Commonhold: the revival?

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Commonhold: the revival?

05 March 2025

The Government’s manifesto included a clear commitment to reinvigorate commonhold and instil it as the default tenure. The announcement of 3 March 2025, following the statement made in November 2024, signals the start of the process of delivering on this promise.

The intention is for commonhold to be the default tenure, in the future, for shared residential flats and mixed-use blocks going forward. This was an anticipated step and one which we flagged in our 2025 outlook.

The Government is aware that previous efforts to promote commonhold tenure have not been successful, as a result of legal complexities. With this in mind, the Commonhold White Paper (White Paper), published on 3 March 2025, is a revised framework for delivering commonhold which “should provide assurance that known flaws will be addressed.” The main change will be that commonhold will be default – commonhold is currently an option but remains voluntary and is therefore little incentivised in the market. For a summary of what commonhold is and the “known flaws” you can access our explanatory article. The Government has also issued guidance (updated 3 March 2025) which is a brief factual explainer of how commonhold works.

The Government intends to implement most of the recommendations set out in the Law Commission’s 2020 report. You can find out more detail about this in our article on Leasehold and commonhold home ownership: Law Commission reports. For a full list of the recommendations that have been accepted see Annex 1 of the White Paper.

Timing

In terms of timing, the Government intends to provide a draft Bill for pre-legislative scrutiny “to help get the details right.”

Draft legislation will be published later this year and will be “followed by a Leasehold and Commonhold Reform Bill.” Transitional arrangements are anticipated which will allow for a period of adjustment rather than an overnight change (of the sort anticipated by the Renters’ Rights Bill).

A consultation will also be launched later this year and will seek both industry and consumer responses to the banning of new leasehold flats. The Government has indicated that there may still be a number of “limited” exemptions from the proposed ban and has suggested that there may be instances where leasehold “may still be justified or where it may remain preferable to the reformed commonhold model.” Notably, the ban on new leasehold houses introduced by the Leasehold and Freehold Reform Act 2024 includes exemptions, some of which were criticised for their breadth (for more information, please see our article on Residential leasehold reform and our earlier thinking on the matter in our article The beginning of the end for the residential long lease?). The category of exemptions to commonhold arrangements might be expected to draw similar scrutiny.

Proposed advantages

The Government outlines the following potential tenant advantages of commonhold in the White Paper.

Freedom: it has greater benefit to a tenant than a “share of freehold” since tenants who exercise their right to acquire a share of freehold, and obtaining management of their buildings, still have to occupy under a lease and be bound both by covenants within their lease and by leasehold legislation, which the Government suggests is designed to protect tenants where there is a third party landlord rather than where the building is tenant-owned. Share of freehold can “split” a building where not all tenants participate in the enfranchisement process, whereas commonhold would establish a share for all from the start.
Democracy: it has greater “democracy” because it is specifically designed for management of a building without a landlord. Tenants will be able to share the governance and spend on their building and, theoretically at least, increase accountability and direct contact/recourse (through a “commonhold association”) which may not exist with a landlord/tenant relationship (particularly with a hands-off investor landlord), or which may be more fragmented in a share of ownership arrangement. The most obvious impact will be to service charges and associated disputes which the Government believes will be mitigated since all commonhold unit owners will be involved in budget setting. Disputes will be governed by a CCS (see below) and the Government anticipates this will result in greater alignment of tenant interests and result in fewer disputes. It will remain possible to refer disagreements to the Tribunal.
Flexibility: a Commonhold Community Statement (CCS) will set out how the block should be run. This will provide a “clear and standardised rule book". The comparative ease by which a CCS can be changed by unit holders (and Government) means that the rigidity of leasehold arrangements (such as frequency of recovery of service charge) can be circumvented. This can allow unit owners to respond to day-to-day matters more quickly and appropriately rather than being confined to mechanics within leases which would require formal variation (and the associated costs and time incurred).

New proposals

The Government has set out a broad framework to bring forward commonhold, it includes proposals set out in the sections below.

Commonhold to work for all types of developments, including mixed use and larger developments.

It is hoped this will make it easier for developers to implement a commonhold tenure type in their new developments. The proposals include:

making a wider remit of leases (such as shared ownership leases) available to commonhold structuring;
providing developers with “more flexible rights about how to build and sell a commonhold” which will include the ability to section buildings (both during and post construction) and phase development sites. The detail of the draft legislation will be key to understanding how expanding such development rights will be achieved in the most complex of buildings and estates which combine various uses, occupants, interests (business/residential) and designs; and
sectioning of costs to ensure that owners only pay towards services and areas that they use.

Increasing flexibility and safeguards for unit owners.

This will include refining the CCS to provide for:

greater clarity around the rules governing reserve funds (e.g. they will be mandatory and must be held on statutory trust) and introducing a mechanism for establishing multiple funds to ensure adequate coverage for costs of repairs and maintenance;
improvements to the mechanism for appointing directors to address circumstances where there are unwilling volunteers;
changes to the process for amending “local rules” (non-standard and bespoke rules forming part of the CCS) by: (1) increasing the threshold from 50% to 75% to prevent rules from being changed too easily and without majority support from unit owners; (2) to allow these rules to be used to restrict short term letting arrangements (e.g. holiday lets); (3) to allow for minority voters to go to the Tribunal; and (4) to make these rules more transparent;
preventing the use of “event fees” (such as exit fees) unless the commonhold is a dedicated retirement development;
setting out clear standards of repair to make sure that commonhold buildings are properly and adequately maintained and to provide a limit on the standard required, such that it is not an open-ended liability. Establishing an easier method of approval for minor alterations; and
making local rules and budgets more transparent. The budget will be subject to a yearly vote and must pass by a majority, and in absence of agreement, the previous year’s budget will roll-over.

Fixing things when they go wrong (ensuring repairs and disputes can be readily addressed).

This will include:

introducing measures whereby a commonhold association can secure a loan against common parts of the building (fixed charge) or against future contributions (floating charge). This will enable commonhold unit owners to respond quickly, and with the funds required, to address emergency works, unexpected costs, or shortfalls. There will also be powers for commonholds to sell parts of their building off for such purposes;
these decisions will require unanimous decision making or, at the very least an 80% majority. Where unit owners have mortgages over their properties, the Tribunal will determine if such measures are appropriate.

More effective dispute resolution procedures.

This will include:

improving the efficiency and clarity of dispute procedures available to unit holders through promotion of out-of-court resolution options (with referral to the Tribunal as a backstop) and reducing administrative steps; and
keeping the possibility of a regulator/ombudsman under review and making membership of and referral to an ombudsman voluntary for the time being.

Better enforcement and recovery of debts.

This will include:

increasing the powers of commonhold associations to recover unpaid amounts (e.g. insurance costs, utilities costs) from unit owners; and
introducing safeguards for unit holders to protect against the increased powers and to ensure that sale of a property can only occur in specific circumstances.

Strengthening of minority protections.

This will include:

giving unit owners the right to challenge key decisions of the commonhold at the Tribunal if such decisions have an unfair impact. They key decisions will relate to variation of a CCS, creation or combining sections within the building, and approving a budget that exceeds an agreed threshold in the CCS.

Improving the arrangements for buying and selling commonholds.

This will include:

requiring better provision of information in the sales process, including details about arrears and the financial position of the commonhold; and
improving the Commonhold Unit Information Certificate which must be provided to commonhold buyers.

Improving the process for winding up a commonhold.

This will include:

introducing more robust mechanisms to respond in the event that a commonhold becomes insolvent;
publishing better guidance on the circumstances in which a “successor association” can be appointed and the process by which that appointment is effected; and
improving the voluntary termination process to ensure a “fair and balanced outcome for all unit owners” through voting rights and an ultimate backstop of a court decision. The process by which vacant possession is achieved and the valuation of the property will also be improved. The mechanism will also be adaptable to circumstances in which the building is sectioned and a section is to be sold off separately.

Lenders

Many of the proposed changes will, it is anticipated, also benefit lenders. Since there will be no lease and no forfeiture right, the value of the unit will not be reduced year on year and equity will remain secure. It is intended that the various measures relating to maintenance funds and budgets should also mitigate the change of commonhold insolvency. Lenders will also have routes of recourse to protect their security in the event that a property is subject to an order for sale resulting from unpaid debts and in event of commonhold insolvency.

Comparison with other jurisdictions

The Government draws comparisons between the proposals in the White Paper and the success of similar apartment models in other jurisdictions including Scotland, North America and Australia. However, in addition to a legal change, there is likely to be a need for a cultural shift: the longtime-leasehold system has been embedded in English law and psyche from feudal times and for all of the criticism of that system, there may well be resistance from those who prefer the relative comfort of a known entity.

Potential for further reform

In the White Paper, the Government anticipates possible further reform in this area. It believes that “the reformed commonhold model may also be suitable for wider settings such as commercial blocks, or retail and industrial parks and shopping centres, where it will enable separate units to be sold freehold with clear rules and procedures to manage the communal amenities or spaces.”

The Government anticipates that existing leaseholders may wish to convert to commonhold once it is embedded and the market matures. The Government’s reforms are intended to “make it easier to convert an existing leasehold building to commonhold” which will be achieved by leaseholders initially enfranchising.

It has been reported that “the Government have yet to set out specific plans for the conversion of current leasehold properties to commonhold” and it will be interesting to monitor if, and how the Government proposes to address existing arrangements (i.e. converting existing leasehold to commonhold). Presently, tenants already have means by which to increase their ownership/control of their leaseholds, for example, through acquisition of a share of freehold with a 999-year lease, or via the RTM route. The Government wants to find an easier way to convert existing leaseholds to commonhold, starting with a reduction to the consent threshold (from 100% to 50%), however it acknowledges that there are issues with this (i.e. the effect on non-consenting leaseholders), which would need to be addressed.

Conclusion

Initial reports suggest that there has been a mixed reaction from the property industry.

The jigsaw puzzle of legislation and regulation that has been passed, or which is in contemplation, has the potential to dramatically change the landscape both for existing and future tenants and property owners.

On the whole, it is unclear, in the absence of draft legislation, how these new proposals will dovetail with the changes that have been made under existing legislation such as the Leasehold and Freehold Reform Act 2024 and the changes which are anticipated under the Renters’ Rights Bill.

From a tenant perspective, commonhold has the potential to empower tenants with the day-to-day control of their homes and their repair and maintenance budget. However, it will also be necessary to understand what liabilities and responsibilities will be taken on by a commonhold association given that the third-party landlord (who may be experienced in dealing with such matters) will be removed from the equation. This might include responsibilities relating to fire and structural safety under the Building Safety Act 2022, or arrangements such as the procuring of building works and planning approvals, as such tenants may need to outsource management to professional agents/contractors.

From a landlord perspective, investors and developers will be keeping a close eye on the impact that these changes will have on their existing portfolios and their future investment strategies. The White Paper advises that “the lead in time for new development means that all relevant parts of the housing market should start to consider the implications of a switch from use of leasehold to reformed commonhold now.”

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