What is commonhold property?

The landscape of flat ownership in England and Wales is set for significant transformation. The Labour government has announced its intention to phase out the sale of new leasehold flats, advocating for a shift towards commonhold.

This proposal has sparked considerable discussion, particularly for the millions of existing leaseholders who will be impacted by the new status of flat that will be on the market. Here, we aim to provide an overview of the proposed changes, addressing key aspects of leasehold and commonhold, and their potential implications, particularly within areas like Brighton and London with significant numbers of leasehold flats.

For a more detailed look at how commonhold works, see our guidance note here.

Leasehold to Commonhold

The government's plan, detailed in a Commonhold White Paper, states that "the government is determined to ensure that commonhold becomes the default tenure".

Like other property law changes in recent months, these changes will be debated and challenged by the various interests in the property industry, likely being shaped along the way. However it seems clear that the overall aim is to replace leasehold with commonhold long term, whilst changes continue to be made to the existing leasehold system to tackle escalating ground rates, make lease extensions cheaper and introduce transparency to service charges.

Draft legislation is proposed for the second half of 2025 alongside the next phase of consultation on leasehold reforms generally, however it is crucial to understand that these changes will only apply to newly constructed flats, not existing leasehold properties. How these changes could affect existing leaseholders is something that remains to be seen, though there has been talk of a multiple tier flat market being created.

What is leasehold?

Leasehold is the prevailing ownership structure for flats in England and Wales, applying to an estimated 4 to 5 million properties, being mainly flats. Under this system, a freeholder owns the building and the land it occupies. Leaseholders purchase the right to occupy their property for a specified period, typically ranging from 99 to 999 years.

Leaseholders are required to pay service charges to the freeholder or management company for building maintenance, upkeep of communal areas, insurance of the building and other shared services. It is common for annual service charges for a 1 bed flat to be between £1,000 and £2,000, representing a significant additional burden on the cost of living.

Freeholders often appoint managing agents to handle repairs, maintenance, and service charge collection although the freeholder still ultimately remains liable. In some instances, leaseholders may collectively own the freehold, providing them with greater control over the building's management however they must still comply with leasehold laws relating to the regulation of service charges and remain open to challenge in the First-tier Tribunal by an individual flat owner if the lease covenants or statutory controls are not complied with.

Lease Extensions and the Leasehold and Freehold Reform Act 2024

Separate from the commonhold proposals, the secondary legislation activating parts of the Leasehold and Freehold Reform Act 2024 is set to introduce significant changes throughout 2025, with some changes taking place already such as the abolition of the two year rule. This legislation will make it easier and more affordable for leaseholders to acquire their freehold, extend standard lease terms to 990 years for both houses and flats and make it easier to understand and challenge service charges. 

Issues with leasehold

Leasehold has faced criticism, particularly regarding service charges and lease lengths. Concerns have been raised about the transparency and reasonableness of service charge calculations and the limited control (if any) that leaseholders have over the maintenance budget, despite having to foot the bill. Additionally, the need to pay substantial fees for lease extensions, especially as leases approach 80 years, can significantly impact property values and mortgage availability.

What is commonhold?

Commonhold, an alternative way of legally owning a flat, is prevalent in countries such as Canada, Australia and Singapore, offers an alternative ownership structure that is designed to place flat owners at its heart.  Under commonhold, each flat owner possesses the freehold of their individual unit and shares ownership of the building and land with other owners through a "commonhold association." Put simply, it removes third party investors from residential property altogether and leaves decision making with those that own flats within the building. There would be no ground rents or lease extensions under this structure. 

The commonhold association manages the building's maintenance and upkeep, with costs shared among all owners. A "commonhold community statement", which is likely to be in a prescribed form that the public will eventually become used to, outlines the rights, responsibilities, and rules governing the building's management.

Advantages of commonhold

Proponents of commonhold point out the increased control and security for flat owners, along with a sense of community as opposed to being managed by a faceless third party freehold company ultimately set up to receive a return on investment for ground rents and administration fees.

Commonhold also eliminates the need for lease extensions and addresses concerns about short leases devaluing properties.

Problems with commonhold

Commonhold relies on cooperation among flat owners for building maintenance and financial management. Disagreements regarding necessary work and cost allocation could arise and differing life priorities and budgets between unit holders clash. However Ricky Coleman, Solicitor and author at Peppercorn Law, states that "the potential problems with commonhold are often overplayed by those that seek to lose out financially on the gradual roll back of the leasehold system."

There are successful commonholds the world over, just as there are successful leasehold apartments run by residents. Equally it is possible for issues to arise between the group of flat owners regardless of the legal wrapper that the building sits within.

Of course leasehold has the advantage of being the better known system, however there is a once in a generation opportunity to codify the rules of residential living during the roll out of the new commonhold system.

Impact on existing leaseholders

The proposed changes do not directly affect existing leaseholders, although they may explore converting their buildings to commonhold. However, converting is currently complex and costly, though this is likely to change as part of the drive to make the new legal system workable. 

Buying leasehold flats in Brighton and elsewhere

Prospective buyers considering leasehold flats, particularly in areas like Brighton where they are common, may wonder if they should delay their purchase. However, experts generally advise against this. The proposed changes are some time away and their implementation remains uncertain.

When will leasehold change?

The proposed transition to commonhold represents a significant shift in flat ownership in England and Wales which could take some years and require a number of consultations. While it promises greater control and security for flat owners, it also presents potential challenges. Existing leaseholders should remain informed about the proposed reforms and their potential implications. It is important to remember that the current leasehold system will remain  prevalent for many years to come.