Is Commonhold the Answer?

Service Costs and Budgets grow bigger - Commonhold is the government solution

Service Charges and Budgets are getting Bigger - Will Commonhold solve the problem ?

The government has announced plans to abolish the leasehold system, aiming to give leaseholders greater control over their properties. As part of the reforms commonhold is set to become the default tenure. But will this really solve the issues that leaseholders face, or simply shift the challenges elsewhere?

What is Commonhold?

Commonhold was introduced in 2002 as an alternative to leasehold ownership, allowing flat owners to own their unit as freehold while collectively managing the building through a Commonhold Association (CA). Despite its introduction, commonhold has seen little uptake due to complexity, financial risks, and reluctance from lenders and developers.

The Proposed Changes

The recent Commonhold White Paper sets out how the reformed model aims to revitalise the system with a comprehensive legal framework. Key proposed changes include:

• New leasehold flats banned – all new flats must be sold as commonhold.

• Simplified conversion – making it easier for existing leaseholders to convert to commonhold.

• Management responsibilities – commonholders will have control of budgets, service charges, and building maintenance.

• Financial safeguards – reserve funds, liability insurance, and rules for appointing directors will be required.

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Why has Commonhold not been taken up?

While the concept of commonhold seems appealing, several barriers have prevented its widespread adoption:

1. Unanimity for conversion – All leaseholders must agree to switch from leasehold, making conversion difficult.

2. Inflexibility – The current law is not well-suited for mixed-use developments.

3. Lack of developer incentives – Developers have had little reason to opt for commonhold over leasehold.

4. Mortgage doubts – Lenders have been reluctant to provide mortgages for commonhold properties.

5. Management challenges – Owners may not want to take on the responsibility of managing the building.

6. Financial disputes – Owners must face problems directly with neighbours  -especially non payers.

7. Director liabilities – Many are unwilling to take on the legal risks of running a Commonhold Association.

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Will new measures improve Commonhold?

The Law Commission has made 121 recommendations to reform the system, including:

• Making conversion from leasehold to commonhold easier, without requiring unanimous consent.

• Banning the sale of new leasehold flats to ensure commonhold adoption.

• Allowing commonhold for all types of developments.

• Introducing new management rules for budgeting, reserve funds, and dispute resolution.

• Creating protections against the insolvency of Commonhold Associations.

•  Boosting lender confidence in commonhold.

Will Commonhold solve Leaseholder issues?

Many leaseholders feel they lack control over service charges, despite existing legal protections. While commonhold shifts decision-making power to the owners, it doesn’t necessarily eliminate financial challenges. Managing a block of flats requires effort, consensus, and financial contributions from all owners—including those who are absent or uncooperative.

With professional property management still necessary, the fundamental costs of running a block are unlikely to decrease. Regulatory requirements will continue to drive expenses, and disputes over budgets and service charges may persist, but with a different governing body where conflict and disagreement will need to be resolved if works or other steps need to be taken.  Timely decision making is crucial to managing buildings and it seems unlikely that the role of managing agents will in any way be diminished -quite the opposite seems foreseeable!

What next?

A draft Leasehold and Commonhold Reform Bill is expected later this year for further scrutiny. While this will represent a significant shift in property law, it remains uncertain whether it will deliver a more efficient and fair system.

Leaseholders may gain greater control, but they will also inherit the challenges of managing shared properties. It remains to be seen whether commonhold is the answer or just a reshuffling of existing problems.

March 2025