With commonhold on the horizon, is leasehold on borrowed time?

The UK government unveiled its Commonhold White Paper at the beginning of March 2025, detailing its comprehensive plan aiming to phase out the traditional leasehold system in favour of commonhold ownership.

This initiative seeks to address longstanding criticisms of leasehold arrangements and grant homeowners greater autonomy over their properties. It is safe to say that this change will be significant and will reshape the property landscape if this does finally happen.

Understanding leasehold and freehold ownership

In England and Wales, property ownership has traditionally been categorised into freehold and leasehold. Freehold ownership is absolute ownership of both the property and the land upon which it sits, whereas leasehold ownership provides ownership for a specified time period, after which the ownership and rights revert to the freeholder.

For many decades, the leasehold system has been particularly prevalent in the sale of flats, where buyers acquire long-term leases but do not own the building’s common areas or the land. A long lease allows the occupier to occupy the property for a long period of time, usually 125 years. The occupier would have paid a premium for the property when they bought their lease and would usually pay a small amount annually for ground rent as well as a service charge. Over the past 20 years there have been many instances where leaseholders have faced escalating and hugely increased ground rents and limited control over property management decisions, leading to potential disputes and heavy financial burdens.

Leasehold ownership sees a property diminish in value as the lease shortens. Despite previous reforms, such as the ban on new ground rents, many believe these measures have not sufficiently addressed the inherent issues within the leasehold framework, and this is what the commonhold model aims to rectify.

The shift to commonhold – what does this mean?

Commonhold ownership, introduced in the early 2000s but not widely adopted, offers an alternative in which homeowners own their individual ‘units’ (i.e., flats) outright and collectively manage shared spaces through a Commonhold Association.

This framework aimed to introduce a new form of ownership to overcome the negatives of leasehold ownership. This model eliminates the traditional landlord-tenant dynamic, providing homeowners with direct control over maintenance and management decisions through the Commonhold Association. The Government also plans to ban new leasehold flats, simplify the process for existing leaseholders to convert to commonhold, and establish clear guidelines for the management of commonhold properties.  

All unit owners would be members of the association, and some of the unit owners would also be directors. Under this association, a commonhold community statement would be agreed to set out the rules that all unit owners must abide by. An example of a rule incorporated into this statement would be that all unit owners are to contribute to the maintenance of the buildings, and it would detail the process of dealing with a unit owner that is not contributing as they should be.  

What are the issues with commonhold?

For homeowners, the transition to commonhold means acquiring properties with greater autonomy and without the complications associated with leasehold agreements. Existing leaseholders may have the opportunity to convert to commonhold, potentially enhancing the value and providing more control of their properties, adding to a better homeowner experience. However, if commonhold has all these benefits, then why has it not been more widely adopted since it was introduced in the early 2000s? 

See some of the key issues summarised below -

• The existing legal framework is rigid and does not accommodate the diverse interests and uses typically found in large, mixed-use developments.
• Converting to commonhold requires unanimous agreement from all stakeholders in the building, which can be challenging to secure.
• Developers have not been incentivised to construct commonhold properties, as leasehold remains more financially attractive, offering ongoing revenue through lease extensions or the sale of freehold interests.
• In its current form, commonhold is not well-suited for developments where tenants rely on landlords to manage complex, service-driven operations, such as those in the Integrated Retirement Community sector.
• Mortgage lenders have been hesitant to finance commonhold properties, one reason partly responsible for this is that commonhold associations could face a higher risk of insolvency as they do not have ‘deep pockets’ like majority of freehold owners.
• Many commonhold owners may not want to be involved in the maintenance and management decisions as part of the commonhold association. Some may lack the expertise or willingness to take on directorial roles in the commonhold association, especially given the increasing liabilities associated with managing high-risk buildings. This association could run into disputes between the unit owners and we must question how this would be mediated.
• Part of this ownership means that all unit owners will have to contribute to the costs of maintaining the property. However, owners may face problems from other owners who can’t or are refusing to contribute towards these costs.

How is the Government addressing these issues?

The Government has made numerous recommendations to address concerns and improve faith in the commonhold system, some of these are listed below –

• Measures to mitigate the risk of commonhold insolvency
• Ensuring equity is secure by forfeiture not being available
• To recover debt an order for sale process will be available
• Property maintenance plans  
• To be more affordable, commonhold will incorporate shared ownership and home purchase plan leases within commonhold
• Improve lender confidence in commonhold ownership
• Provides developers with flexibility to use commonhold for both commercial and residential developments
• Making the conversion from leasehold to commonhold easier and cost effective

Developers will need to adapt to this shift, ensuring their projects align with commonhold principles. Mortgage lenders will also have a key role in supporting this change, requiring adjustments to lending practices to accommodate the commonhold model.

Looking ahead

The proposed reforms signify a pivotal moment in property ownership. While challenges remain in implementing these changes, the Government’s commitment to phasing out leasehold ownership in favour of commonhold ownership reflects an important shift towards empowering homeowners in England and Wales.

The Government has said it will consult later this year on how to ban new leasehold flats, publish a draft bill for Parliament's consideration, and continue to promote commonhold ownership positively.

Thoughts to action?

With these changes on the horizon, it is important to start considering how this will affect you and what you need to consider moving forward.