After years of criticism and delay, the Government has finally published draft legislation setting out its plans for the most significant overhaul of the leasehold system in a generation.
The Draft Commonhold and Leasehold Reform Bill is part of a wider reset of how flats are owned, managed and governed, and follows a stream of controversies over ground rents, lease extensions, service charges and the balance of power between leaseholders and freeholders.
Although the focus will initially be on reforming the existing leasehold framework, the Bill also sets out a longer-term ambition to move away from that model altogether.
The Government is instead proposing a different type of ownership structure for flats that would change how buildings are run and how decisions are made. For owners, investors and freeholders of flats, that has some serious implications.
So, what is commonhold?
Commonhold is an alternative ownership model to leasehold. Instead of buying a long lease with a separate freeholder owning the building, flat owners own their homes outright, as well as a share of the communal parts. They are known as unit owners and automatically become members of the commonhold association.
There is no lease term, no ground rent, no expiry date and no freeholder.
The commonhold association runs all the shared parts of the building – including the structure, roof and communal areas. It is responsible for setting budgets, arranging maintenance and taking decisions. Directors can be appointed and, if needed, a managing agent can be brought in to oversee the running of the building, which can be particularly useful for larger blocks.
The framework for how it operates is set out in a single document, the Commonhold Community Statement, which covers cost-sharing, voting arrangements, decision-making and how disputes are handled.
How does commonhold work in practice?
In a small block, each flat would have a vote. Decisions on repairs, insurance and maintenance would be taken collectively, with costs shared between the owners.
In a larger, purpose-built block, the principle is the same. A managing agent could still be used for day-to-day operations, but major decisions – long-term budgets, maintenance plans and funding – would be taken by the association.
It isn’t new
Commonhold was first introduced more than 20 years ago to address the many problems associated with leasehold, including declining lease lengths, costly extensions, ground rents and disputes with freeholders.
It is designed to offer a permanent ownership model for flats and to hand control of buildings over to those who live in or invest in them.
Why hasn’t it taken off yet?
So far, commonhold has seen limited take-up in England and Wales, with leasehold remaining the default as it is both familiar and easier to finance. Mortgage lenders are cautious about untested structures, and mixed-use developments have proved hard to accommodate.
In addition, converting existing leasehold buildings also requires unanimous consent of the leaseholders, the freeholder and mortgage lenders, meaning, in many cases, it is difficult to get a decision.
