Welcome to the second edition of RED Alert of 2025.
Also featuring in this month's update:
Summary
In a bold step to overhaul flat ownership in England and Wales, the UK government has published its much-anticipated Commonhold White Paper. Delivery on a key Labour manifesto pledge to end the leasehold system, the paper lays out a roadmap to make commonhold the default tenure for flats – but what does this really mean for the property market and freehold and leaseholders alike?
How will the transition to commonhold happen?
The government's strategy centres on reforming the legal framework for commonhold, originally set out in the Commonhold and Leasehold Reform Act 2002. Much of this reform draws directly from the Law Commission's 2020 recommendations.
Critically, the plan includes a ban on the sale of new leasehold flats once the reformed commonhold system is well established and viable. These changes will apply across both England and Wales.
Timeline and next steps
The government is aiming to make commonhold the standard tenure by the end of this Parliament (expected by 2029). A draft Leasehold and Commonhold Reform Bill is due in the second half of 2025, followed by a consultation on banning new leasehold flats. This consultation is expected to cover the following key considerations:
- Possible exemptions (such as retirement or specialist housing).
- Measures to minimise the possible disruption to the housing supply.
- The process for converting existing leaseholds to commonhold.
What's in the White Paper?
Broadly speaking, the proposals fall into the following categories:
Making commonhold work for all developments
The current commonhold laws are only appropriate for small or simple developments and are arguably not suitable for larger developments. As a result, the white paper emphasises the need for flexibility on how buildings would be managed and charges passed on to unit owners. In particular, the White Paper proposes the following solutions:
- The paper proposes to introduce the concept of 'sections' which would allow mixed-use developments to be split into different management zones.
- Commonholds will include separate heads of costs to ensure that letting costs are divided fairly among unit owners. For example, this would ensure that only those owners with access to certain services or buildings will need to pay for charges associated with them.
- The government will permit shared ownership and home purchase plans to broaden the availability of the commonhold. Shared owners and those with a home purchase plan will continue to be leaseholders, although they will still benefit from the commonhold rights.
- Developments can still be built in phases to give developers flexibility to reserve rights they deem necessary for the completion and sale of units on the site as they build
Flexibility and protection for homeowners
The current commonhold system contains a low threshold for changing local rules (at 50%) which makes it easy for these rules to be changed. There is also a lack of clarity surrounding the appointment of directors and reserve funds and buyers of commonhold properties sometimes are given incomplete information on the financial position of the commonhold. The proposals to tackle this are:
- The threshold for local rule changes will be changed to 75% owner approval and more protections will be introduced for minority interests
- Local rules cannot be used to set event fees (except for in retirement housing) although they can be used to restrict short-term lets
- A clear process for appointing directors will be introduced, especially where there are no volunteers.
- Commonholds will be required to set up reserve funds for major repairs and unit owners will be required to vote annually on budgets
- The current form of Commonhold Unit Information Certificate which sets out any arrears due on the property they are looking to buy will be improved to increase transparency of information provided to buyers.
Tools to assist with emergency situations
Current commonholds have very limited tools to help them deal with emergency situations. For example, if urgent repairs are required, it can be difficult for money to be raised quickly to proceed with the necessary repairs. The White Paper confirms that measures will be introduced to help commonholds handle these situations more effectively as follows:
- Commonhold associations will be permitted to take out secured loans to help raise money when needed. Alternatively, commonholds can look to sell some of their building although such measures will be subject to strict approval processes requiring either unanimous approval or at least 80% support with Tribunal approval.
Dispute resolution
The current process for resolving disputes in the existing commonhold system can often be lengthy and difficult to navigate. The Government therefore proposes to improve this by:
- Promoting mediation and conferring jurisdiction on resolving disputes to the Tribunal which will have the discretion not overlook minor procedural mistakes.
- Ensuring that any unit owner who is found to have broken the rules is at risk of being ordered to pay other owners for any costs caused b their actions. The aim of this is to both act as a deterrent against rule breaking but also ensure that other owners are not out of pocket.
Debt recovery
Commonhold associates currently have some power to recover unpaid debts. However, these are relatively limited and court action to recover the debt is often required. In light of this, the White Paper proposes to address this by:
- Enabling commonhold associates to apply to court for an expedited order to sell a unit due to non-payment by its owner. This will be subject to specific safeguards such as a minimum value of the debt and the need to explore less drastic options first. The Court will also have discretion to make such orders and interest rates on arrears will be capped.
- Protections for lenders will be introduced, including notifications of when a debt has reached the threshold to trigger the commonhold association's right to apply for an order for sale so that the lender can take action first.
Unresolved challenges
Whilst the propose changes outlined above are far reaching, the White Paper acknowledges that there are still some issues which remain under review. In particular:
- The conversion of existing leasehold properties to commonhold, which is currently an expensive and complicated process.
- Determining if and how the commonhold system should be adapted for buildings of different sizes.
- How the ban on the sale of new leasehold flats, which has been a commitment of the UK government for some time, will be implemented.
Our comments
The Government is clearly committed to reform but acknowledges the scale of the challenge. With fewer than 20 commonholds currently operating, success will depend on balancing the interests of occupiers, lenders and developers.
So, will we see new commonhold blocks of flats within the next five years? Possibly – but a long transition period is likely. For residential developers, the uncertainty therefore continues as there is still very little clarity on exactly when commonhold will become the compulsory form of tenure and this can make forward planning difficult.
The commercial sector is also unlikely to see changes anytime soon. It is possible that a future white paper will provide proposals for a commercial form of commonhold but the Government is likely to focus on residential buildings for the time being. As for existing residential leaseholders, commonhold will sit alongside collective enfranchisement and share-of-freehold options. Even where conversions do happen, it may take years for non-consenting leases to phase out entirely.
The Commonhold White Paper marks a turning point but not an overnight revolution. While the vision is clear, the UK is set for a transitional era where leasehold and commonhold exist. If the government can deliver a workable and attractive system, commonhold may finally take root – but it's a long road ahead!
