Earlier this year, the Government announced its plans to abolish the leasehold system as we know it, to enable freehold ownership of flats/homes, shared commercial buildings and mixed-use buildings. This is undoubtedly one of the biggest shake-ups in property law, certainly during my career!
Commonhold is not a new concept, with it first being introduced by the Commonhold and Leasehold Reform Act (2002 Act) in May 2002, with an objective of improving leaseholder’s rights- by giving owners more autonomy and control over their property assets.
Angela Rayner, the Deputy Prime Minister recently said: ”There was work done on leasehold reform by the previous government, but there were big gaps within that bill which were quite complex… there is importance to making sure that we’re able to influence that legislation and bring commonhold as the default position.”
So, what is commonhold?
A commonhold consists of separate commonhold units and common parts. The owners of the units are called unit-holders. The common parts are shared facilities. In a shared building, the common parts may include facilities such as the roof, stairs and landings. On an estate, they might include common access roads or car parking. The common parts are owned and managed by a Commonhold Association (CA), and each unit-holder is entitled to be a member of the CA.
Unit-holders therefore have two distinct interests in their commonhold. The first is a direct interest in their unit and the second is membership in the CA (which owns the common parts) and this ownership structure can be used for both residential and commercial buildings.
Why was commonhold introduced by the 2002 Act?
- To enable the freehold ownership of flats and shared commercial/mixed-use buildings. Commonhold enables flats/shared buildings to be owned on a freehold basis so that owners’ interests can last forever and it gives the decision-making power to the owners. As opposed to a lease term that will expire in the future, and where there decision-making powers are limited and dealt with by the landlord/management company.
- It addresses some of the key problems associated with leasehold property, in particular escalating ground rents and uncertainty regarding maintenance responsibilities and costs.
- Unlike freehold ownership, commonhold provides a straightforward legal mechanism for making the burden of positive covenants (such as an obligation to pay towards maintenance and services) bind successive owners.
- It is a way of enabling the freehold ownership of flats and buildings and avoiding the shortcomings of leasehold ownership.
- Commonholders will have absolute control over managing and making decisions about the costs of their building and/or estate.
Issues with the 2002 Act/current commonhold regime
The process of creating a commonhold (including the conversion of existing leaseholds) is not straight forward. There have been suggestions that the procedure for creating and registering commonhold need to simplified and can it be made easier for leaseholders to convert. Conversion currently requires the unanimous consent of the freeholder, all other leaseholders in the building and their lenders- the Government are looking to simplify this process.
The commonhold model needs to be more sophisticated and flexible to meet the needs of communities and developers, by creating “sub-commonholds” to deal with different parts of commonhold schemes (such as in mixed-use developments) and allowing costs to be shared between unit-holders to reflect actual use of amenities and services.
There is uncertainty of what the corporate structure of CAs will be, will they be a company limited by guarantee or another appropriate structure.
We also need to balance developer rights and consumer protection rights. How can we ensure developers have sufficient power to complete the development whilst affording protection to unit-holders (and lenders).
Commonhold White Paper
The Government issued a Whitepaper on the 3rd March 2025, which sets out the Government’s intention to overhaul the current leasehold system by:
- Prohibiting the granting any long leases of flats and new buildings, with commonhold being the default tenure (with the exception of shared ownership and home purchase plans).
- Setting out rights, responsibilities and rules of CA’s in a Commonhold Community Statement (CCS). The CCS will also contain provisions relating to dispute resolution and the processes for handling issues within a commonhold.
- Ensuring unit holders will be members of a Commonhold Association in respect of
shared/common parts. - Allowing commercial property and mixed-use development to operate under commonhold tenure.
- Making the conversion of existing leasehold schemes to commonhold easier.
The advantages of commonhold
Whilst there are a number of benefits of commonhold tenure for owners/consumers, lenders and developers will also seek to benefit. Lenders will have greater security in respect of their equity, without risk of forfeiture. Developer’s will have greater flexibility in managing mixed-use developments, by creating sub-commonholds that will ensure fair costs for services across schemes.
What could commonhold mean for Local Government (“LG”) clients?
The freeholder/management company role may become redundant as the unit-holders will manage building and common parts. This will impact LG client’s Housing Revenue Accounts for clients with large landholdings.
Ground Rents will be eliminated; therefore LG client’s that currently rely on ground rents from leaseholders may see a reduction in income if commonhold becomes widespread.
There will no doubt be issued in the transition between leasehold to commonhold. Freeholders who currently own leasehold properties will face challenges in transitioning, depending on how the system is rolled out. This could include legal, financial, and logistical hurdles for clients.
What to watch out for
The Government has pledged to issue a draft Leasehold and Commonhold Reform Bill in the second half of 2025, which will outline the Government’s proposals in detail. It’s clear that the Government’s ambition to reinvigorate Commonhold is high on the agenda. It will be interesting to see if the 2002 Act (a rushed through piece of legislation) will be scrapped altogether and replaced by a more consolidated piece of legislation that better achieve its aims to reinvigorate commonhold. Let’s wait and see…
For more information
For more information, please contact Raj Flora-Seehra.