Why a phased start to commonhold is necessary to protect homeowners and housing supply

The Draft Commonhold and Leasehold Reform Bill, published on 27 January, intends to make commonhold the default tenure for new flats.

The bill represents one of the most significant shifts in residential property law for a generation. Proponents present commonhold as a democratic, owner-controlled alternative to leasehold.

Yet while it may fix some problems, it raises serious questions about risk, the availability of finance and long-term asset management – especially if commonhold is rushed or applied universally from day one.

The risk is that the reforms could destabilise the very markets on which the government’s housing and growth agenda depends and represent a major stumbling block in the government’s aim to make the conveyancing process cheaper and quicker.

Against this backdrop, I have worked with developer Weston Homes on a different route – one that retains legal certainty for funders while handing meaningful control to residents. This transitional “third way” may provide a more stable framework for investors and buyers alike.

Commonhold and market risk

Although we have all seen negative headlines generated by a minority of unhappy leaseholders, the fact is that leasehold reform is largely popular with consumers, and replacing leasehold entirely with commonhold is far from straightforward.

Currently, lenders remain reluctant to finance commonhold. Their caution reflects the risks of collective management: what happens if residents fail to pay service charges, or refuse to authorise essential works? Enforcement options are limited, and few mortgage providers are prepared to underwrite that uncertainty.

Without finance, liquidity in the market is compromised and developers will hesitate to bring forward new schemes.

There are operational challenges too. Commonhold requires resident directors to manage budgets, ensure building safety and comply with regulation.

In practice, this can mean a small minority carries the load while others disengage, or that collective decision-making delays vital maintenance. Such unpredictability introduces risk into service charge recovery and long-term asset condition.

The need for a slow and staged transition

Investors require tenure structures that are predictable, enforceable and underpinned by precedent. Leasehold, for all its flaws, meets that criteria. It has centuries of case law, a proven financing framework and tested mechanisms for enforcing covenants. Developers and institutional investors understand it.

By contrast, commonhold remains unproven at scale. Since its introduction in 2004, there have been fewer than 25 schemes across England and Wales. That lack of track record creates uncertainty over valuation, exit strategies and the security of income streams.

The government has committed to delivering 1.5 million new homes this Parliament, although completions have dropped since the 2024 general election. To hit those targets, developers will need to build at higher densities, which means flats. If commonhold discourages buyers or deters finance, housing delivery – and by extension investment opportunities – could stall.

Developers are already facing increased costs in dealing with historic building safety defects and trying to get to grips with the hugely complex new law in this area, to introduce more legal uncertainty into an already very challenging industry is not likely to speed up supply.

A hybrid model in practice

No consumer, and no mortgage lender, wants to take substantial financial risks during the transitional process, which why approaches such as Weston Homes’ address these concerns while delivering consumer benefits.

All its new apartment schemes include a Residents’ Management Company (RMC). Once a development is completed and occupied, Weston Homes transfers the freehold to the RMC at no cost. Every flat owner becomes a member, and directors are appointed from among them.

Crucially, the structure retains 999-year leases. That means clarity of title, enforceable covenants and the comfort of legal precedent – features that are vital to lenders and investors. At the same time, residents enjoy genuine control over service charges, transparent accounting and the absence of ground rents or profit-taking landlords.

The model has now been rolled out across 15 schemes, several of which are already operational. Early feedback from residents suggests strong satisfaction: most appreciate the fairness and transparency, while a minority take an active role in governance.

For mortgage lenders, the attraction lies in the continuity of leasehold structures combined with the removal of the reputational risks that have plagued traditional freehold ownership.

Why this matters to financiers

At its core, the debate is not about ideology but about function and risk. Abuse of the leasehold system such as escalating ground rents and opaque and/or unreasonable management costs or service charges have created many of leasehold’s reputational problems. Stronger regulation of managing agents – which the government has pledged to pursue – could resolve much of that without destabilising the market.

By contrast, commonhold could create untested obligations and additional costs for resident-led associations and leave investors uncertain about enforcement. Mortgage lenders are already wary. Without reliable finance and resale liquidity, flat values could come under pressure, affecting both individual buyers and larger investors in the private rented sector.

For buy-to-let investors in particular, the risks are pronounced. Large schemes with complex phasing or mixed-use elements depend on predictable management structures. Uncertainty over service charge recovery or governance could weaken investment appetite just as government is relying on investors and developers to help deliver housing targets.

The benefits of a gradual approach

Weston Homes’ experience shows that reform does not need to be binary. The government’s focus on commonhold as a wholesale replacement for leasehold risks unsettling a fragile housing pipeline and the negative language around leasehold risks devaluing this tenure.

Instead, I would like to see wider support for models that combine the legal certainty of long leases with the democratic control of resident ownership.

Such hybrids deliver consumer protection and transparency, while maintaining the structures that investors, lenders and developers rely upon. They also align with the government’s growth agenda, enabling flats to come forward at scale and at pace without undermining market confidence.

Conclusion

For mortgage lenders and consumers, the key concern is stability. The last attempt to popularise commonhold in 2002 failed arguably because it did not reflect the realities of development finance or the needs of lenders.

Without addressing those same issues now, the government risks repeating history – with greater consequences given the scale of the housing crisis.

Commonhold almost certainly has a role, but only if introduced gradually, with technical hurdles resolved by collaborating with industry professionals and lender confidence secured.

In the meantime, the market should take reassurance that alternative models already exist. Weston Homes’ approach demonstrates that it is possible to give residents control while preserving the legal and financial frameworks that underpin value and maintain confidence and security – an ideal interim model providing a tenure structure that balances consumer trust with commercial certainty.

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