Commonhold: the return
While the government’s plans to abolish leasehold have dominated the debate on residential property reform, far less attention has been paid to its proposed replacement. Commonhold as a tenure has existed since 2004, but is it actually fit for purpose? Maria Shahid investigates.
The publication of the Commonhold and Leasehold Reform Bill earlier this year, as well as the subsequent proposals, saw the government taking its plans to reform property ownership in England and Wales a step further.
While much of the focus to date has been on proposals to cap ground rent, the draft bill also includes proposals to make commonhold the default tenure for new flats, as well as a proposed ban on the grant of new residential leasehold flats.
Unlike leasehold, where ownership is time-limited by the length of the lease granted, commonhold enables owners to hold a proprietary interest in their property ‘in perpetuity’.
“I can see exactly why the government wants [to introduce] this,” says Charlie Davidson, a senior associate at Bishop and Sewell. “Leasehold has become politically toxic, and not without reason. The draft direction – commonhold as the default for new flats, ground rent reform and a more modern commonhold framework – it all makes sense at the level of tenure reform.”
But he adds a note of caution: “The danger is that commonhold is sold as if it abolishes the lived misery of block management. It does not”.
How will making commonhold the default tenure in flats work in practice?
Commonhold as a form of tenure has existed in England and Wales since 2004, when the Commonhold and Leasehold Reform Act 2002 was passed. It enables a property, generally a flat, or any other properties that share communal spaces or services, to be owned outright.
While new homes can be sold as commonhold, and conversion from leasehold to commonhold is possible, over 20 years later, take-up of the tenure has been very limited. Over one million new flats have been built since the passage of the 2002 Act, but commonhold has been used for fewer than 20 developments in England and Wales in that timeframe.
Some believe that the lack of take-up is down to the two-step conversion process to commonhold, which firstly requires leaseholders to collectively enfranchise the block concerned by acquiring the freehold from their landlord, before converting it into a commonhold. For this second phase to happen, every member of the block must agree to surrender their lease, and adopt the commonhold, as must the freeholder and any lenders. Something which in a large block could be ‘nearly impossible’ to achieve, say critics of the existing system.
“There are so many obstacles to even start the process of collective enfranchisement, especially if you are in a block,” says Shabnam Ali-Khan, a partner at Russell-Cooke. “It’s so difficult to get leaseholders on board. I have been instructed by clients, where it’s taken over a year to just get the ball rolling on the enfranchisement. The second difficulty is that even when you have bought the freehold, to become a commonhold, at the moment you need 100% of the leaseholders, all the lenders, and any intermediate landlords or third parties to agree to it, which is very difficult.”
A guidance note published by the government in 2022 acknowledged that there were ‘some flaws in the current legal design of commonhold which can limit its use in some settings’. A Commonhold White Paper followed in March 2025.
In an attempt to address this, the new draft bill includes proposals to reduce the threshold required to convert an existing leasehold building to a commonhold from 100% to 50% of leaseholders, as well as non-consenting leaseholders losing their right to extend their lease, which would be replaced by a right to sell their flat as a commonhold unit.
In May, the housing, communities and local government committee published a report suggesting further improvements to the draft legislation. In relation to conversion, the committee has suggested that instead of two separate stages, a leasehold enfranchisement should result in automatic conversion to commonhold. Leaseholders should also be able to opt out of automatic conversion by a 50% vote.
Why are lenders nervous of commonhold?
Historically, lenders have been wary of commonhold, arguing that there were not enough guardrails to preserve the value of their security. The 2002 Act did not give them enough comfort relating to recovery of unpaid contributions, should a unit holder fail to pay their share of the costs incurred by the commonhold association, or if there was any management failure. “Banks want certainty above all else,” says senior commercial and property litigation partner Alex Cook of Helix Law. “If lenders believe commonhold creates a greater risk around building management, arrears recovery or maintenance obligations, they may become more cautious about lending.” Commonhold association enforcement measures in the draft bill include powers to recover arrears as a debt, and the ability, in serious cases, to apply for the sale of a unit as well as requirements for reserve funds. Lenders have been broadly supportive of the proposals in the bill. A statement issued by UK Finance in response to the draft bill noted that a phased approach to the introduction of commonhold, starting with new build flats would ‘minimise disruption and ensure the conversion process is workable for those involved.’ “It’s a good first step, but it is still quite problematic,” notes Payne Hicks Beach partner Scott Goldstein. “So, while lenders are saying, it’s all fine in principle, they do need to update all their procedures and there’s a lot of work to do there.”
Who will run commonhold buildings?
The commonhold model is generally considered a more democratic process. The Law Commission in its 2020 report noted that: “In commonhold, the interests of those who make the decisions, and those who are affected by them, are aligned. It is a relationship between parties with the same interest in the property and is inherently based on a footing of ‘we and ourselves’.”
Owners of individual flats (known as ‘unit holders’) own the freehold of their individual units and share ownership of the communal areas through a commonhold association, a company limited by guarantee, which manages the commonhold and owns the common parts. An advantage of this model is that, unlike leasehold, homeowners have a vote in decisions which affect them.
In reality, commonhold also places significant responsibilities on unit holders. Directors of a commonhold association take on a range of statutory duties for the maintenance and safety of the block. Critics of the reforms warn that volunteer directors may not have the requisite expertise to ensure those responsibilities are discharged effectively, especially in higher-risk buildings subject to building safety regulation. Concerns have also been raised that there are insufficient safeguards to ensure the correct information is passed on to leaseholders by freeholders on enfranchisement.
In practice, as the committee report acknowledges, managing agents are likely to continue playing a role under the commonhold regime, with commonhold associations likely to opt to use their services on large blocks of flats. As such, the many concerns with the lack of regulation of managing agents remain.
Scott Goldstein from Payne Hicks Beach
The democratic nature of managing a commonhold building may in fact be its biggest disadvantage warn lawyers. “Most leaseholders do not currently play an active role in managing their building, but the commonhold tenure is based on democratic decisions made by the unit holders,” says Lauren Fraser, a senior associate at Charles Russell Speechlys.
Many commonhold associations, especially in larger blocks, may continue appointing managing agents. The committee report notes that ‘it is a significant shortcoming of the draft bill that it does not include provisions to introduce regulation of property managing agents, which is long overdue’.
Similarly, concerns with rising service charges remain, as do obligations to comply with building safety regulations.
Will commonhold create a two-tier property market?
Critics of the current reforms argue that while the draft legislation proposes introducing a lower threshold to convert to commonhold, the decision to convert from leasehold to commonhold is still voluntary on existing leasehold flats and will lead to a two-tier market for the foreseeable future.
“It’s going to take a long time for the split between leasehold and commonhold to be more even, unless you also mandate some kind of switch over of existing stock, but that is a very difficult task,” says Mari Knowles, managing partner of Commonhold and Leasehold Experts Limited. “There is no magical solution to converting all leasehold properties to commonhold overnight, as Matthew Pennycook, pointed out on 29 April ‘the outright and immediate abolition of circa five million English and Welsh leases is almost certainly impossible.”
Cook warns that it could also lead to a two-tier market in which commonhold flats become more attractive to buyers, while older leasehold properties, particularly those with shorter leases or ongoing service charge disputes, become harder to sell.
Mari Knowles, managing partner at Commonhold and Leasehold Experts Ltd
Fear of the unknown: does commonhold have a future?
One of the biggest obstacles to the success of commonhold is the lack of familiarity with it. “I think a lot of residents don’t understand leasehold, and they certainly don’t understand commonhold. It’s just not a known concept,” says Goldstein of Payne Hicks Beach. “It’s been around in this country since 2004, but has failed for a number of reasons. What the government is trying to do now is to dust it off and start all over again. There are several ways that they are trying to prevent the failures of the past, but I think there’s still a big question mark over whether they will succeed.”
“Practical conversion costs may be the quiet killer,” adds Davidson. “You have title work, lender consents, valuations, freeholder issues, new constitutional documents, Land Registry work, advice for owners, possible tax points and the inevitable human friction of trying to get a building full of people to agree on anything.”
“Commonhold may remove some of the structural unfairness of leasehold, particularly around ground rent and the landlord/freeholder dynamic. It will not remove the hard economics of maintaining the building,” adds Davidson. “The great British service charge dispute will survive the revolution.”
