Commonhold: A new dawn for home ownership?

The Commonhold White Paper published on 3 March 2025 proposes a transformative shift in residential property ownership, aiming to replace the leasehold system with a more flexible commonhold model.

In England, property ownership is primarily divided into freehold and leasehold tenures. Freehold ownership is perpetual, while leasehold ownership is time-limited. Leasehold is the default for flats, with leases governing rights, obligations, and restrictions on use. Leasehold ownership has been criticised in the White Paper for several reasons. Leasehold properties are depreciating assets and extending leases can be costly. Ground rents can become financially burdensome, and service charge disputes are common. Restrictions on use and alterations limit homeowners' enjoyment of their properties, and the threat of forfeiture adds insecurity.

Commonhold offers a form of freehold ownership where individuals own a "unit" within a shared property and collectively manage shared areas through a commonhold association. This model, similar to those in North America, Australia, and Europe, was introduced in England in 2004 but has seen limited uptake due to its complex legal framework. It is unsuitable for mixed-use developments or shared ownership and has been criticised by lenders for failing to protect their interests. The White Paper seeks to highlight benefits for various stakeholders to address the flaws in the current regime.

Key Reforms in the White Paper

Incentives for Developers: To encourage developers to choose commonhold, the White Paper suggests greater flexibility in managing mixed-use developments. This includes creating "sections" within commonhold structures to separate commercial and residential interests, ensuring fair cost apportionment and voting rights.

Affordable Housing and Shared Ownership: The proposals aim to make commonhold viable for affordable housing and shared ownership schemes. Housing providers would own the freehold of units, with leases permitted for shared ownership. Shared owners would have access to the same services and could acquire the freehold once they own 100% of their unit.

Improved Management and Financial Stability: The reforms include measures to enhance management, such as mandatory reserve funds for major repairs and emergency works, compulsory insurance, and greater clarity on repair obligations. An expedited order for sale process for debt recovery aims to provide financial stability for the commonhold association. The commonhold budget will be subject to an annual vote requiring majority approval.

Flexibility and Safeguards: Commonhold relies on a standardised "rule book" known as the Commonhold Community Statement (CCS), with local rules that can be added or changed by unit owners. There will be greater clarity on what local rules can cover.

Converting Existing Leasehold Properties: Converting existing leasehold properties to commonhold is a significant challenge and one that the Government acknowledges needs more consideration. To convert to commonhold, interested leaseholders must first acquire the freehold of their building using their rights of enfranchisement and then convert to commonhold. The White Paper proposes reducing the threshold for conversion from unanimous agreement to 50% of leaseholders, removing the need for freeholder and lender consent.

For those leaseholders in favour of converting, this brings the elimination of ground rent and greater involvement in property management decisions. However, non-consenting flat owners would keep the status quo, potentially leaving a landlord with 50% of its equity tied up in a split conversion. The transition process will be challenging, particularly regarding the valuation and buyout of remaining leasehold interests, which could cause difficulties for landlords in managing their investments, securing financing, and servicing existing debt obligations.

This is the most concerning area of the White Paper, as it risks creating a two-tier regime over a single asset which cannot be consolidated. This will be to the detriment of all those with property interests in the building, with a risk of shortfall in repair and maintenance costs.  

Impact on Commercial Property: While the focus is on residential properties, the White Paper suggests that the reformed commonhold model could also be suitable for commercial properties, retail and industrial parks, and shopping centres.

Next Steps

The Ministry of Housing, Communities and Local Government (MHCLG) plans to publish a draft Leasehold and Commonhold Reform Bill for pre-legislative scrutiny later in the second half of 2025. This will include detailed proposals for converting existing leasehold properties and implementing the reformed commonhold regime. Consultations on banning new leasehold flats and introducing a new Code of Practice for commonhold management are also expected later this year.

This blog post is an abridged version of an article entitled "Commonhold is coming" first published by EG on 10 March 2025.

*Exclusive Client Briefing*

We have prepared a detailed briefing paper for our clients which examines the ways in which the Government intends to improve the commonhold system. It includes our thoughts on whether these aims are realistically achievable and how the conversion to a default commonhold ownership system will impact the UK real estate development and investment markets. To request a copy of the briefing, please contact us at realestatekls@hsf.com.