Proposals for commonhold to replace leasehold as tenure for new flats

Summary

The Government has published a White paper proposing a reinvigorated form of commonhold as a new form of ownership for flat owners. New leasehold flats will be banned and will be replaced by commonhold as the default tenure, with flat owners becoming commonhold unit owners. Commonhold will give flat owners a stake in the ownership of their buildings, providing them with greater control, power and security over their properties.

Key aspects of the proposed reformed commonhold in the White paper include:

• Commonhold will apply to all types of developments, including mixed-use schemes. There will be flexibility for developers in constructing and selling commonhold schemes.
• It will be cheaper, quicker and simpler for existing leaseholders to convert to commonhold.
• The commonhold unit owners will have more control over the operation of the commonhold.
• New powers to replace directors of the commonhold association who do not comply with the rules of the commonhold.
• Making it easier to take action against those who fail to pay their share of the commonhold’s costs.
• Mortgage lenders will have protections and the solvency of commonhold association will also be protected.

While the proposed reforms naturally lend themselves to a new build situation, the question of the conversion of existing leasehold blocks to commonholds is also a crucial one. The Government wants to get to a position where the consent threshold for conversion to commonhold mirrors that for enfranchisement, which is 50%. Another key point to address will be leaseholders within a block who do not wish to or cannot afford to take part in the conversion.

The draft Leasehold and Commonhold Reform Bill containing the new commonhold framework will be published in the second half of 2025 for pre-legislative scrutiny.

Following the conclusion of this scrutiny, the Government intends to bring forward a Bill to implement the revised commonhold model and bring forward measures to introduce a ban on the use of leasehold for new flats.

While the White paper discusses the conversion of existing leasehold blocks to commonholds, more detail will be needed to understand the extent to which owners of existing residential or mixed-use buildings may be required to adopt commonhold.

In that regard, the Government’s full consultation later this year on a ban on the use of leasehold for new flats will be crucial and the consultation will seek input on fundamental points such as potential exemptions for legitimate use and how to minimise disruption to housing supply.

Commonhold is nothing new

The legal framework for the commonhold ownership of land in England and Wales was contained in the Commonhold and Leasehold Reform Act 2002 and was introduced in September 2004.

Commonhold allows for freehold ownership of a single property (known as a commonhold unit and an example being a flat) within a larger development, plus membership of a company (the commonhold association) that owns and manages the common parts of the development. This ensures that the unit owner (such as the flat owner) is, together with their fellow unit owners, in control of the development.

The Commonhold Community Statement (CCS) is the critical legal document that defines the rights, responsibilities and rules for all unit owners within a commonhold. It is the governing framework for the commonhold association, outlining how the shared areas, structures and facilities will be managed, maintained, and funded, as well as setting out the obligations of all unit owners. It also establishes a system for decision-making within the community. The CCS details the voting rights of members of the commonhold association and how they can participate in decisions that affect the entire property.

Since the unit is owned freehold, this overcomes the problems of having only a leasehold interest such as the value of the interest depreciating over the lease term and the landlord controlling the management of the development. Commonhold also overcomes the concern that the lease may be forfeited.

While commonhold seemed to offer many benefits, it has not been popular over the last 20 years, highlighted by the fact that there appear to be fewer than 20 commonhold developments. Explanations for this include that the procedures to establish the commonhold are complex and that some lenders are unwilling to lend on commonhold security, owing to issues with enforcement of obligations and solvency of the commonhold association.

Law Commission’s report on Commonhold

The then Conservative Government saw commonhold as a viable alternative to leasehold ownership, especially of flats and asked the Law Commission to recommend reforms to reinvigorate commonhold so that it could offer a workable alternative to leasehold, for both existing and new homes.

In July 2020, the Law Commission issued its report “Reinvigorating commonhold: the alternative to leasehold ownership” on proposed changes to commonhold (see Law Commission Report on proposed changes to Commonhold). The idea was to make the process simpler, quicker and more flexible and to reduce costs for leaseholders. The various recommendations sought to make commonhold a preferred form of homeownership to residential leasehold. Most of those recommendations are included in the Labour Government’s new White paper on Commonhold Commonhold White Paper: The proposed new commonhold model for homeownership in England and Wales - GOV.UK.

Key aspects of the proposed reforms in the White paper

For the Labour Government, the heart of commonhold is that the people who should own buildings, and who should exercise control over their management, shared facilities and related costs, are not third-party landlords, but the people who live in flats within them and have a direct stake in their upkeep.

In enabling flats to be owned on a freehold basis, commonhold ensures that the interests of flat owners are preserved in perpetuity rather than their value depreciating over time as it does under leasehold.

The existing commonhold regime is, in the Government’s words, to “be reinvigorated” through the introduction of a comprehensive new legal framework based on the vast majority of the Law Commission’s recommendations. This will be supplemented by a ban on the sale of new leasehold flats, so that commonhold becomes the default tenure. However, the Government will not ban the use of leasehold until they are confident that a viable alternative, through reformed commonhold, is in place.

The Government wants commonhold to become the standard ownership tenure of flats by the end of this Parliament.

The White paper focuses on the proposed new rules for commonhold and how they will be implemented. Here are some key aspects:

• Flexibility for different types of development and sections: There will be flexibility for developers in constructing and selling commonhold schemes and commonhold will apply to all types of developments, including mixed-use schemes. Commonholds will be able to include separate sections and separate heads of costs, so only those with access to certain services or buildings have a say in their management and pay for charges associated with them. There will be enhanced protections for consumers.
• Conversion:
  • It will be cheaper, quicker and simpler for existing leaseholders to convert to commonhold. While the proposed reforms naturally lend themselves to a new build situation, a key aspect will be the conversion of existing leasehold blocks to commonholds. The Government wants to get to a position where the consent threshold for conversion to commonhold mirrors that for enfranchisement, which is 50%. However, this has implications for those leaseholders within a block who do not wish to or cannot afford to take part in the conversion (known as non-consenting leaseholders) and raises issues around how a block comprised of unit owners, and non-consenting leaseholders can operate effectively.
  • The Government proposes to build on the Law Commission’s proposals (that those leaseholders who choose not to participate in conversion are allowed to continue living as leaseholders in the expectation that their leases will be phased out over time and replaced with commonhold, with triggers at particular events: through choice, or at point of resale or in place of a lease extension), but adjusting the proposals to ensure that the leases of non-consenting leaseholders are aligned to the new commonhold rules as far as possible.
• More control for unit owners: The commonhold unit owners will have more control over the operation of the commonhold for example in relation to agreeing the annual budget and greater assurance that there will be sufficient funds for future repairs and emergency works by requiring a reserve fund.
• Repair and insurance: Ensuring commonholds are well maintained, kept in good repair and properly insured, thereby improving the experience of the unit owners.
• Control over commonhold rules: The commonhold unit owners will have more control over the rules as to how the building is run, but with greater protection for those affected by the change. The threshold for changing local rules will be raised to 75% and the concept of minority protection will be extended to decisions about setting local rules.
• Directors: New powers to replace directors of the commonhold association who do not comply with the rules of the commonhold.
• Loans to commonhold associations: Commonhold associations will be permitted to obtain a loan secured either against the common parts or against future commonhold contributions. There will be protections so that the action taken is aligned to the interests of unit owners.
• Action for non-payment of commonhold costs: Making it easier to take action against those who fail to pay their share of the commonhold’s costs.
• Mediation: The Government will promote mediation and out of court approaches to resolving disagreements and the commonhold association will also be able to offer a view. The Government will ensure that when cases do need to go through the court system, they will be handled by the First-tier Tribunal (Property Chamber) or Leasehold Valuation Tribunal (“the Tribunal”) who, where possible, will overlook minor procedural mistakes.
• Protection for unit owners in the minority: Unit owners in the minority on a vote will be allowed to challenge certain important decisions at the Tribunal. The Tribunal will have the power to annul the decision, add conditions or let it stand.
• Protection for lenders: Mortgage lenders will have protections and the solvency of commonhold association will also be protected. There will be a role for lenders as a last resort to step in and apply to the Tribunal to appoint a director or replace a failing one.
• Shared ownership: There can be shared ownership homes within a commonhold.

Next steps

• The draft Leasehold and Commonhold Reform Bill will be published in the second half of 2025 for pre-legislative scrutiny: This will include enough detail to enable Parliament to fully understand and test the commonhold model and for property agents and lenders to start to change their business practices to prepare for the delivery of commonhold at scale.
• Following the conclusion of this scrutiny, the Government intends to bring forward a Bill to implement the revised commonhold model and bring forward measures to introduce a ban on the use of leasehold for new flats. The Government will later this year introduce a full consultation on a ban seeking input from industry and consumers on fundamental points such as potential exemptions for legitimate use and how to minimise disruption to housing supply.
• Alongside publication of the draft Bill, the Government will reach out to industry to ensure that developers, lenders and property professionals are continuing to prepare for commonhold to become the standard tenure for new supply.
• Once the final Bill is underway, the Government will start to engage with consumers directly so that they will start to become more aware of the term ‘commonhold’ and begin to understand what this might mean ahead of commonhold flats becoming available on sites across the country.
• The property industry is encouraged to start considering how they will support consumers through the process of buying a new commonhold property. In particular, which processes need to be changed and how they will ensure people in consumer facing roles have sufficient training? The Government want commonhold to become the standard tenure by the end of this Parliament. They say now is the right time to start preparing for this and want to support industry through this.
• There will be a new Code of Practice which will explain how commonhold costs should be apportioned, in a transparent and clear way. Linked to this will be greater regulation of managing agents.
• The Government will continue to work jointly with the Welsh Government to ensure these reforms apply across England and Wales.

Implications

The Commonhold model of tenure does offer benefits for flat owners, property owner/developers and lenders. The White paper seeks to address the reasons why the now over 20-years old commonhold form of tenure has hardly been used.

While the White paper discusses the conversion of existing leasehold blocks to commonholds, more detail will be needed to understand the extent to which owners of existing residential or mixed-use buildings may be required to adopt commonhold.

In that regard, the Government’s full consultation later this year on a ban on the use of leasehold for new flats will be crucial.