The Path to Commonhold is Set in Stone by the Government: What do landlords and developers need to know about the Government’s White Paper on Commonhold?

On 3 March 2025, the Government published its Commonhold White Paper: The proposed new commonhold model for homeownership in England and Wales, together with a Press Release: Beginning of the end for the “feudal” leasehold system.

The focus of the Government’s White Paper is residential flats and mixed-use blocks, but surprisingly, the Government has suggested that the commonhold model is appropriate for commercial blocks, retail, industrial estates and shopping centres. This is not something which the Law Commission’s 2020 report considered and, given there is no existing right for commercial occupiers to purchase the freehold or exert control over the management of a commercial building, commercial landlords may have concerns about the Government’s comments in the White Paper surrounding wholly commercial properties.

Other points which come out of the White Paper include a commitment by the Government to regulate Managing Agents with a consultation to follow later this year, and also a proposal to review and potentially amend the process for consulting with leaseholders in relation to major works and qualifying long-term agreements (such as cleaning contracts). 

The key points for landlord’s and developers to note are: 

Sale of new flats on commonhold

The Government’s initial focus is a ban on the sale of new flats using the traditional leasehold structure. They are instead mandating that new flats are sold on a commonhold structure. The Government is planning a consultation later in the year to flesh out the detail but acknowledges that there may be circumstances where limited exceptions are made.  The Government will then introduce the Draft Leasehold and Commonhold Bill to Parliament during the second part of 2025.

The Government plans to adopt the Law Commission’s recommendation to enable developers to create sections within developments to enable those with different interests to vote on the issues that involve them but not on those that don’t. For example, in a mixed-use estate, a floor of retail units that does not use the same facilities as the flats above could be a separate section from the flats. The Bill will contain rules about when sections can be created, combined or dissolved, but the expectation is that this will form part of the planning and construction phase. There will also be flexibility to allow the contributions from different sections to vary depending on the particular heads of costs.

Conversion of existing leasehold flats to commonhold

The Government also want to encourage the conversion of existing leasehold flats to the commonhold structure and to make commonhold the predominant form of home ownership in England and Wales.  Accordingly, the White Paper extends to their plans to amend existing commonhold procedure, which will also form part of the Draft Leasehold and Commonhold Bill.

It has been possible for residential units to be let on a commonhold basis since 2004, but uptake has been extremely low. Currently, conversion to commonhold requires the consent of the freeholder, all leaseholders and all those lending institutions with a charge over the freehold or any of the leasehold properties to create a commohold structure. The Government wants to implement the Law Commission’s recommendation that at least 50% consent is required for conversion in the future. This doesn’t completely remove all obstacles since the consent of the freeholder will still be required.  One option is therefore for a group of leaseholders to acquire the freehold first by way of collective enfranchisement and then convert to commonhold.  

Conversion raises many issues which the Law Commission attempted to resolve in its 2020 reports.  However, the Government has made it clear in the White Paper that they are not prepared to fund non-consenting leaseholders (i.e. those leaseholders who do not agree to join the commonhold scheme). Rather, the Government has proposed that the commonhold association would acquire the freehold of the building subject to granting the previous freeholder  a leaseback of any flats of non-consenting leaseholders (in lieu of compensation and become the head-lessee of the non-consenting properties with a 999-year lease). Neither the previous freeholder nor the non-consenting leaseholder would have a say in the running of the building on a commonhold basis. This could mean the creation of a novel hybrid commohold/leasehold structure, which could be problematic as it is neither wholly commonhold nor leasehold. The Law Commission favoured equity loans from the Government to enable non-consenting leaseholders to participate and convert to commonhold, but the Government is not prepared to provide such financial assistance.

A theme throughout the White Paper is the success of the commonhold structure in other parts of the world, such as in Australia and New Zealand. However, the big difference in those countries is that commonhold existed from the outset without the complexities of converting from a leasehold structure first.

Amendments to the existing commonhold process

Many of the proposals made by the Government around changes to the commonhold process are already available under the existing leasehold structure.  For example: 

• Commonhold associations will be given the right to use local rules to restrict short-term letting. This is available in the existing lease structure by creating lease covenants and/or adopting regulations which must be complied with by all of the flat owners. 
• If a unit holder falls into significant arrears, the commonhold association can apply to the County Court to force a sale of the unit. A receiver will be appointed to conduct the sale who will then deduct the debt and their costs before returning any surplus to the unitholder. Forfeiture or termination of a lease is currently available in extreme cases of arrears or breach of a lease but in the main, a mortgagee will pay those arrears to protect its security and very few cases actually end in forfeiture of the lease. 
• There is also a discussion in the White Paper about the creation of reserve funds for commonhold associations to prepare for emergency costs but again, reserve funds are a predominant feature of existing leases. In addition, whilst in commonhold, all unitholders have a say in how expenditure is incurred. This is not necessarily a bar to disputes which are often found in existing share of freehold structure. 

A critical part of the commonhold process is that some unitholders will need to become Directors of the commonhold association, a role which can prove difficult to fill. The Government will allow professional Directors to undertake the role, which will plug any gap where there are no willing volunteers. Increasing regulation, particularly around building and fire safety and the Government’s confirmation that the commonhold association will be the Principal Accountable Person under the Building Safety Act 2022 may dissuade unitholders from taking up Director posts in the commonhold association, given the responsibilities and liabilities attached to that role.

The Government is keen to promote commonhold and increase awareness and understanding of how the proposed structure currently operates and could be improved via amendments to the existing legislation. Landlords, developers and those involved with residential and mixed-use properties will want to familiarise themselves with the commonhold process and education is key to the Government’s plans.

Summary

In summary, it is clear that commonhold will be entering the everyday language of all those involved in the residential and mixed-use sectors following publication of the Government’s White Paper.  The Government has confirmed that it will be implementing the large majority of the Law Commission’s recommendations on commonhold from its 2020 reports.  The Law Commission proposed that financial incentives may be needed for developers to offer new flats on commonhold. No such financial incentives are proposed by the Government, who intend to make it a mandatory requirement for new flats to be created in commonhold structure.

The Government’s message is that developers should start considering the implications of a move to commonhold for new flats now, together with the consultation due later in the year. This may be difficult given that much of the detail will be in the consultation and the draft legislation, which is not yet available. However, what is clear is that the direction of travel is set in stone and developers, landlords and residential stakeholders will want to ensure they have they participate in the forthcoming consultation. Those with interests in commercial properties will want to keep one eye on developments because firstly, the above will have implications for mixed-use properties and secondly, the Government appears to be suggesting that their plans for commonhold could extend well beyond the residential landscape.

We are tracking developments on our Essential Residential Hub and timeline: Changing landscapes in residential leasehold. Please contact Lauren Fraser, Laura Bushaway or your usual Charles Russell Speechlys contact if you have any queries.