Commonhold: Best Supporting Tenure or Leading Role?

As the red carpet is being rolled out for the upcoming awards season, we ask whether commonhold should be in line for best newcomer. 

When it comes to land ownership in England and Wales, you have probably heard of freehold and leasehold tenures. Freehold generally refers to houses, including the land they stand on, whilst leasehold typically (although not always) refers to flats or apartments which have the terms of their ownership governed by a “lease” document.

However, despite its name, the commonhold ownership system is one of the lesser-known tenures and most ‘uncommon’ ways to hold property in England and Wales. It was introduced by the Commonhold and Leasehold Reform Act 2002 but has not enjoyed much of the limelight until recently, when the Labour government suggested it should replace the existing (and much criticised) leasehold system. 

Land tenure may not be the liveliest dinner party topic, however as the government looks to reform the Property sector, now is a key time for property owners to get to grips with commonhold as a potential alternative. Here we provide a very basic overview.

What is commonhold?

Commonhold is a type of freehold ownership for flats in England and Wales that offers an alternative to the traditional leasehold system. Commonhold allows individuals to own the freehold of their flat or “unit” outright, rather than holding a lease.

How does commonhold work?

Under the commonhold system, each property owner is a “unit-holder” and holds the freehold title to their individual property. The shared areas of the building, such as hallways, roofs and gardens (the commons parts) are owned and managed collectively through a Commonhold Association. This Association is a limited company in which all unit holders will automatically be granted membership and equal voting rights, giving them a direct say in the management of their building.

In place of the traditional lease, a “commonhold community statement” would govern the rules, regulations and responsibilities for all units in the development, including maintenance, repair and commonhold assessment (i.e. service charge). 

Advantages and disadvantages of commonhold

One of the significant advantages to commonhold is that, unlike leasehold tenure, it is not a depreciating asset as ownership does not expire. There is no requirement to extend a term-of-years or pay ground rent, and owners are not subject to the control of a third-party landlord or freeholder. Decisions about the building are made democratically by the unit-holders themselves through the Commonhold Association which, at least in theory, should allow for greater control and transparency around management of the building.

The commonhold community statement will also remove the current risk of neighbours being bound by slightly different lease terms, as it will bind all units in the building under one set of shared rules, with no scope for negotiation. It is expected that, as well as freeing up homeowners to dispose-of or mortgage their unit without the requirement for consent, this will help to speed up the conveyancing process. 

One of the greatest concerns around the operation of a commonhold system is the lack of a robust remedy for non-payment of the commonhold assessment (service charge). Under the leasehold system, a freeholder can apply for forfeiture of a lease where service charge has remained unpaid for a specified period of time, even if the courts are reluctant to grant this remedy in practice. However, under the commonhold system, the Association would be limited to civil debt-recovery procedures to recover the arrears. This naturally raises concerns as to whether associations will be able to successfully fund the maintenance of their estates, and whether unit-holders will take their payment obligations seriously. 

Other concerns exist around the inflexibility of the statutory commonhold documents, which may not be appropriate for every development and scenario.

Is a starring role finally within reach for commonhold?

Despite its potential benefits, commonhold has seen limited uptake since its introduction. This is largely attributed to the complexity of the legislation, a lack of awareness among developers and buyers, and the entrenched nature of the leasehold system.

In the King’s Speech in 2024, (not to be confused with the Oscar winning film the King’s Speech starring Colin Firth), it was announced there would be amendments to the system and these are currently in a draft Bill at the committee stage.

It is understood that, from the date of implementation of the new Bill, the grant of new leases would be prohibited in favour of a commonhold system. However, one of the many unknowns is how and when existing leasehold properties might be converted to commonhold. The government have suggested that conversion, at least initially, will be neither automatic nor mandatory; it therefore remains to be seen how popular the uptake of commonhold will be. The current threshold requires a unanimous vote between all leaseholders to make the conversion, however, the draft Bill suggest this could be reduced to 50% (alongside freeholder and lender consents). 

If you would like to read more about the draft Commonhold and Leasehold Reform Bill, our Real Estate Dispute colleagues have explored this in greater detail here: Taking a deeper dive into the draft Commonhold and Leasehold Reform Bill: What do landlords and developers need to know?

The proposed legislative changes might come as welcome news to flat owners but will represent a considerable loss to freehold landlords who rely on the income generated by ground rents. 

For now, property lawyers will be sitting with popcorn in hand to see how the final cut is edited. 

Rebecca Day - Senior Associate, Private Property (London)

Sarah Bradd - Associate, Private Property (London)