Commonhold has been heralded as the future of home ownership - a replacement for much criticized leasehold.The government has confident plans stating its intention in a recent white paper for commonhold to become the default tenure for flats by the end of this parliament. This announcement led to bold media headlines: “Labour to ban centuries-old leasehold system”, “Sale of new leasehold flats to be banned….Labour plan to end ‘feudal’ system”.
Looking behind the headlines, why is commonhold needed, what is it all about, and how would the government’s plans affect social housing?
Most flats in England (and Wales) are owned leasehold, and for good reason. Leases are an effective way to create legally enforceable obligations for the repair, maintenance and insurance of common parts on flatted developments.
However, leases have come under sustained criticism for many reasons, including for high service charge costs, unaccountable landlords, expensive lease extensions and poor-quality services.
Commonhold is being positioned as an answer to these leasehold flaws by replacing the sometimes adversarial landlord and leaseholder relationship with a collective management approach.
Commonhold already exists in various forms in other countries, for example strata title in Australia and condominium in the USA, and commonhold already exists in England and Wales. It was introduced by The Commonhold and Leasehold Reform Act 2002 but has gained little traction in the housing market for several reasons, including its incompatibility with affordable housing.
In 2017, the previous government asked the Law Commission to look at ways to reinvigorate commonhold. The Law Commission reported back in 2020, and in March this year the current government published a white paper setting out its intention to adopt the majority of the Law Commission’s recommendations for reform of the existing legislation.
The recommendations are legally complex, but not necessarily radical; they are tweaks and improvements intended to make commonhold a more attractive proposition to lenders, owners and developers.
A flat owner will be known as a Unit Owner and will have a freehold interest in their individual flat. The common parts of the development (such as the structure and roof, lifts, service media, landscaping, car park) will be owned on a freehold basis by the Commonhold Association who will be responsible for insurance and maintenance of the common parts.
Much like owners’ management companies, the Commonhold Association will be a company limited by guarantee and all Unit Owners will be members of the Commonhold Association and will be able to vote on issues affecting the development such as services, maintenance costs and annual budget, the level of the compulsory reserve fund and local rules, such as a pet policy.
A Commonhold Community Statement, the form and content of which will be prescribed by statute, will govern the relationship between the Unit Owners and the Commonhold Association and will set out the rules, right and requirements of the development.
As flats will be owned freehold, there will be no lease term to run down, no ground rents and no leasehold service charges, although Unit Owners will pay maintenance, management and insurance costs to the Commonhold Association.
The Commonhold Association may vote to appoint a managing agent to deal with management and maintenance of a development, and it is likely that that in higher risk buildings it will be compulsory to appoint a professional director or manager to ensure compliance with complex health and safety requirements.
The government has promised that draft legislation will be published in the latter half of 2025. The legislation is likely to be complex, so it may take some time to go through the parliamentary process. Commonhold will be optional initially (as it is now), but the government intends to ban the grant of new leases, making commonhold effectively compulsory on new flatted developments, by the end of this parliament.
Once commonhold is established, to avoid an enduring split system of commonhold and leasehold, the logical next step would be compulsory conversion of existing residential leasehold developments to commonhold. This is not part of the government’s immediate plans, in part due to the challenges of how to make conversion easier and cheaper for leaseholders, but this is something the government says it is actively investigating.
New commonhold will be designed to work with affordable housing. While RPs can own commonhold units under the existing legislation and grant tenancies of those units, long leases (over seven years) are not currently permitted, so that means there can be no shared ownership leases in a commonhold structure. The proposals for reform will change this and allow, among other exceptions, the grant of shared ownership leases. There is detail to be considered in the legislation, in particular the voting rights of shared owners in the Commonhold Association.
In other ways it remains to be seen how commonhold will work in practice with affordable housing developments, and how the housing industry generally will adopt and adapt to commonhold, but it does raise some immediate questions.
On land-led schemes, will RPs want to, or indeed be required to, set up their rented flatted developments as commonhold for future proofing? Will statutory rights to buy/acquire be an exception to the ban on the grant of new leases?
On S106 acquisitions, will developers set up commonhold schemes to include the affordable housing, or will RPs want the affordable element to be separate to keep a clean division of management responsibilities?
Will commonhold schemes reduce or increase maintenance costs, and how will affordability be controlled? Will RPs need to take a more active role – possibly as managing agent – in Commonhold Associations?If management of mixed tenure schemes via a Commonhold Association is not an attractive proposition, will we see a move towards greater segregation of tenures?
It is too soon to answer these questions, but what is certain is that there is going to be a steep learning curve for everyone in the housing sector. Commonhold requires a different approach to leasehold, and RPs will need to adjust to new documentation, new ways of managing developments and dealing with maintenance charges, and new approaches to selling affordable and market homes.
The government has made some bold promises on commonhold becoming the default tenure for flatted developments by the end of this parliament; whether it succeeds remains to be seen and will very much depend on the government being able to secure support from key stakeholders including developers, lenders, consumers and RPs.
Commonhold will impact social housing, initially on new developments, and RPs will need to keep an eye on the legal changes and understand the impact on their S106 acquisitions and land-led schemes.
| Unit owners | Freehold owners of individual units (flats or houses or commercial premises) in a development. |
| Commonhold Association | A company limited by guarantee which all unit owners are members of. It manages the commonhold and owns the common parts. |
| Commonhold Community Statement | A standardised document which acts as the commonhold’s “rule book”. It sets out the rights and obligations of unit owners and the commonhold association. |
| Reserve Fund | A pool of money which is set aside to cover the costs of future, one-off or major works needed in the commonhold, such as replacement of a lift or roof. |
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