White paper seeks to stimulate wider use of commonhold

The Commonhold White Paper published by the UK government in March marks a significant shift in property policy, aiming to replace the leasehold system in England and Wales with commonhold and give greater ownership security and control for residents.

While this offers potential benefits, careful consideration of the associated challenges and implications is essential to ensure a smooth and equitable transition.

The main differences between commonhold, freehold and leasehold tenures relate to ownership and control.

Under freehold, which is the typical tenure for houses, an individual owns both the land and the property on it outright. There are no time limitations on ownership, and the owner has complete control over the property and land subject only to local planning laws and other legal restrictions.

By contrast, in leasehold tenure the owner holds the property for a fixed term, usually many decades or even centuries, but does not own the land. The land is owned by the freeholder (landlord) and leaseholders must pay ground rent as well as face potential restrictions on how they use the property. Once the lease term expires, ownership of the property reverts to the freeholder unless the lease is extended.

Commonhold was introduced in England and Wales by the Commonhold and Leasehold Reform Act 2002 but take-up has remained low. There is also no mention of commonhold in the Leasehold and Freehold Reform Act 2024.

Similar systems are commonly used abroad, including strata title in Australia and condominium ownership in North America.

Given the lack of take-up of commonhold, the white paper proposes ways to revitalise the system. The following provisions focus on improving the accessibility, management and regulation of commonhold properties to encourage wider adoption of the tenure.

• Expansion of commonhold: by making commonhold a mainstream option for new residential developments, the government hopes to encourage developers to adopt it by addressing barriers that have made the system unpopular. 
• Simplified legal framework: to make the tenure more accessible, the white paper suggests streamlining the processes for creating and managing commonhold associations, for instance.
• Enhanced protection for homeowners: the paper also highlights the importance of protecting commonhold homeowners from poor management. It proposes stronger safeguards against misuses of power by management companies or their appointed managing agents that manage leasehold properties, and ensuring that homeowners have a say in how their building is run.
• Promoting better management: another key provision is the recommendation of clearer guidelines for forming and operating commonhold associations, detailing the responsibilities of owners and the association's board and improving transparency and accountability in overseeing communal areas.
• Addressing existing leasehold issues: the government proposes to offer homeowners a pathway for leasehold homeowners to transition to commonhold.

The white paper's overarching goal is to increase the use of commonhold as a modern, equitable and sustainable form of homeownership.

• Complexity of management: commonhold ownership requires collective decision-making, with all owners participating in the building's management and maintenance. This can lead to disagreements, especially in larger developments where it may be difficult to achieve consensus. 
• Financial responsibility and costs: while commonhold owners are responsible for maintaining common areas, the financial burden can be significant. If the association mismanages funds or fails to plan adequately for future maintenance, it could lead to unexpected costs for individual owners. 
• Limited appeal to developers: commonhold has not been widely adopted by developers, largely due to its perceived complexity, and they may be reluctant to build under this system. Given the many stakeholders involved in transitioning to commonhold, the potential benefits of commonhold ownership will need to be outlined and explained to developers still familiar with the leasehold system.
• Potential for poor governance: if the board or management of the commonhold system is inefficient or corrupt, it could result in poor management of the common areas or misappropriation of funds. 
• Market perception: commonhold remains relatively unfamiliar to many buyers and lenders. Its lack of usage could deter prospective homeowners, who may prefer the stability of freehold or the familiarity of leasehold. Lenders may also be cautious given their limited experience with the system.
• Market differentiation: properties under the new commonhold system may be valued differently from existing leasehold properties, potentially creating a two-tier market. It remains to be seen whether commonhold properties will be valued higher or lower than comparable leasehold properties – it very much depends on the appetite of the property market to adopt commonhold.
• Conversion from leasehold to commonhold: not all leaseholders may be willing or able to participate in a conversion of tenure, while the transition could be difficult and costly and thus less attractive for developers.

While commonhold offers an attractive model for alternative ownership of properties sharing communal spaces, these potential issues and unintended consequences require careful consideration to ensure its long-term success and popularity.

The detail and implications of the draft bill legislating these proposals, which the government expects to publish later this year, will therefore require extensive discussion and debate.