Commonhold introduces new legal duties and shared costs for flat owners

Commonhold introduces new legal duties and shared costs for flat owners

The draft Commonhold and Leasehold Reform Bill will shift flat ownership to commonhold, giving owners freehold rights but also new collective responsibilities and financial obligations through a commonhold association.

The draft Commonhold and Leasehold Reform Bill, published in January 2026, marks a significant change for flat owners in England and Wales. It will require new flats to be sold as commonhold rather than leasehold, and existing leaseholders will have a route to convert their properties if a majority agree. This reform aims to eliminate ground rents and leasehold expiry concerns by granting flat owners outright freehold ownership of their units, while collectively owning shared parts of the building through a commonhold association.

Under this system, the commonhold association—a company limited by guarantee—manages communal areas such as roofs, lifts, corridors, and gardens. All flat owners automatically become members of this association, which sets the budget for running the building and appoints managing agents. However, unlike leasehold arrangements, there is no freeholder above the owners, which transfers legal and financial responsibilities directly to them.

Legal responsibilities and management challenges for flat owners

Commonhold owners collectively assume legal duties, including filing annual accounts and exercising reasonable care as directors of the association. While most associations are expected to appoint professional managing agents, the draft Bill does not mandate this, potentially leaving smaller blocks with volunteer directors responsible for compliance and management tasks they may not be equipped to handle.

This contrasts with the current leasehold system, where the freeholder bears many statutory obligations. The absence of a mandated professional manager could expose flat owners to risks, including legal non-compliance and management inefficiencies. Scotland’s requirement for professional management in similar arrangements highlights a potential gap in the English and Welsh legislation that may require future amendment.

Financial implications and enforcement under commonhold

Financially, commonhold replaces traditional service charges with contributions to the association’s budget, which owners vote on annually. While owners can apply to tribunals if they believe budgets are unfair, the legislation currently lacks detailed statutory rights to inspect expenditure equivalent to those leaseholders enjoy. The government has acknowledged this gap but has yet to provide full protections.

Enforcement of individual owners’ obligations—such as payment of contributions, carrying out repairs, or adhering to community rules—also differs from leasehold. The Bill removes forfeiture, a powerful enforcement tool under leasehold, and instead allows the association to register charges against units for unpaid contributions. These remedies are more cumbersome and costly, potentially increasing the financial burden on compliant owners if others default.

Another financial risk is the potential insolvency of the commonhold association. Since the association holds the common parts of the building, its insolvency could complicate asset management and liabilities for flat owners. Unlike leasehold, where management companies and freeholders are distinct, commonhold’s structure means that insolvency proceedings could directly affect owners’ interests. The current draft legislation does not fully address these risks or offer protections similar to those for leaseholders’ service charge monies.

Context and potential market impact of commonhold adoption

Commonhold has been available since 2002 but has seen minimal uptake. The Bill aims to increase its use by making it the default for new flats and offering existing leaseholders a conversion route. This transition may create a two-tier market where new commonhold flats are perceived as more valuable due to the absence of ground rents and lease expiry, while existing leasehold flats may lag until conversions occur.

The anticipated ground rent cap, expected around late 2028, will help improve leasehold marketability by limiting escalating ground rents. However, lenders’ policies toward commonhold are still evolving, and some may be hesitant to finance commonhold properties initially. Agents and valuers will need to monitor these developments closely to advise clients accurately.

Practical implications for landlords, agents and flat owners

For landlords and letting agents, understanding the shift to commonhold is vital. The new ownership model changes the dynamic of property management and legal responsibility. Agents advising buyers should highlight that commonhold offers freehold ownership without ground rents or lease expiry but comes with collective responsibilities that may require active involvement in the association’s governance.

Landlords should be aware that enforcement mechanisms for ensuring compliance among owners are less straightforward than under leasehold, potentially increasing financial risk if other owners default on contributions or repairs. The risk of association insolvency adds another layer of complexity, making due diligence on the association’s financial health crucial before acquisition.

Agents will need to prepare clients for these changes and encourage thorough review of commonhold association accounts and governance arrangements. They should also monitor government updates as the Bill progresses to understand any amendments addressing current gaps in consumer protections and management requirements.

What remains uncertain about commonhold’s future

The draft Bill leaves several issues unresolved. The lack of mandatory professional management for commonhold associations may pose risks for smaller blocks. The absence of detailed statutory rights to inspect expenditure and the less effective enforcement mechanisms for unit holder obligations create potential vulnerabilities for owners.

Additionally, the treatment of commonhold association insolvency remains unclear, with no statutory protections comparable to those in leasehold. The government has acknowledged these concerns and indicated further work is needed, but the final legislation’s provisions are yet to be confirmed.

How lenders will fully adapt to commonhold structures is another area of uncertainty. Their acceptance and financing policies will significantly influence commonhold’s market viability and attractiveness to buyers and investors.

Considerations for landlords and agents preparing for commonhold

Landlords and agents should begin familiarising themselves with the commonhold model and its implications. Reviewing the financial and governance arrangements of any commonhold association before purchase will be essential. Ensuring clear communication with tenants and prospective buyers about the collective responsibilities and potential risks is also important.

Agents should update their advisory materials and training to include commonhold-specific issues, such as the role of the commonhold association, enforcement challenges, and the absence of ground rents. Monitoring government guidance and legislative updates will help anticipate changes and prepare for compliance.

Engaging professional managing agents for commonhold properties is advisable where possible, to mitigate the risks associated with volunteer management and ensure statutory obligations are met effectively.

Supporting landlords through commonhold transition with TLA

The Landlord Association (TLA) offers members access to compliance resources and practical information relevant to the transition to commonhold ownership. Through TLA membership, landlords and letting agents can explore guidance on reviewing property records, monitoring regulatory developments, and managing collective responsibilities under commonhold.

TLA’s new property management and compliance platform, ORBIT, is currently available in BETA testing and is being developed to assist landlords and agents in organising properties and portfolios, managing rental documents, and recording key actions such as repairs and inspections. While ORBIT is still in testing, it aims to provide tools that help keep property management and compliance information together, which will be particularly useful as commonhold introduces new collective management duties.

Members can access TLA’s compliance support to prepare for the new requirements, review documentation related to commonhold associations, and stay informed about legislative changes affecting flat ownership and management.

Exploring TLA membership and ORBIT BETA access can help landlords and agents maintain oversight and control during this period of rental sector reform.

Commonhold promises to reshape flat ownership by eliminating leasehold drawbacks, but it also transfers significant responsibilities to owners. The final form of the legislation and subsequent government guidance will determine how straightforward or complex this new arrangement becomes for landlords and agents.

Sources: Landlord Today