to protect long-term value.
Importantly, increased standardisation across the leasehold market may improve lender confidence. Greater certainty around lease terms and occupier rights reduces legal risk, which in turn supports financing availability. For investors operating at scale, this stability may partially offset the loss of certain legacy income streams.
Commonhold and the future investment landscape
The renewed emphasis on commonhold represents a more fundamental challenge to established investment structures. Commonhold removes the traditional freehold layer entirely, replacing it with unit ownership and collective management by occupiers.
For investors accustomed to freehold-based returns, this model initially appears unattractive. However, commonhold may have longer-term strategic advantages. It has the potential to reduce disputes, improve cost transparency and align the interests of occupiers, developers and managers more closely.
Whether commonhold becomes a mainstream alternative will depend on how flexible and commercially viable the final legislative framework proves to be. If investors and developers can adopt alternative funding structures alongside effective management and long-term stewardship models, commonhold could support new forms of residential investment focused on stability rather than control.
Early engagement will be critical. Investors who understand how commonhold could be integrated into development and operational strategies will be better positioned than those who treat it solely as a threat.
Implications for development strategy
For developers and their investors, the reforms reinforce the importance of future-proofing schemes from the outset. Lease structures that were once industry standard may soon be viewed as outdated or non-compliant with both regulatory expectations and market sentiment.
Developments that prioritise clarity, fairness and long-term occupier confidence are likely to be more resilient in a changing market. This has implications not only for legal structuring, but also for branding, sales strategy and exit planning.
From an investment perspective, developments aligned with the direction of reform may benefit from stronger demand and fewer post-completion disputes, reducing long-term management costs and reputational risk.
Timelines, uncertainty and investor preparedness
While the publication of the Commonhold and Leasehold Reform Bill will provide greater clarity, investors should not underestimate the importance of preparation. The reforms are part of a broader policy trajectory rather than a one-off legislative event.
Now is the time for investors to review portfolios, reassess assumptions around income and exit values, and take advice on how proposed changes may affect specific asset classes. Stress-testing existing models against a more regulated, leaseholder-friendly environment will be essential.
Crucially, investors should view the reforms not simply as a loss of historic advantages, but as an opportunity to participate in a more stable and sustainable residential market. Greater transparency and fairness for occupiers can support long-term demand, which ultimately underpins investment performance.
A changing market, not a diminished one
Leasehold reform undoubtedly marks the end of certain traditional investment approaches. However, it does not signal the end of residential property as an attractive asset class. Instead, it represents a rebalancing of risk and reward.
Investors who adapt early, engage with the detail of the reforms and align their strategies with the direction of travel are likely to find that the market remains robust -albeit fundamentally different from the one that came before.
