The financial implications of the UK government’s proposed commonhold reforms remain uncertain, despite widespread expectations that the new tenure system will reduce costs for flat owners, according to property law experts.
Housing Minister Matthew Pennycook referenced cases of escalating service charges in a speech on 29 April when making the case for commonhold reform. The Commonhold and Leasehold Reform Bill was subsequently announced in the King’s Speech on 13 May, marking a significant shift in property ownership structures.
The Property Institute is due to release updated data on service charge increases since its April 2024 index report, which documented above-inflation rises in charges faced by leaseholders across England and Wales.
No evidence of cost savings
However, there is currently no market evidence to suggest commonhold will deliver lower costs for property owners. The 2020 Law Commission report on commonhold reinvigoration focused on resident autonomy rather than cost reduction, noting that building maintenance requirements remain identical regardless of tenure structure.
Buildings under commonhold will still require the same management, maintenance, repairs and insurance as leasehold properties. Contractors’ quotations for work such as roof repairs are unlikely to differ based on tenure type alone.
The transition to commonhold may also involve upfront costs. Existing leaseholders must first purchase the freehold through collective enfranchisement before converting to commonhold. While Pennycook confirmed the government intends to reduce freehold purchase costs through the Leasehold and Freehold Reform Act 2024 and future legislation, these expenses remain a barrier.
Structural differences may reduce long-term costs
Some features of the commonhold framework could potentially deliver savings over time. The system requires a mandatory 10-year maintenance plan and reserve fund, designed to spread costs and avoid large unexpected bills that frequently occur under leasehold arrangements.
Resident-owners may also take a different approach to building management compared to commercial freeholders, potentially obtaining more competitive quotations and taking a more hands-on role in day-to-day operations where feasible.
Administrative processes are also streamlined under commonhold. Major works projects in leasehold buildings require full consultation procedures, whereas commonhold eliminates this requirement, theoretically reducing administrative costs.
The reforms follow recent increases in property-related disputes, with service charge disagreements representing a significant proportion of complaints. The government’s broader housing policy agenda has seen recent ministerial appointments focused on leasehold reform.
The legislation is expected to take several years to implement, with substantial uptake of commonhold unlikely in the near term. Market evidence on comparative costs will only emerge once a significant number of properties have converted to the new tenure system.
