Commonhold presents an alternative to the traditional leasehold system, offering a different approach to property ownership that has yet to gain widespread traction in England and Wales. Despite its introduction in 2002, commonhold remains rare, with only 20 buildings registered under this tenure, largely due to limited understanding and lender hesitancy.

Understanding Leasehold and Commonhold

The leasehold system is hierarchical, where a freeholder owns the entire building and grants leases to individual flat owners. Each leaseholder holds a lease agreement that defines their rights and obligations, including often paying ground rent to the freeholder, who is typically a third party such as a developer or investor. Leaseholds are time-limited assets; as the lease term shortens, the value of the flat tends to decrease. Leaseholders can, however, extend their leases or collectively purchase the freehold through enfranchisement.

In contrast, commonhold ownership is structured around a Commonhold Association, a company owned by the building’s occupants, which holds the freehold of the communal areas. Individual units are owned outright on a freehold basis by commonholders, without leases. Instead of multiple leases, a single legal document—the commonhold community statement—governs the entire property. This means commonhold units do not depreciate over time as leasehold units do.

Key Similarities and Differences

Both leasehold and commonhold require maintenance, repair, and insurance of the building, with occupants contributing to these costs. They also impose restrictions on unit use, such as requiring consent for alterations, and include mandatory procedures for sales. Despite these similarities, the legal frameworks differ significantly in managing rights and obligations.

For example, leaseholders facing major works must navigate a statutory process involving Section 20 notices. Without a reserve fund, leaseholders may be confronted with substantial one-off bills, though they can challenge the works and costs via a tribunal. Commonhold associations, however, must prepare a 10-year building report outlining anticipated works and maintain a reserve fund to cover these costs. This forward planning aims to avoid unexpected expenses and fosters transparency and collective budgeting.

Implications of Commonhold Associations

Commonhold places greater emphasis on proactive management. The reserve fund and building report ensure that major works are anticipated and funded over time, contrasting with the reactive approach often seen in leasehold arrangements. This system grants homeowners more autonomy over their building, which may appeal to those dissatisfied with the control limitations inherent in leasehold ownership.

Government Plans and Market Reception

The government intends to shift away from leasehold, promoting commonhold as the default tenure through the upcoming Commonhold and Leasehold Reform Bill. However, Housing Minister Matthew Pennycook clarified on 29 April that existing leasehold flat owners will not be compelled to convert but will be encouraged to do so where feasible. Mortgage lenders’ current reluctance to finance commonhold properties remains a barrier, but this is expected to diminish as understanding improves.

Which Tenure is Preferable?

With so few commonhold properties in existence, it is difficult to definitively state which tenure is superior. Theoretically, commonhold offers greater transparency, autonomy, and fewer regulations, making it attractive for homeowners seeking control. Conversely, some may prefer the predictability and established nature of leasehold. Ultimately, the success of commonhold as a tenure will depend on how the market and government policies evolve.

Mari Knowles is a solicitor at Commonhold and Leasehold Experts Limited and a member of ALEP (the Association of Leasehold Enfranchisement Practitioners).

Source: Based on reporting from Property118

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