Commonhold – the new default tenure?

Is this relevant to you?

This is relevant to anyone involved in owning, developing or funding property that comprises sold or for-sale residential units including, for example, developments with affordable housing units let on long leases and any mixed use developments. Although most of the coverage of this topic is focused on the future of flatted for-sale developments impacting on house-builders, retirement living developers and operators and the stereotypical ground rent investors, this will also be relevant to mixed use scheme eg offices and retail schemes with residential elements – both large and small.

It is also relevant to existing arrangements which could be converted from leasehold to commonhold, as well as to new developments and how they will need to be set up in the future.

Lenders had a special mention in the Law Commission 2020 consultation process with an ‘open letter’ to that cohort. In short, there is a recognition that lenders have a special interest and if the new rules adversely impact that sector it could harm the vitally important mortgage lending market. In particular, allowing conversion of existing leaseholds to take place which are subject to existing mortgage security is a particularly difficult issue and if lenders are not convinced, frankly, this could make or break these reforms.

For purely PRS/BTR, student accommodation and other hybrid short let ‘beds’ sectors, you needn’t be concerned with this – unless you have units that are/will be sold off on a long lease basis eg via a housing association on an affordable housing/shared ownership basis or a mixed tenure scheme were some units are sold off.

The Government announcement

On 3 March 2025 the government published the Commonhold White Paper. This takes forward their manifesto commitment to enact the Law Commission proposals and ‘ensure commonhold is the default tenure’. For the first time since commonhold was introduced (over 20 years ago), this has all the hallmarks of government determined to push through these proposals and not just an exploratory consultation. The government sets out in the White Paper that it believes commonhold should be the ‘default’ for ‘shared residential flats and mixed-use blocks going forward’.

The government has also announced the ‘beginning of the end for the 'feudal' leasehold system’ and a consultation is expected ‘later this year’ on the ‘best approach to banning new leasehold flats’. Views will also be sought on transitional arrangements. The government suggests the White Paper is read alongside that consultation and that in relation to new developments the ‘relevant parts’ of the housing market should ‘start to consider the implications of a switch’. Many of the perceived disadvantages of leasehold are framed in the context of restrictions in relation to the property, a lack of control, inconsistencies across different developments, inflexibility in relation to amending leases and in the context of government announcements ‘unscrupulous landlords’.

So, what is commonhold?

In the White Paper commonhold is described as ‘a form of freehold ownership where individual property owners each own their unit outright, with no expiring term’.

In describing Commonhold the White Paper notes:

• There is no landlord instead there is a ‘commonhold association’. Each owner in a commonhold automatically becomes a member of the commonhold association. The commonhold association is a limited company which is registered at Companies House.

• The commonhold association provides the ‘governance and management of the building’. However, the White Paper notes the commonhold association may wish to buy in external help.

• There is a legal document that defines ‘the rights, responsibilities, and rules for all unit owners within a commonhold’. This is known as the Commonhold Community Statement (CCS). The CCS governs ‘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 governs decision-making, voting rights and procedures for dispute resolution.

  The CCS will consist of statutory rules as well as the option for a set of supplemental ‘local’ rules. The statutory element is designed to ensure there is broad consistency across all commonhold developments ‘making it simpler for homeowners’. Secondary legislation would be required to amend those CCS terms which are prescribed by law – (something which the government states in the White Paper can be done ‘relatively easily’).

  The White Paper notes that ‘local rules are created under the framework of the CCS and are intended to maintain order, ensure safety, and promote harmony among property owners’. It appears local rules will be subject to a vote in relation to their introduction, amendment and removal. Whether unit owners can keep pets, are permitted to do short terms lets and use of shared spaces are set out as the type of topics local rules may cover.

• No ground rent is payable (but service charges will still be payable, with a new regime giving a power to forcibly sell a unit where there are arrears (or other breaches), instead of the right to forfeit).

• The service charge budget will be voted on annually.

What are the government’s proposals?

In terms of reforms the government states it is looking to make commonhold ‘work for all’ and it believes the flaws in the current system are most prohibitive for larger or mixed use developments. It plans to introduce a more flexible model to allow for more types of development to work under commonhold. Acting on Law Commission recommendations, the government proposals cover:

• Plans to allow for separate sections and separate heads of cost within developments. Rules for specific sections will be annexed to the CCS. The government also plans to introduce a new ‘Code of Practice’ in relation to allocation of costs within a commonhold development (and the government notes this would be approved by the secretary of state and could be referred to by the tribunal if dealing with disputes) .

• A new commonhold system will also allow for shared ownership and home purchase plans (which the current system does not and the government notes this has been a barrier to commonhold under the existing system). Shared ownership and home purchase plans would be an exception to the proposed ban on leasehold flats but under the proposals they would ‘benefit from a wide range of commonhold rights’ and be expected to comply with the Commonhold rules .

• Under proposals there will also be greater flexibility to allow for phased development which the government believes will make commonhold commercially more attractive.

• There will be more measures to preserve a commonhold’s financial health (including in relation to reserves) and increased ‘safeguards’ for ‘local rule changes’. The government proposes increasing the threshold for changing local rules to 75% (outvoted minority owners would be able to go to the Tribunal if affected by a change they did not agree with). Event fees would only be permitted for retirement properties. The commonhold association will be required to provide clear information to those wishing to sell for a price capped fee.

• Improving transparency for various processes (such as appointing directors) are set out as well as proposals for setting clear standards in relation to repair and making minor alterations (which may be determined by local rules under the White Paper proposals). Public liability insurance and building insurance will be compulsory, directors’ liability insurance will be optional. .

• Under the White Paper proposals reserve funds will become mandatory but the level to be paid in will be subject to a vote. It will also be possible to maintain separate reserve funds for different anticipated future costs. The funds will be held on statutory trust (which should offer additional protections in relation to the use of the funds and in relation to creditors).

• Measures will allow commonhold associations to take out a loan (which the White Paper notes would be secured against either the common parts or against future commonhold contributions). The White Paper also notes that the reforms will make it clearer ‘how commonholds can, as a last resort, sell parts of their building if necessary, by clarifying the level of unit owner support required to take this option forward. This will mean that commonhold associations can make better use of this existing flexibility.’ Certain circumstances and proposals will require Tribunal approval (for example where lenders are involved or there is not unanimous agreement).

• Mediation and other out of court routes will be encouraged in relation to disputes but the Tribunal will be the forum for court based dispute resolution. The government proposes enhanced minority protections in relation to certain decisions by the commonhold association.

• In relation to enforcement measures for unpaid debts owed by commonhold unit owners to the commonhold association the government is seeking to strengthen the commonhold associations powers and notes ‘*[w]e agree with the Law Commission that in future, commonhold associations should be able to apply to the court for an expedited order to sell a unit if its owner fails to pay their bill to the commonhold association. This will replace the lengthy process of getting a money judgment and further action to enforce it and allow the commonhold association to act more quickly to avoid financial difficulty.*’

  Protective measures for unit owners will include certain pre-conditions including requiring the debt is above a ‘certain level’, court discretion and fair process. Unlike the process of forfeiture in a leasehold arrangement, any remaining monies after the debt and related fees (or mortgage) had been paid would go back to the unit owner.

  In relation to protective measures for lenders the government proposes that lenders should be notified when a debt reaches a level that triggers the association’s right to seek an expedited order for sale. The White Paper notes lenders will then have two options to protect their security:

• Repossess the property according to the mortgage agreement if the unit owner is also in default on mortgage payments.

• Pay off the debt and add it to the mortgage.

  The White Paper sets out that ‘if the lender takes no action and the court orders the sale of the unit, the remaining proceeds of sale will be used to repay any mortgage after the sale fees and commonhold association debt are paid. Lenders will have the option to request control of the sale process, meaning they can manage the fees associated with the sale to leave potentially more money available to repay the mortgage.’

  We take a look at why we think Commonhold will lead to an increase in home “repossessions” here.

• Greater clarity will be provided where the commonhold becomes insolvent or where the commonhold association and its unit holders collectively decide to sell.

The government identifies inbuilt democracy and inherent flexibility as key advantages of commonhold. The White Paper notes that the government does not believe people will be put off living in a block where homeowners are responsible for the management of the building, despite concerns having been raised about this. However, obligations in relation to managing residential buildings can entail significant responsibilities and day to day management can be complex and time consuming (for example obtaining quotes, negotiating contracts, employing contractors, managing site visits, insurance etc). The White Paper notes the government will adopt the Law Commission’s recommendations and ‘put in place a system to facilitate the appointment of professional directors for the governance of the building if no unit owner wanted to take on this role’.

The government also seems to envisage managing agents will play a key role (particularly at the outset) in supporting commonhold developments and highlights its future plans for greater regulation in relation to managing agents. In England, the White Paper notes that the commonhold association will be the Principal Accountable Person under the Building Safety Act 2022 and it is suggested that for higher risk buildings ‘the commonhold association might decide to bring in specialist managing agents with fire safety expertise’.

It is hard to see how there will not be significant professional costs incurred by a well run and externally managed commonhold association and/or there will be a small group of engaged unit holders devoting significant (unpaid?) time to the company?

What about commercial property?

Commonhold mixed use schemes which have residential and commercial elements are clearly in the government’s sights when it comes to commonhold reform. The White Paper states ‘international evidence shows that commonhold type models also have potentially wider uses’ and states commonhold may also be suitable for ‘wider settings such as commercial blocks, or retail and industrial parks and shopping centres’. However, those uses are ‘not the focus of the White Paper’ – suggesting commonhold reforms are unlikely to be an enforced change for purely commercial property any time soon.

What next?

The White Paper sets out that an updated legal framework will be published in draft legislation later this year to allow for ‘pre legislative scrutiny’. Following this the Leasehold and Commonhold Reform Bill will be published. There is no definitive timetable otherwise set out.

Reading in

If you want to read further into this subject there’s a very large volume of material to get through. As a minimum, there is the consultation summary, the White Paper itself, the Law Commission paper on reinvigorating commonhold and the consultation paper on which that was based. That’s over a 1,000 pages of text (without even covering the existing legislation and the future draft legislation yet to be published).