Commonhold: What’s all the Fuss About?

With the Leasehold Reform Act 2024 now law, and the King’s Speech 2024 promising to bring in a new Leasehold and Commonhold Reform Bill, it’s important to revisit important Leasehold and Commonhold legislation and stay updated with the latest changes. 

While Commonhold was first introduced via the 2002 act, and further discussed for reform again a number of times over the years, what will the latest changes to this sector bring—and should we hold our breath for an industry turnaround?

Whether you are a leaseholder, a freeholder, or even if you’re considering purchasing your freehold, Commonhold might still be something you’ve heard about. This guide to Commonhold property in 2024 is the perfect starting point.

What is Commonhold and How Does it Work?

Commonhold is a type of property ownership, and works as an alternative system to Leasehold or Freehold. 

Commonhold offers freehold ownership to homeowners in properties with shared infrastructure, like blocks of flats. This model allows unit owners to have permanent ownership of their homes without a third-party landlord and to participate in collective decision-making about the building’s governance, finances, and management. 

In its purest form, Commonhold works by allowing you to own the Freehold of your property, as opposed to owning a Lease over your property. Commonhold came into law under the 2002 Act and into force in 2004. However, in its historic form, Commonhold has been a spectacular failure. 

Commonhold vs Leasehold in 2024

For anyone buying a property, whilst Commonhold can seem more attractive than Leasehold, things are not that straightforward! When you buy a leasehold property, the fact that the lease expires is built into the price you pay in the market. 

Many experts believe that a leasehold property with a short lease under 80 years, will be cheaper to purchase than the same property under Commonhold, often significantly so. Leaseholders have the right to extend their lease, albeit for a fee, so cases where leaseholders must hand over the property to the freeholder with vacant possession are relatively rare. 

There are well-established mechanisms, processes and case law to address the many grey areas that exist in owning and managing a leasehold property in a building. And leaseholders have the right to purchase the Freehold with others and Collective Enfranchisement law. 

Commonhold allows you to dispense with a lease that expires. Beyond that, it provides no magic remedy for any of the challenges that go with owning and managing a property in a mixed-dwelling environment. 

In a nutshell, it boils down to what you receive when you purchase a property. In turn, this has implications for the level of control you have over your property and how your property is managed in common with others. 

The latest Leasehold Reform Act which is not yet in force, is expected bring some changes here with the banning of new leasehold house sales. The Government has announced it’s intention to reinvigorate the Commonhold Market, perhaps starting with new-build developments. Either ay, the key differences between the two ownership types remain the same:

• Leasehold: In the case of Leasehold you would purchase a Lease of a property which gives you obligations and rights over the property and common areas, until the lease expires. At that point, you must vacate the property and return it to the Freeholder. You may also need to pay ground rent each year to the freeholder. Common areas shared with others (such as entrances, gardens, hallways, roofs, utilities infrastructure etc) might be managed by the Freeholder or by a group of leaseholders. Collective Enfranchisement allows a majority of leaseholders to purchase the freehold and govern the property themselves.
• Commonhold: Under Commonhold, you purchase the Freehold of a property and sign up to a ‘rulebook’ which gives you obligations and rights over the property and common areas. You own the property forever. You do not ned to pay ground rent annually. Common areas shared with others (such as entrances, gardens, hallways, roofing, utilities infrastructure etc) are managed by all the property owners in common with you. Commonhold aims to simplify things with standard rules and regulations. In many respects, Commonhold is similar to Leasehold where the leaseholders have exercised their right to buy the Freehold via Collective Enfranchisement.

The problem with commonhold legislation

The Government estimates that there are almost 5m leasehold properties in the UK. Key questions posed by historic and expected Commonhold legislation include:

• Who sets the rules? Who decides on the rights and obligations that are normally written into leases? Who changes them, when and how? 
• Who really controls the management of the building, sets the budget and manages the expenditure? How are disputes between Commonholders settled? 
• How do you ensure that no single Commonholder has a veto over key decisions? How do you ensure that a Freeholder is not simply replaced by a small group of Commonholders that do not act in the common interest? 
• If the government mandates standard documents and decision-making policies for Commonhold in a “one-size-fits-all” approach, how can Commonholders tailor anything to their own circumstances? 
• How do you convert from Leasehold to Commonhold in a mixed-dwelling? What happens when not everyone wants to or has the means? 
• What parts of the common areas can be acquired and who manages them? How is the Freeholder fairly compensated? What about the hundreds of thousands of Council flats that want similar rights?

Updates to Commonhold legislation need to address these most thorny issues if they are not to fail again.

Previous Changes To Commonhold Legislation?

In 2016, following massive public demand, the UK Government agreed that the Leasehold market was an area to be targeted for law reform. A number of projects were launched, including reviews of the RTM, Collective Enfranchisement and the Leasehold Houses system. 

Commonhold, however, was seen as providing the best long term solution, especially for blocks of flats. In order to refresh the existing Commonhold law to make it workable, a government funded, independent body called the Law Commission was tasked with delivering recommendations via a consultation process. 

Like many other interested parties, The Freehold Collective made submissions to the Law Commission, as we know first-hand the impact that new legislation can have on anyone who owns property in the UK! 

But what change have we actually seen since then?. 

The “Commonhold Council” was established by the Conservative government in 2021 in order to help:

• Implement the government’s vision for widespread commonhold adoption and develop a roadmap with transitional arrangements.
• Identify steps to prepare the market (lending, development, insurance, valuation, conveyancing, home buying, selling, and property management) and create supporting infrastructure.
• Support consumer understanding, raise awareness, promote commonhold, safeguard existing leaseholders’ interests, and develop tools and rules for homeowner-led management.
• Ensure commonhold is a viable alternative to leasehold in various settings, including large and complex sites, and future-proof it for building safety and energy efficiency measures.

A look at the GOV.UK website explained how that endeavour went…

In July 2024, the new Labour Government announced that they would introduce a new Leasehold and Commonhold Reform Bill, banning new leasehold flats and reinvigorating Commonhold tenure.

How Does the Leasehold Reform 2024 Affect Commonhold Properties?

Current legislation prohibits leases over seven years within a commonhold, which excludes Shared Ownership leases. As part of Leasehold Reform 2024, the government has stated that they will implement the Law Commission recommendations to reinvigorate commonhold, including incorporating Shared Ownership.

Their report proposed allowing Shared Ownership leases and enabling shared owners to exercise all voting rights except for decisions to terminate the commonhold, which should be made jointly. 

The idea is to ensure that shared owners can influence the costs of services they benefit from, but will the latest Leasehold and Freehold Reform Act and the promised Leasehold and Commonhold Reform Bills really enable those changes? 

Plans for the new Leasehold and Commonhold Reform Bill include to: 

• Ban the sale of new leasehold houses other than in exceptional circumstances.
• “Reinvigorate” the commonhold sector—whatever that means!
• Regulate ground rents without necessarily abolishing them.
• End forfeiture, preventing loss of flats over small debts.
• Implement Law Commission recommendations on lease extensions, freehold purchases, and Right to Manage.

While it sounds like a step in the right direction for all property owners, the water is still muddy on Commonhold property, and how long a “reinvigoration” will take to practically come into effect is as much your guess as it is ours. However, with a history of slow-moving and broken promises, we aren’t holding our breath. 

Plus, we’re still left with many of the unanswered questions we had back in 2016. So we’ll have to wait and see. 

What Next?

If you want to benefit from owning your Freehold, either wait for the 2024 Leasehold Reform to hopefully mature to something workable over the next 4-5 years, or exercise your existing rights under Collective Enfranchisement and other legislation now by buying your freehold.

Just remember that meaningful Leasehold and Commonhold reform could take years to mature.

Either way, be prepared.