21st March 2025 | Caroline Vernon | Residential Property, Commonhold, Property Ownership

The publication of the Commonhold White Paper on 3 March 2025 has sparked significant discussions. The government unveiled its proposals to make commonhold the default tenure for flats and multi-unit developments, with a clear aim to phase out the leasehold system. This move forms part of the broader leasehold reforms, aiming to provide homeowners with greater autonomy and fairness.

The White Paper has proposed the ban new leasehold flats as the Labour government takes steps to honour its manifesto commitment to ensure commonhold becomes the default tenure. Commonhold, introduced in 2004 under the Commonhold and Leasehold Reform Act 2002, offers a freehold alternative where flat owners hold direct ownership of their unit, and the communal areas are held in shared ownership through a commonhold association (CA).

Unlike leasehold, commonhold eliminates issues related to ground rent, service charges, and lease extensions, providing homeowners with long-term security and control. However, despite its benefits, commonhold has seen limited adoption due to its rigid legal framework and concerns from lenders and developers. The government seeks to address this with a range of proposals to improve and expand the commonhold system, making it more attractive and practical for developers, homeowners, and lenders.

Key Proposals for Change

Flexibility in Management: The introduction of “sections” within commonhold developments will allow different areas or groups of units to be managed separately. This will be crucial in mixed-use buildings and complex estates, enabling CA’s to fairly apportion costs and limit voting to specific decisions which just affect those areas or groups of units.

Financial Protections: New rules will mandate reserve funds to mitigate unexpected costs, and unit holders will have a greater say in budgeting decisions. The ability to challenge excessive expenditure will help keep commonhold developments financially sound.

Improved Dispute Resolution: The current process for resolving disputes between unit holders will be streamlined, with less paperwork and more accessible processes through tribunals, aiming to prevent costly court procedures.

Stronger Minority Protections: Measures to prevent majority owners from unfairly imposing decisions will be introduced, allowing minority unit holders to challenge certain decisions at the tribunal.

Debt Recovery and Enforcement: In response to concerns about unpaid debts in the absence of a landlord, the government proposes that CA’s will be able to apply to the court for an expedited order to sell a unit if the owner fails to pay their share of costs. There will also be safeguards, including protections for lenders, such as ability to control the sale process or add debt to the mortgage.

Winding Up Commonhold: The White Paper proposes improving the voluntary termination process for commonhold developments, ensuring owners have a chance to vote, and safeguard the interests of all parties when a commonhold development becomes insolvent.

Converting Leasehold to Commonhold: A crucial area of reform still under consideration is the process for converting existing leasehold properties to commonhold, including addressing the issue of non-consenting leaseholders. This is an area where further consultation and legislative proposals are expected.

The Road Ahead

The White Paper lays the foundation for substantial reforms in commonhold law. While many of the proposals are promising, the success of these changes will depend on the details of the forthcoming draft Leasehold and Commonhold Reform Bill, expected later this year.

Commonhold could present an opportunity to move away from the complexities and costs associated with leasehold ownership. However, the real challenge lies in the transition. Commonhold developments will require careful management from the outset, and a well-thought-out approach will be essential to avoid the pitfalls that plagued the leasehold system.  It could allow standardised documentation which would speed up and aid the negotiation process.

So far commonhold has failed to take off, since the Act was implemented in 2002 fewer than 20 developments have been built comprising fewer than 200 commonhold units.  As a Real Estate lawyer there is a real fear about committing clients to this system, until the market and particularly lenders are on board with this new style of ownership.

At Sherrards Solicitors, we provide expert legal guidance on the evolving reforms, ensuring property owners, investors, and developers are well-prepared for the future of property ownership.

To find out more, contact the Residential Real Estate team here or contact Caroline using the details below. 

 

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