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The way we own property will change in the future: leasehold flats are set to be banned and replaced by ‘commonhold’. We look at what commonhold is and how it works.
KEY INFORMATION
Commonhold is a form of ownership that allows flat owners to own and manage their buildings jointly and is an alternative to the leasehold system.
Commonhold was introduced into the UK under the Commonhold and Leasehold Reform Act 2002. However, according to Matthew Pennycook, Minister of State for Housing and Planning, ‘for a variety of reasons it failed to establish itself and is now out of date.’
The new plans to ban the sale of leasehold flats and reinvigorate commonhold through the introduction of a comprehensive new legal framework are government proposals and are awaiting legislation.
Under the government’s new proposals, here are the key features of how commonhold would work:
| Leasehold with third party landlord | Leasehold following Right to Manage | Leasehold, share of freehold | Commonhold | |
| Ownership lasts forever | No | No | Yes – may need to grant new lease | Yes |
| Control over your home | Low limited by landlord | Medium | Medium | High |
| Third party landlord | Yes | Yes | No | No |
| Rules | Set by individual leases | Set by CCS – common to all units | ||
| Ground Rent | Yes, according to individual leases | Yes, according to individual leases | Yes, according to individual leases | No |
| Paying for shared facilities | Service charge regulated by lease and governed by leasehold law | Service charge regulated by lease and governed by leasehold law | Service charge regulated by lease and governed by leasehold law | Commonhold contributions governed by CCS and commonhold law |
Get expert advice on extending your lease, buying your freehold or applying for the right to manage.
It will take time for commonhold to replace leasehold given there are around 40,000 flats built each year. It’s expected that some leasehold flats will convert to commonhold but it’s too early to know how many are expected to do this.
Yes, commonhold is used widely around the world – also known as the Strata system in Australia and condominiums in North America.
But in the UK most flats are sold as leasehold, that can leave leasehold flat owners having to pay for expensive lease extensions and high levels of service charge.
Not necessarily. For example, bigger flats may have more votes than smaller flats.
Reserve funds will be mandatory to make sure money is available to maintain the building. And a reserve fund study will be required every 10 years. Also, at the commonhold association’s annual AGM owners may decide whether to set up any additional reserve funds to help them manage future planned expenditure. This should allow unit owners to budget across a number of years, avoiding large one-off bills that can occur in leasehold.
Shared ownership properties will be available in commonhold. It is likely that the joint owners – the housing association and the shared owner – will share voting rights.
Each commonhold has a ‘rulebook’ called the Commonhold Community Statement, or CCS, which sets out the rights and obligations of the unit owner:
Here’s the step-by-step process of resolving commonhold disputes under the proposed new system.
It’s too early to say however we would expect that over time commonhold properties will be priced higher than leasehold ones.
If you own a leasehold property in a shared building, it may be possible for you and the other leaseholders in the building to convert the building to commonhold. But this currently requires the unanimous consent of the freeholder, all other leaseholders in the building and their lenders.
However, the government is considering options under the proposed new system to make the process of converting to commonhold simpler and easier for leaseholders.
There are lots of factors you’ll need to consider when it comes to whether to extend your lease now or to wait. Firstly, you may want to wait for commonhold, although bear in mind noone knows how long this will take to come in, how easy it will be to convert an existing leasehold property to commonhold and the costs involved.
There is also ongoing uncertainty of when and if leasehold reform will happen.
So getting expert advice on when to extend your lease is recommended to make sure you make the best decision based on your personal circumstances.
Get expert advice on extending your lease, buying your freehold or applying for the right to manage.
Paula Higgins, CEO of HomeOwners Alliance, said:
“We welcome the proposals to ban new leasehold flats and for commonhold to be the default tenure. Leasehold is an outdated feudal system and we have campaigned long and hard for the phasing out of leasehold, since 2017 in fact with our report, Homes Held Hostage report.
Around a third of mortgage lenders currently lend on commonhold properties. However, commonhold properties are fairly uncommon in their current form. And we expect the take up to be greater by mortgage lenders when this new commonhold system comes into effect.
As we understand it, 50% of mortgage lenders have said they will lend on commonhold properties if and when the proposed new reforms pass. And it’s expected that the rest of the market will follow and that commonhold mortgage lenders will become the norm.
Leasehold means you own the property, not the land, and only for the length of your lease agreement with the freeholder. By comparison, freehold means you own the building and the land it stands on indefinitely. Read more in our guide on Leasehold vs Freehold – what’s the difference?
A flying freehold refers to freehold property built over land which does not form part of the property. Some common examples include balconies overhanging someone else’s property and rooms above shared passageways that lie directly beneath. Properties subject to a flying freehold cannot be registered for commonhold purposes under the Commonhold and Leasehold Reform Act 2002.
Commonhold is an alternative to the leasehold system which allows you to own the freehold of individual flats and non-residential units in a building or on an estate.
No, commonhold is not the same as share of freehold. For example, if you own share of freehold you may need to pay ground rent. Also, you’ll pay for shared services by a service charge regulated by lease and governed by leasehold law. While commonhold contributions governed by the Commonhold Community Statement and commonhold law.
It’s not yet clear if retirement homes will be commonhold. We’ll update this page as soon as the information is available.
While you can get an idea of the cost of buying up more years (referred to as the premium you have to pay to the freeholder for the extended years) with our lease extension calculator approaching a valuation surveyor with experience of lease extensions will be worth the investment and stop you paying over the odds for your extension. Want to get an idea of how much your lease extension will cost? Get an estimate today from our lease extension specialists.
HomeOwners Alliance Ltd is registered in England, company number 07861605. Information provided on HomeOwners Alliance is not intended as a recommendation or financial advice.
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