UK Leasehold Reform: Commonhold is coming

What is Commonhold?

Commonhold is a form of freehold ownership, where each unit holder owns their own unit (which could be a flat, shop or office unit), and together they own their communal areas through a “commonhold association” - a company they are all members of and control together.

Owners can still appoint a managing agent if they choose, who will then be accountable to them directly.

The government has rejected a move towards “share of freehold”, in favour of commonhold.

Commonhold is already widely used in other countries, and was introduced in England and Wales in 2004 through the commonhold and Leasehold Reform Act 2002 in what the white paper describes as a “false dawn”, as fewer than 20 commonhold schemes have been built. The white paper blames flaws in the legal framework for the limited take up.

The Law Commission carried out a full review of the commonhold regime in its 2020 consultation paper, and identified 121 recommendations for reform to the law on commonhold, including making it easier to convert to commonhold, broader rights for developers, simplified management processes and provisions on repair and governance.

Changes to commonhold

The government proposes to introduce a new “framework” based on the “vast majority” of the Law Commission’s recommendations.

The white paper suggests there will be limited exceptions where leasehold may still be used, and transitional provisions after the changes are introduced.

Commercial commonhold?

Commonhold is primarily aimed at shared residential flats and mixed use blocks, and while they are not the focus of the white paper, there is some suggestion it could also be applied to commercial blocks or retail, 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”.

When can we expect the draft legislation?

The white paper gives a strong indication of the changes that might be coming, and we await publication of the draft Leasehold and Commonhold Reform Bill later this year.

The Government is keen to signpost these changes early, given the lead in time for new developments.

Is commonhold the cure?

The government has been keen to point out, as the previous government did, the issues with what they call the “feudal” leasehold system, and along with changes already implanted under the Leasehold and Freehold Reform Act 2024, updates to that Act and various secondary legislation, they see commonhold as the answer.

While the changes to the legal framework for commonhold will be welcome, some have suggested that the limited take up of commonhold schemes is not just due to the legal issues, but more because commonhold is seen as more expensive and burdensome to owners, who may not want the responsibility of running their building.

For example, the white paper suggests that the commonhold association - made up of unit owners - will be the Principal Accountable Person under the Building Safety Act with responsibility for the wide ranging fire safety obligations under the Act.

The white paper dismisses such concerns, noting that the commonhold association would be able to appoint professional directors and managing agents to run the property for them, but it remains to be seen whether these changes will be enough to prevent overcome traditional reluctance.

Authored by Tim Reid and Lucy Redman.