Goodbye leasehold — hello commonhold

The Leasehold and Freehold Reform Act 2024, which received Royal Assent on 24 May 2024, included a prohibition on new long leasehold houses, but the previous Government backed away from including a ban on new leasehold flats which has also been under discussion.

The Commonhold White Paper was published on 3 March 2025, (the White Paper), and seems to be the first decisive move in the current Government’s plans to replace long leaseholds titles generally. It focuses on increasing both the availability and attractiveness of commonholds, with the Ministry of Housing, Communities and Local Government planning to make commonhold the default tenure for new build flats, therefore, banning new leaseholds in the future.

Amongst other things, the White Paper proposes new rules allowing the use of commonhold for all types of developments (including mixed use), the benefits of which include better management controls and greater flexibility. There will also be a new code of practice which will provide property owners with more transparency and clarity in respect of costs.

Commonhold: an attractive alternative?

Commonhold is specifically designed for home ownership in shared blocks and provides for the effective management and upkeep of buildings without a third-party landlord, with enhanced rights and greater flexibility. It is a simple and democratic model, where a community of homeowners, (and which, for a mixed-use site, may also include commercial owners), come together to collectively decide how to run their building.

The main benefits of commonhold over leasehold can be summarised as follows:

1. No more ground rent — there is no such obligation under commonhold.
2. Ownership lasts forever — unlike leasehold, there is no limit as to the duration of ownership.
3. No forfeiture — forfeiture is prohibited, meaning that a homeowner, (otherwise know as a “unit holder” in relation to commonhold), would not face that potential threat to losing their home.
4. No third-party landlord — unit holders own the freehold of their individual properties, with the rest of the building or estate which forms the commonhold being owned and managed jointly by the unit owners through a commonhold association. Unit holders have more control and more responsibility than their leasehold counterparts. For example, unit holders can vote on approving the annual budget for the building.
5. Collectively agreed rules — the rules are determined by the commonhold community statement (CCS) and are common to all units. This statement:
   • identifies the units and the common parts with reference to a plan
   • confirms the percentage of the overall running costs of the commonhold for which each unit holder is liable
   • confirms the percentage of any separate charge for a reserve fund for which each unit holder is liable
   • allocates the number of votes the holder of each unit will have
   • sets the rules for how the commonhold will be run.

Area specific management

Commonhold also facilitates area specific management. The allows distinct areas within a building or estate to be designated by developers at the outset of a project, with each area having separate management, and each unit holder only being liable for the costs of that area in proportion to their use of the same. For example, a residential unit holder will not be required to contribute to the costs of a commercial loading bay; however, nor will they be able to make decisions in relation to the same. 

To prevent the unilateral exertion of power in relation to the creation and dissolution of areas and any associated unit-holder liabilities, the Government is proposing specific safeguards to ensure that any such decisions are transparent, reasoned, and fully justified. 

Commonhold Community Statements

Commonholders are subject to a CCS, rather than a lease, and this is the critical document that defines the rights, responsibilities and rules for all unit owners within the commonhold. It serves as the governing framework for the commonhold and deals with matters such as facility management and funding. 

There is one CCS for the whole building as opposed to one for each unit, and it is a much more flexible document than a lease because unit holders can amend it by means of agreement if the requisite number of unit holders approve of the proposed changes. The CCS must be registered at HM Land Registry.

What the CCS does:

1. Defines the extent of each unit and the common parts.
2. Defines the proportion of costs that each unit holder will need to pay in relation to the running of the building.
3. Defines the duties and obligations of the Commonhold Association (CA) and the unit holders.

Who is in charge?

The CA is owned by the unit owners in a building/estate, (all of whom are entitled to members), and will have a specified number of elected directors. It deals with important matters such as fire and structural safety, repair standards, and annual budgets.

The White Paper has introduced many changes in relation to how CAs are to be run, largely aimed at requiring greater consensus for decisions, promoting financial health and ensuring clarity in decisions, which can only serve to benefit unit holders moving forward.

The CA must be a limited company registered at Companies House. It must be run according to its articles of association, which must be available for inspection at both Companies House and the Land Registry. The articles of association will be prescribed by the Commonhold Regulations 2004 (SI 2004 no. 1829), as amended by the Commonhold (Amendment) Regulations 2009 (SI 2009 no. 2363), (the Commonhold Regulations).

The CA must also keep to the Commonhold and Leasehold Reform Act 2002, as wells as the Commonhold Regulations and the CCS.

Existing leaseholders — converting to commonhold

Future reform will undoubtedly make it easier to convert existing leasehold buildings into commonhold buildings, because currently this is only possible if there is unanimous consent between all the relevant parties, (the freeholder, the collective leaseholders, and any lenders), and this can be incredibly difficult to achieve. 

The Government is already looking at ways in which to deal with the various problems arising from conversion, (such a non-consenting leaseholders), and the Law Commission has already proposed two alternative models of conversion as follows:

• Option 1 (mandatory leasebacks): leaseholders who choose not to participate in the conversion to commonhold can continue to live as leaseholders with the expectation that their leases will be phased out over time and replaced with commonhold
• Option 2 (equity loan): leaseholders who do not want to convert to commonhold will be required to do so and the Government will fund the upfront equity to pay for the conversion. The loan will be calculated as a percentage of the value of the property and must be paid back to the Government when the property is sold. 

Notwithstanding the above, the Law Commission currently considers that it is too soon to start implementing change in relation to conversion and has suggested that in the first instance the commonhold market should be allowed to mature. This means that ultimately existing leaseholders might have to wait quite some time before they can take advantage of the benefits of commonhold, which for some leaseholders may be disappointing.

Final thoughts

Commonhold tenure gives unit holders greater control and flexibility over their properties and serves to remove the difficulties inherent in managing long term relationships with both landlords and managing agents, as can often be the case with leasehold tenure. The proposed transition to commonhold is, therefore, thought by many to be a positive one, with commonhold expected to become standard tenure at by the end of this parliamentary term.

In terms of existing leaseholders, conversion to commonhold is currently fraught with difficulty in the absence of unanimous agreement. Furthermore, imminent change to the current system is unlikely. However, given the recent enthusiasm for leasehold reform, it is reasonable to assume that changes to the present process will indeed occur. It is just a matter of waiting to see how long that will take. 

This insight is co-authored by Associate, Susan Le-Sage, Paralegal, Rebeca Ignatus and Trainee Solicitor, Stella Teach.