Summary of the White Paper
The Government has published a White Paper proposing commonhold to replace leasehold as the default tenure. The Government believes that the commonhold ownership structure would be a drastic improvement on the existing leasehold structure. Many countries have move away from leasehold ownership.
The commonhold model effectively means that flat owners own a stake of their buildings, meaning they influence the decision making, not third-party landlords. This will be discussed in further detail.
The key aspects of the proposed reform:
- New Leasehold flats banned – New flats will no longer be sold as leasehold once the reforms are implemented.
- Easier transition to commonhold – It will be easier for leaseholders to convert to commonhold as the legal framework will be overhauled.
- Greater homeowner control – Commonhold owners have a direct say in the decision making of the commonhold.
- Improved protections – mandatory reserved funds, public liability insurance, stronger rules for appointing directors and managing agents.
There is still more clarity to come from these proposals, the draft Leasehold and Commonhold Reform Bill is due to be released in the second half of 2025. Upon completion, this aims to bring forward measures to introduce a ban on new leasehold flats. It is crucial that this Bill addresses the ambiguity surrounding the conversion of existing leaseholders, with individuals unsure the extent to which they will be required to adopt commonhold.
Benefits of a Commonhold
Commonhold ownership is a form of freehold ownership where individuals own their unit outright. These units could be shops, flat or an office unit, the same as leasehold. Everyone then shares ownership of the communal areas through a ‘commonhold association’, which they all jointly control. This eliminates the need for a third-party landlord, giving tenants more security as there is no expiring term and decisions made regarding the unit will be beneficial for the individual and not financially motivated.
When the developer registers a new development as a commonhold, the units are individually registered and initially held by the developer. These can then be sold or rented out, eliminating ground rent and allowing owners to have more freedom in their decisions. Decisions are made with a voting system, where every owner automatically becomes a member of the commonhold association and is entitled to vote.
Next steps
The publication of the draft Leasehold and Commonhold Reform Bill will provide more detail to allow Parliament to fully understand and assess the Commonhold structure. Upon completion of the Bill, the Government intends to bring forward a revised commonhold model and introduce the ban of leasehold for new flats. Developers, lenders, and property professionals will continue to prepare for commonhold to become the standard tenure, alongside waiting for the Bill to be completed.
This is change is a complete structural reshape that will benefit property owners and developers. The Governments full consultation in late 2025 will be crucial to gain more understanding of how this transition will work.
