Commonhold reinvigorated?

On 3 March 2025 the government published the Commonhold White Paper, detailing its "proposed new commonhold model for homeownership in England and Wales". The Government's stated intention is "to bring the feudal leasehold system to an end", but what are their proposals to do so?

Commonhold is not new. It was introduced by the Commonhold and Leasehold Reform Act 2002 but failed to gain traction, meaning that leasehold remains the most commonly used form of tenure for occupiers of flats in multi-let buildings.

However, leasehold has received increasing criticism, with the government identifying common complaints of high service charges, limited ability to vary terms of leases and a "them and us" sense to block management, with the effect that leaseholders feel that decisions about their property are "done to them". In this article, we consider the government's proposals to reinvigorate commonhold as a viable home ownership model.

Background to commonhold

Whilst leaseholders have a leasehold interest in their flat, the land on which the building is situated, and the building itself, is owned by a freeholder. The freeholder (or head leaseholder) provides the services and incurs costs associated with the maintenance and repair of the building, which are then recharged back to the leaseholder.

In commonhold, each person owns their individual property (known as a "unit"). The unit holder has a share in the commonhold association, a company limited by guarantee, which owns and manages the common parts of the building. Together unit owners will have more control over the management, including what works are undertaken and who is engaged to do those works. It is a form of freehold ownership where there is no requirement for involvement of a third party and so critically, there is no landlord. 

There is also no lease. The rights, responsibilities and rules for unit owners within a commonhold are set down in the Commonhold Community Statement (CCS). This is a single document that applies equally to all unit owners, which can be varied in accordance with the CCS. It also includes a system for democratic decision making within the commonhold. Many of the rules are specified by law, although there is also the possibility for "local rules" which are specific to a development or block.

What are the proposals?

The White Paper discusses several proposed improvements to the existing commonhold system, designed to enable commonhold to apply to different types of developments including mixed use and larger schemes. In summary, some of the proposed amendments tabled by the White Paper include:

1. Construction and management

• Developers will be able to set how the commonhold will work while they complete the development and sales of the units, as well as a framework for longer-term management.

• Buildings will be permitted to be separated into "sections". For example, unit owners within a particular section will be the only unit owners able to vote on matters affecting only that section.

• There will be the ability for separate "heads of costs"; only those with access to certain services will be required to contribute towards them.

2. Exception to ban on residential long leases:

• Shared owners and leaseholders with a home purchase plan will be excepted from the ban.

• Whilst they will continue to be leaseholders, they will still be able to take advantage of commonhold rights and protections.

3. Minority protection:

• The threshold for changing "local rules" will be 75%, increasing from 50% under the present rules. 
• The idea of "minority protection" will enable a unit owner, in limited circumstances, to challenge a decision taken by the commonhold association to the First-tier Tribunal (FTT).
• The proposed time limits for challenging a decision are short (one month) so that the commonhold association has certainty.
• If challenged, the FTT will have the ability to annual the decision, add conditions or ratify it. 

4. Directors

• Implementing a new, less complex, process for appointing and replacing directors, including:

  • Annual elections for directors.

  • The ability to replace existing directors in the event of mismanagement.

  • The ability for an "interested party", such as lenders and unit owners, to apply to the FTT for directors to be appointed in circumstances where commonhold owners have not appointed themselves.

5. Insurance

• It will be compulsory for commonhold associations to have public liability insurance.
• Directors' and officers' insurance will, however, be optional. 

6. Reserve fund

• A reserve fund will be a mandatory requirement; however, the contributions will be decided by the commonhold association. 
• Multiple funds can be established for specified purposes.
• In certain circumstances the commonhold association will be able to re-designate reserves (and return them at a later date), but only with the permission of the FTT. 
• Reserve funds will be held on trust, affording protection from creditors.

7. Unpaid debts

• Commonhold associations will have the ability apply to the court for an expedited order to sell a unit. 
• This ability will be subject to safeguarding to protect unit owners, including pre-conditions, and the court will only be able to make an order where it is reasonable and proportionate, with any net proceeds of sale to be returned to the unit owner.

Who do the proposals affect?

The White Paper discusses prospective proposals affecting the sale of new units in developments, rather than existing leasehold properties. In turn, this will lead to "banning the sale of new flats on a leasehold basis to ensure that commonhold becomes the standard tenure".

The government has said that the introduction of a "viable" commonhold model is "the essential first step" towards a ban. 

As a result, converting existing leasehold properties to commonhold is identified as an area that the government is "still working to resolve" and while two options are discussed in the White Paper, these require further consultation and consideration before detailed reforms are proposed.

When will the proposals be introduced?

The government has committed to producing a draft Bill for pre-legislative scrutiny "in the second half of 2025". Following this, a Bill will be brought forward to parliament. There is no commitment to when a formal Bill will be introduced, but the present government has repeatedly stated that it intends to do this during its term. 

What hasn't been included?

The White Paper tables a framework of amendments to the present commonhold system that still need to be worked through into viable legislative proposals. There are also other aspects not yet addressed in detail, such as how existing leasehold properties will convert to commonhold should the leaseholders agree to do so. Two options are discussed in the White Paper:

• Option 1 - mandatory leasebacks:

  • Where some leaseholders choose not to participate in conversion, the commonhold association would own the freehold of the building, but the freeholder would be required to take a leaseback for the non-consenting properties. 

  • The expectation is that conversion of the leases would be phased over time, with triggers at particular events, such as on a sale. 

  • However, the former freeholder (and non-consenting leaseholders) would not be a unit owner and therefore not entitled to participate in the interim decision making.

• Option 2 - equity loan

  • Non-consenting leaseholders be required to convert, but provided an equity loan, funded by the government, to pay for the conversion. 

  • The loan would need to be repaid on the sale of the property. 

  • This option would mean that all former leaseholders would be a unit owner.

Next steps

It is clear from the White Paper that the government intends to reinvigorate commonhold, and the foreword confirms the intention to consult in 2025 on the best approach to banning new leasehold flats.

Given the failure of commonhold to gain the confidence of the lender and developer sectors to date, it remains to be seen whether the government’s intention will be capable of being delivered. These substantial obstacles remain in place, and it seems practically unfeasible that leasehold could be entirely replaced until such time as lenders are persuaded that commonhold represents an equivalent form of security to leasehold, and developers are persuaded that commonhold is flexible enough to fit the variety of tenures used in modern mixed use development schemes.