Commonhold and RTM: the investor risk is changing

Property investors have good reason to watch leasehold reform closely. Much of the public debate is framed around homeowners, but leasehold is also an investment market. It affects buy-to-let landlords, freehold investors, mixed-use owners, developers, managing agents and lenders. The challenge is to distinguish between what reform changes and what it does not.

MHCLG estimated that in 2024-25 England had 4.90 million leasehold dwellings. Around 1.91 million were privately owned and let in the private rented sector. London had the highest proportion of leasehold dwellings at 39%, followed by the North West at 30%. This is a considerable section of the property market, in which investment decisions, lending decisions and sales values are already being affected by uncertainty around leasehold.

The immediate temptation is to ask whether commonhold will be better or worse for investors, but I think that is the wrong starting point. Commonhold and Right to Manage (RTM) are different mechanisms, with different consequences. RTM changes who manages the building, whereas commonhold changes the ownership model.

RTM and the existing market

RTM is likely to remain highly relevant to existing leasehold blocks in the short to medium term. The Leasehold and Freehold Reform Act 2024 (LAFRA) has already made RTM easier in some circumstances. Since 3 March 2025, the non-residential limit has increased from 25% to 50%, which brings more mixed-use schemes within scope. Leaseholders are generally no longer be required to pay the landlord’s professional costs associated with an RTM claim.

For leaseholders, that may be attractive. For investors, it changes the risk profile. Freeholders of mixed-use buildings may find that residents have a clearer route to take over management of the residential parts. Buy-to-let landlords who own flats may find tenants and leaseholder groups more engaged on service charges, insurance, repairs and building condition. Managing agents may face closer scrutiny from resident-led companies.

But this should not be seen as a threat. A well-run RTM company can improve maintenance standards, increase transparency and protect value. Poor management is not good for investors either. Service charge disputes, neglected repairs, weak records and insurance uncertainty can all damage saleability and mortgageability.

It is important that flat owners understand that RTM is not simple. It leaves the leasehold structure in place, ground rent remain and lease length remains relevant. The freeholder remains in the background with certain rights and responsibilities. The RTM company must manage budgets, arrears, contractors, approvals, covenants, major works and sometimes building safety. Investors should therefore look not only at whether a building has RTM, but at whether the RTM company is competent, well advised and financially disciplined.

Commonhold and income

Commonhold has a different investment impact. It is designed to remove the external landlord from most flat ownership. That means some traditional income streams associated with leasehold, including ground rent and certain freehold interests will be reduced or disappear in new commonhold schemes. Investors whose business model depends on those income streams need to take that into account.

At the same time, it would be too narrow to view commonhold only as the loss of a freehold investment model. If commonhold improves buyer confidence in flats over time, it may help liquidity in parts of the market where leasehold has become a drag on demand. The flat market has been under pressure from several directions: mortgage affordability, service charge anxiety, building safety concerns and scepticism about leasehold. A better understood ownership model could, in time, make some flats more attractive.

The words ‘in time’ are significant. Commonhold has existed since 2002, but the current market is tiny. The HCLG Committee has referred to just 18 commonhold blocks across England and Wales. The government’s aim is to make commonhold the default tenure for new flats, but that requires new documents, lender confidence, conveyancer knowledge, valuation practice, managing agent competence and consumer education.

The limitations of commonhold

For investors buying flats, commonhold will not remove the need for due diligence. It will shift the questions. Instead of asking only about lease term, ground rent, service charge provisions and landlord covenants, investors will need to understand the commonhold association, the commonhold community statement, reserve fund requirements, insurance arrangements, voting rights, restrictions on use and the process for dealing with non-payment or disputes.

The service charge issue is particularly important. Commonhold may improve accountability because owners control the body that runs the building, but it does not make building costs disappear. Repairs, cleaning, lifts, roofs, fire safety, insurance and professional management still have to be paid for. A low annual contribution is not necessarily a virtue if it means the building is being underfunded.

Resident decision-making can also be difficult. Investors know that joint ownership structures can be fractious. Some owners are engaged and realistic but others are absent, under pressure or reluctant to fund work until it becomes unavoidable. Commonhold will need strong governance and professional support, especially in larger and mixed-use schemes. It will rely heavily on owners being engaged and co-operative with each other.

Due diligence

For investors, the practical question is not whether leasehold, RTM or commonhold is intrinsically good or bad but whether the building is investable on its own facts. Is the lease long enough? Are service charges predictable? Is there a reserve fund? Are there arrears? Are major works planned? Are there building safety liabilities? Is the management structure stable? Is there a risk of RTM or enfranchisement? If commonhold, is the association functioning properly?

I support necessary reform, but reform must be handled with caution. Leasehold will not disappear overnight and commonhold will not instantly become familiar. In the meantime, RTM will remain an important route for existing leaseholders and investors should expect a period in which all three are part of the market.

The best investment decisions will be made by those who look past the label and examine the governance, costs, liabilities and saleability of the building. Tenure matters, but the quality of management will still determine value.

Shabnam Ali-Khan is a Partner at Russell-Cooke and a member of ALEP (Association of Leasehold Enfranchisement Practitioners).