Leasehold reform – a third way for flat ownership

Why leasehold reform doesn’t have to mean commonhold

As the government, in its imminent Leasehold and Commonhold Reform Bill, prepares to mandate commonhold as the default tenure for new flats, one developer is already offering an alternative that balances consumer control with the impetus for change.

The government’s intention to legislate for commonhold as the default tenure for flats marks one of the most significant shifts in residential property law for a generation.

Commonhold is promoted as the antidote to the perceived injustices of leasehold, offering flat owners’ genuine ownership and democratic control over their buildings.

But while the ambition is laudable, there remains a gulf between legislative intent and legal reality.

Commonhold may solve some of leasehold’s issues, but it risks introducing problems of its own – ones that may undermine confidence in the flat market, constrain development and ultimately hold back housing delivery.

Case for leasehold reform

Against this backdrop, Nockolds has worked with Weston Homes to develop a working alternative – one that takes the best of both systems.

And while the government focuses on statutory change, this “third way” is already up and running across a growing number of sites.

The case for leasehold reform from a consumer perspective is already well-voiced. Furthermore, the removal of ground rents in residential leases threatens the commercial draws of the leaseholder / freeholder system.

But replacing leasehold with commonhold as a blanket solution raises new concerns.

For one, few lenders are currently willing to lend on commonhold property.

That reflects their caution about the risks associated with collective management, including the difficulties of enforcement when co-owners refuse to pay service charges or to maintain the fabric of the building.

Developers, in turn, will hesitate to build homes that buyers cannot easily finance.

A proven alternative

Equally, the practical burden on flat owners is significant. Commonhold associations generally need volunteers to act as directors, to manage budgets, oversee repairs and navigate a legal and regulatory environment that many are ill-equipped to handle.

The idea of collective empowerment is attractive in theory, but in practice it often means that a minority ends up doing the majority of the work – or no one does anything at all.

Whilst the Law Commission’s proposals do provide for professional managing agents to act as directors, some may be wary of taking on this role given the responsibilities that come with this role such as in relation to the safety of the building.

Developers may fear is that the proposed reforms could discourage consumers from purchasing flats.

That, in turn, could make developers less willing to bring forward high-density schemes, ironically, at a time when housing targets depend on precisely that.

Rather than wait for legislation, Weston Homes has already acted – and its model is both pragmatic and popular.

On all new apartment schemes since 2022, the company has adopted an approach that gives leaseholders long-term control over their building, without abandoning the legal and financial structures that have underpinned flat ownership for decades.

Freehold transfer process

It’s known as the ‘freehold transfer process’ and here’s how it works.

Each Weston Homes apartment scheme includes a Residents’ Management Company (RMC), established at the point of sale.

Once the homes are occupied and the development completed, Weston Homes gifts the freehold to the RMC – at no cost to the residents.

Every flat owner becomes a member of the RMC, and directors are appointed from among them.

Crucially, this preserves the leasehold structure – with 999-year leases that provide clarity, security and consistency – while transferring genuine control to residents.

Service charges are set by the RMC, and any surplus can be used as a reserve fund for future costs. There is no external landlord taking profit, no ground rent, and no opaque third-party interest.

The model has now been adopted across 15 schemes, with several already fully operational.

Anecdotally, residents have responded positively.

Most are simply relieved to know that there is no external landlord and that service charges are fair and transparent.

A small minority engage more actively with the RMC, while most are content to know they can have a say if they choose to.

Why this matters

For all the energy focused on ending leasehold, the real issue is one of fairness and function.

If leasehold is implemented properly – as Weston Homes’ model shows – it can be a fair and effective system with legislation already in place to deal with occasions when things go wrong or there are disputes.

The true problem lies not in the tenure itself, but in how it has been administered and, unfortunately in some cases, exploited.

Poorly regulated managing agents and disinterested or greedy freeholders have created many of the failings attributed to leasehold.

Stronger regulation of managing agents could do more to improve leasehold living than a wholesale switch to commonhold.

Indeed, commonhold carries risks of its own. While flat owners can theoretically enforce non-payment of service charges through forfeiture, in practice this is rare, and few buyers will relish the prospect of suing their neighbours.

Reaching even a simple majority agreement on service charge budgets can be difficult – especially where residents have differing interests or levels of engagement.

This could affect building safety too.

Without clear enforcement mechanisms, essential maintenance might be delayed.

And mortgage lenders will be wary of funding purchases in buildings where collective management fails.

That’s a risk not just for buyers but for the housing market as a whole.

A message for government

Weston Homes is not opposed to reform. It will, of course, comply with any future legislation.

But its experience suggests that reform should not be framed as a binary choice between flawed leasehold and idealised commonhold.

Instead, Weston Homes supports the government’s intention to reform the law in relation to service charges and regulation/qualification of managing agents as part of the consultation which was recently announced.

Weston Homes’ view is that government should consider models that blend the legal certainty of leasehold with the democratic control of commonhold – and that reflect how people actually live.

A well-drafted lease, transparent service charges and resident-owned freeholds can deliver the consumer protections government wants, without jeopardising supply.

As the Bill and the consultation proceed, it is vital that government listens to developers, consumers, legal and valuation professionals and lenders alike.

The aim should be to restore confidence in flat ownership – not to replace one imperfect system with another.

Weston Homes’ approach provides a useful template, and a reminder that innovation is already happening on the ground.

Commonhold to play a role

Commonhold may yet have a role to play. But it must be adopted carefully, and only where it delivers better outcomes.

In the meantime, the wider industry should be reassured that there is a third way which works well and is already delivering successful and well-received results.

In March the Government published a Commonhold White Paper: the first stage in its fulfilment of a manifesto promise to abolish leasehold.

The Ministerial foreword to the white paper states, that ‘The government is determined to ensure that commonhold becomes the default tenure… commonhold is not merely an alternative to leasehold ownership, but a radical improvement on it’.

By the autumn we anticipate the publication of a Leasehold and Commonhold Reform Bill which will put these proposals into draft legislation.

As the government has already stated its intention that all new properties will be sold as commonhold (where they would previously have been leasehold) and considering the fact that, despite opposition from other parties, the government has a substantial majority with which to push this pledge through, the change is expected to take effect this Parliament.

However, another key government pledge is that of significantly increasing housing delivery (alongside the development of energy and infrastructure).

The government has committed to 1.5m homes being built within the same time frame, in what Keir Starmer himself has referred to an ‘almighty challenge’: housebuilding levels are currently at a record low at just 153,900 in 2024 (Office for National Statistics figures).

The government’s ambitious housing target has not been exceeded since 1968, despite the best intentions of successive governments.

And if it is to be met, this can only be achieved by new housing delivered at greater densities, particularly in urban areas.

In towns and cities where land is scarce and infrastructure is already in place, flats are often the only viable option to meet local need; this is true too of land outside major conurbations which is often constrained by land use designations, such as the Green Belt.

So, the question of whether new developments, comprising a large proportion of commonhold units, go ahead will depend in part on developers’ attitudes towards commonhold.

It will also require there to be a viable and working system of commonhold.

Commonhold is untested at scale

To date, commonhold has not been well received among housebuilders. The primary concern is that commonhold is untested at scale in England and Wales.

Fewer than 25 commonhold developments exist nationally and for developers, investors and mortgage lenders, that spells risk.

As the government acknowledges there is much to be done with the current version of commonhold (what we have at the moment might be termed ‘commonhold light’).

Commonhold has been on the statute books since 2004, and yet one of the main reasons for lack of take up, has been a number of known issues with it.

These issues are technical and cover a number of areas, including: dispute resolution, amendment to the constitutional documents and provisions relating to the termination of a commonhold, along with how control is handed over as a development is ‘built out.’

Leasehold (despite its imperfections, which we acknowledge) is something that developers understand.

It has deep roots in property law, is underpinned by decades of precedent and is woven into standard development funding and sales models.

Service charge structures, management companies, exit strategies – all are familiar territory.

To roll out new homes at scale and at speed, housebuilders will need to work with a tenure that they understand.

By contrast, commonhold raises big questions.

How will development finance be structured when there’s no freehold reversion to secure against?

How will developers recoup upfront costs of amenities or manage complex phasing on multi-block schemes?

What’s the mechanism for enforcing covenants in a mixed-use building?

Property market risk

The economy is rife with uncertainty, but the government cannot risk a slow-down in the property market.

While developers don’t have the reassurance of economic stability, they require stability where stability can be sought.

The concern is that until commonhold is more established, its unfamiliarity may lead some to pause or pivot away from building flats altogether.

The tension between leasehold reform and the growth agenda need not be irreconcilable – but it does require a thorough, considered and therefore possibly slower transition.

If commonhold is to succeed, it must be made workable in the real world of development finance and long-term asset management.

That means addressing technical hurdles including phased buildouts, integrating commercial and residential elements, and ensuring mortgage lender confidence.

A more pragmatic alternative might be to allow leasehold for new flats in the short to medium term, but with strengthened protections for leaseholders – while undertaking pilots in the passage towards commonhold adoption.

In conclusion, if the route to delivering new becomes more legally complex and commercially uncertain, the market will respond cautiously.

That could mean slower build-out rates, fewer starts on site, or exceptions being made for house, rather than flats, even if that’s at odds with wider planning strategy.

There is a very real danger that, in seeking to fix the leasehold system, we risk destabilising an already fragile housing pipeline.

When taking on the challenge of leasehold reform, the government should bear in mind that the last attempt to popularise commonhold in 2002 failed partly because the framework didn’t reflect the needs of developers or the realities of the market.

Without addressing those same structural issues today, the government risks repeating history – only this time, bearing in mind the extent of the housing crisis and the political capital invested in its resolution – with more at stake.

Thoughts from Joanne Wood, Solicitor at Mullis & Peake LLP

Practising property law in a regional solicitor’s practice brings a variety of work and clients.

Over the last few years, several clients that have purchased freehold reversions of blocks of flats specifically for the ground rents.

Our clients have not been greedy and have been happy to accept a nominal annual ground rent with gradual increases as opposed to the escalating ground rents of the type that have been complained about in recent years.

Instructions for those types of transactions have now scarce but, as a result of our experience of such matters and long-standing good working relationships with developers such as Weston Homes, we have been fortunate enough to have been instructed to act on behalf of RMCs acquiring the freehold interest of development sites – completion being effected on the sale of the last unit.

In order to minimise risk, ensure transparency and keep costs to a minimum, we are instructed at an early stage and generally at the outset of plot sales so as to be as closely involved within the drafting process as possible.

This said, our relationship with some of the developers has meant that documentation has evolved to be in largely standardised form, subject only to necessary revision particular to each individual site.

Our involvement means that we are separate and in addition to the solicitors instructed to act on behalf of each buyer and separate and distinct from the developer and developer’s solicitors.

As solicitors to the RMC, we ensure that any procedures required by the Landlord and Tenant Act 1987 are followed, if required, and check that the relevant procedures and practices are in place for a smooth handover of the freehold interest and management responsibilities on completion.

Working closely with the developer’s solicitors, we can ensure that buyers of flats are given as much information as possible regarding the freehold transfer at the outset via the developer’s information pack.

This is important to us given that we are not acting for the individual property owners but rather the RMC.

Lucy Riley, Legal Director, Nockolds and a member of ALEP (Association of Leasehold Enfranchisement Practitioners).