Shared ownership will work with commonhold, minister says in move to end leasehold

Leaseholders do not own their property outright, are forced to pay potentially escalating ground rent costs, and have a landlord that determines how the building is run and the service charges leaseholders must pay.

Commonhold allows people to own their property outright, with no expiring term or need to pay to extend a lease. They can have a say in managing their building and do not need to pay ground rent.

Initially introduced in England and Wales in 2002, commonhold has struggled to take off due to “flaws in its legal framework”.

However, commonhold-type models are used all over the world. The housing department added: “It can and does work and the government is determined, through both new commonhold developments and by making conversion to commonhold easier, to see it take root.”

Changes set out in a commonhold white paper include new rules to enable commonhold to work for all types of developments including mixed-use buildings, and allowing shared ownership homes within a commonhold.

The white paper will propose greater flexibility over development rights, helping developers “build with confidence” and maintaining safeguards for the consumer.

The plans would also give mortgage lenders greater assurance with new measures to protect their stake in buildings and protect the solvency of commonholds, such as mandatory public liability insurance and reserve funds and greater oversight by commonhold unit owners to keep costs affordable.

Management of commonholds would be strengthened with new rules around appointing directors, clear standards for repairs, and mandating use of reserve funds.

The white paper will also set out an “enhanced offer for homeowners”, including requiring greater opportunities for democracy in agreeing the annual budget, clarifying how owners may change “local rules” over how a building is run and new protections for when things go wrong.

Housing minister Matthew Pennycook said: “By taking decisive steps to reinvigorate commonhold and make it the default tenure, we will ensure that it is homeowners, not third-party landlords, who will own the buildings they live in and have a greater say in how their home is managed and the bills they pay.

“These reforms mark the beginning of the end for a system that has seen millions of homeowners subject to unfair practices and unreasonable costs at the hands of their landlords.”

Following the introduction of a new legal framework for commonhold, new leasehold flats will be banned.

In the meantime, the government will continue to implement reforms to help millions of leaseholders who are suffering from “unfair and unreasonable” practices at the hands of “unscrupulous” freeholders and managing agents. 

Recently enacted reforms from the previous government’s Leasehold and Freehold Reform Act 2024 include enabling leaseholders to buy their freehold or extend their lease without having to wait two years from the point they purchased their property, and overhauling the right to manage.

Progress will be made “as quickly as possible” to make it cheaper and easier for leaseholders to buy their freehold or extend their lease, and to make it easier for leaseholders to challenge unreasonable service charge increases.

A new code of practice will set out how costs should be apportioned in commonhold, aimed at providing consumers with transparency and clarity, and the government is committed to strengthening regulation of managing agents.

The government will also launch a consultation to ban new leasehold flats later this year to explore the best way forward.

Finally, a draft Leasehold and Commonhold Reform Bill will be published later this year, which will set out the legal framework for how reformed commonhold will work.  

Katie Kendrick, founder of the National Leasehold Campaign, said the white paper is a “significant step forward”.

She said: “While focusing on preventing future leasehold abuses is crucial, it’s equally vital to address the plight of existing leaseholders currently bound by the inequitable leasehold system. Commonhold conversion mechanisms are essential to offer an escape route for those trapped, alongside tackling issues like existing ground rents, reforming the valuation process for enfranchisement and regulating managing agents.”

Campaign group Free Leaseholders said: “The future of homeownership sounds a little brighter with today’s government announcement that new flats will finally be held as resident-controlled commonholds.

“But the sooner the two-tier property market ends, the better. The gap between house and flat prices is at its widest in 30 years as buyers boycott toxic leaseholds, prioritising homes whose running costs they do control.”

The group continued: “While a lot of the focus is on yet-to-be-built flats, existing leaseholders, the ones who are suffering, need a low-cost and fuss-free conversion to commonhold.

“A whole parliament commitment – so four to five more years – to deliver this agenda is too long to wait. The Leasehold and Commonhold Reform Bill must be enacted before the end of the second session of the parliament (2025-26).”

Natalie Chambers, director of the Residential Freehold Association, said: “We welcome any measure that improves consumer choice, but this should not be seen as a trade-off between leasehold and commonhold. As the government’s own data shows, millions of leaseholders across the country are perfectly content with the tenure and we firmly believe that leasehold is the most effective way of managing large complex apartment buildings.

“In the absence of the leasehold system, residents would face greater financial and legal responsibilities for block maintenance and management, which the previous government’s own research suggests a majority of leaseholders are unlikely to be in favour of.”