Commonhold myths and realities — A balanced take on the new tenure’s potential

Commonhold was first introduced in England and Wales in 2002 but failed to take off due to a lack of industry support.

Even now, not all lenders will lend on commonhold, and many estate agents, conveyancers and managing agents do not offer commonhold services.

Notwithstanding the unpopularity of the tenure to date, the government’s 2024 manifesto committed to abolishing the, as they call it, “feudal” leasehold system. Repeated references have been made to commonhold becoming the default tenure.

The Housing Minister reconfirmed that commitment on 29 April, and the Commonhold and Leasehold Reform Bill will begin its passage through Parliament imminently.

Despite much having been written about whether commonhold should become the default tenure, and heavy criticism of the tenure, the moment for that conversation has passed; a firm decision has been made. So what will commonhold, as the future default tenure, look like?

In his recent speech, Matthew Pennycook went to some lengths to make clear that the leasehold system was not about to be abolished in its entirety. He acknowledged that to convert all 5 million existing leasehold properties to commonhold immediately was impossible, and that the focus of the reforms would be two-fold: firstly, banning the sale of new-build leasehold flats and enabling conversion to commonhold for leaseholders of existing building; and secondly, improving the existing leasehold system for those who do not convert to commonhold. Leasehold will therefore remain.

It is against this backdrop that the viability and future of commonhold should be considered, because as long as leasehold exists, inevitable comparisons will be made.

Commonhold is about autonomy for those who live in their buildings. Instead of involving a third-party freeholder who manages the building on behalf of the residents, often from a distance and with no connection other than a business connection, commonhold is managed by the occupants.

Commonholders’ motivations will usually be different to those of a commercial freeholder. Typically, they will be more willing to spend time obtaining competitive quotations for work, or holding a managing agent to account when issues arise. They are also more likely to engage with each other, resulting in a more democratic approach. It is also intended that they can react more quickly when necessary.

Autonomy does, however, come at a price, that being responsibility. Responsibility cannot be shirked, nor corners cut to avoid expensive bills. During the recent pre-legislative scrutiny of the Commonhold and Leasehold Reform Bill, mortgage lenders were keen to stress concerns about standards of maintenance under commonhold.

In addition to complying with the basic commonhold laws, there is now an abundance of other legislation which applies to multi-unit buildings which commonhold associations will need to comply with, including the Fire Safety Act 2021 and Building Safety Act 2022. Managing a building well comes with significant responsibility and is not for the faint-hearted.

That said, the responsibility conundrum already exists within the leasehold system, as leaseholders have the opportunity to buy their freehold via processes known as collective enfranchisement or right of first refusal, or can acquire management responsibility via the statutory or contractual Right to Manage.

This then begs the question, why have commonhold if you can simply buy the freehold or acquire management of your existing leasehold building?

The answer is somewhat complex, but there are clear advantages as to why resident-led buildings can function better under a commonhold. Firstly, the commonhold model is less complex than leasehold, making it more transparent and easier to understand.

Secondly, in many leasehold cases, not all leaseholders are members of the freehold or management company, thus not fulfilling the “democracy” box that commonhold boasts (all commonholders are members of the commonhold association).

Thirdly, and importantly, the way buildings are managed can be more efficient in commonhold due to mandatory 10-yearly building surveys and reserve funds designed to assist when major building works are needed.

Short notice and significant major works bills are a known issue within the leasehold system, to the extent that the government is considering overhauling this area of law. Furthermore, accounting can be simpler under commonhold and standardisation of the key legal documents and use of prescribed notices makes commonhold easier to understand.

Commonhold has been much criticised to date. But a revised form of commonhold is now firmly on the legislative agenda and, following some significant changes to the model, there will be much to commend commonhold over its leasehold counterpart.

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