By Scott Goldstein, partner at Payne Hicks Beach
We are about to take a great leap towards commonhold. The 2024 Labour election manifesto pledged to end ‘the feudal leasehold system’ and enact the 2020 Law Commission proposals on commonhold by banning new leasehold flats, and making it easier to convert existing blocks to commonhold. In March 2025, the government published a White Paper on commonhold, and we are promised draft legislation later this year. The renewed push to commonhold highlights the failure of the scheme to gain traction to date. From 2004 to 2023, only 184 properties in England and Wales were registered as commonhold.
In commonhold, owners hold freehold interests in their flats (or “units”). The unit holders are all members of the commonhold association (“CA”), a company limited by guarantee in which the freehold to the common parts of the building is vested. Governance of the commonhold is by the commonhold community statement (“CCS”), which is a standardised document that can be tweaked by individual CAs, but not fundamentally changed. The objective is for all blocks to be administered by the same basic rules, unlike leasehold, where leases differ between blocks, and often between different flats in the same block. As the rules of the CCS are set by statutory instrument, it will be a relatively simple matter for the Government to enact a global change in the rules.
Commonhold has all of the advantages of freehold. A resident of a commonhold block acquires a non-diminishing asset, with no ground rent, no prospect of having to pay a lease extension premium, and no risk of forfeiture. The collective ownership of the block allows individual unit holders to shape the way the block operates. The CCS is a set of well-publicised rules, based in law, which should make administering blocks more transparent.
So what’s changing? The White Paper has endorsed most of the Law Commission’s proposals to address many of the issues that have prevented commonhold from taking off. These include:
- Allowing CAs to group the units in block according to the services they receive. The unit holders of each “section” of units will vote only on the matters and services affecting their section. This will enable the effective management of blocks where the provision of services is not uniform across all occupiers.
- A number of proposals aimed at ensuring the solvency of the CA. Each CA will have a mandatory reserve fund. The CA itself will be able to procure loans secured against either the common parts, or future commonhold contributions. It will be able to seek an expedited order to sell a flat owned by a defaulting unit holder (albeit the CA will only receive the arrears plus costs).
- Giving comfort to lenders – a critical innovation, as commonhold cannot succeed without mortgagees’ agreement to use commonhold units as security. Lenders will be notified once arrears reach a level that would entitle the CA to seek an order for sale (see above), and they will be able to take control of the process of selling the flat owned by a defaulting unit holder.
- Giving unit holders the rights to challenge important decisions if they feel unfairly impacted by them. These rights are limited in scope so as to discourage vexatious claims.
These proposals are welcome, but the authors of the White Paper recognise the need to flesh them out before commonhold is ready to replace leasehold. To take one example, how will blocks converting to commonhold treat those leaseholders who cannot or will not pay to “buy out” the leasehold interest in their flats? The White Paper suggests building on the Law Commission’s recommendation of keeping existing leaseholds in place until the occurrence of trigger events such as resale, and granting the former freeholder of the block a mandatory leaseback, retaining it as the direct landlord of the non-converting lessees until the trigger event takes place. This would mean leasehold would remain for many years to come.
Commonhold has the potential to be revolutionary, by giving the residents unfettered ownership of their flats and their blocks. However, with power comes responsibility. Ultimately, the success of the commonhold programme will depend on how invested the residents are in the scheme. The government must accompany its new legislation with a comprehensive education programme, so that flatowners know what commonhold means for them, and what they must do to make it a success.
