The Government has announced its plans to change property ownership in England and Wales by making commonhold the default tenure for new homes thereby phasing out the leasehold system.
Under these arrangements new leasehold flats will be banned with commonhold buildings being introduced to provide homeowners with greater control over their properties, eliminating ground rent. Housing minister Matthew Pennycook said:
“[the reforms] mark the beginning of the end for the feudal leasehold system which subjects homeowners to unfair practices and unreasonable costs”
Commonhold was first introduced in 2002 as a form of property ownership in the UK that allows individuals to own the freehold of a flat within a building while collectively managing shared areas with other property owners. Unlike leasehold, commonhold properties do not have a time limit, meaning owners are not bound by expiring leases. Instead, a Commonhold Association, run by the unit owners, oversees the management and maintenance of communal areas.
Adoption of commonhold over the last 23 years has been slow. There are approximately 184 units registered as commonhold in England and Wales compared to 4,770,000 leasehold units. So far there has been little appetite for leasehold owners to transition to commonhold and at the moment there appears to be no new legislation proposed to make it easy to do so.
In a statement reacting to the news of the white paper, Andrew Bulmer CEO of The Property Institute (TPI) said:
“With both tenures coexisting, we must ensure commonhold functions effectively while improving leasehold to avoid a two-tier system, a key concern raised by TPI and leaseholders themselves. We welcome the Minister’s commitment to robust building maintenance measures in commonhold. Our Scottish members, who transitioned away from leasehold without such protections, know the challenges firsthand.
Commonhold is no silver bullet. It won’t significantly reduce service charges—a common misconception. By law, managing agents cannot profit from service charges, which fund essential maintenance. Rising insurance, energy, and staffing costs are the driving forces behind recent increases. TPI’s Service Charge Index shows little difference between landlord and leaseholder-controlled costs, with the latter actually fractionally higher.”
We await further details of the Government’s proposals with the publication of the Leasehold and Commonhold Reform Bill later in the year.
