Advice to a client on the possible conversion of a leasehold building to commonhold
Insight

Every month the Farrer & Co Residential Property partners give us a brief insight into their working lives. This month we provide an overview of advice given to a client on commonhold at the outset of what is now a collective enfranchisement claim to acquire the freehold.
The Brief
Towards the end of last year, we were contacted by a client who owns the top floor leasehold flat in a double fronted detached townhouse in Notting Hill. The building was converted into five flats in the 1990s and we acted for our wonderful client on the purchase of her flat over a decade ago. When she bought the flat the building was beautifully maintained, but the freehold owner changed shortly before the first Covid lockdown and the leaseholders have become increasingly frustrated by the new landlord’s poor management and upkeep of the building. Four of the five flat owners live in the building and are eager to take over management from the freeholder, but the fifth flat owner is abroad and has no desire to step into the role of freeholder.
Executing the Brief
Our client had been reading about commonhold following the Government’s reiteration in November that it would bring the “feudal” leasehold system to an end and asked if she and her fellow leaseholders could (and should) therefore convert their building to commonhold.
We explained that as the law currently stands, the process that needs to be followed to convert a leasehold building to commonhold is restrictive and there are several fundamental hurdles that would stand in the way, namely:
- commonhold requires unanimous agreement from all leaseholders in the building which was unlikely to be achievable here due to the absent and disinterested flat owner;
- the consent of the freeholder would be required (although if not forthcoming this could be overcome by three or more of the leaseholders exercising their right to buy the freehold by way of collective enfranchisement); and
- lender consent would be required, as two of the flat owners bought their flats with mortgage finance.
Commonhold is not yet seen as a secure asset class by lenders so we would not expect a lender to consent to the conversion (as a lender would not want their security to be transferred from a leasehold flat to a commonhold unit).
There are also fundamental issues with commonhold itself, particularly around potential disputes between unit holders and how these will be resolved. Another issue is the fact that a commonhold association (which would be responsible for the upkeep and management of the commonhold building) could easily find itself in a situation where it becomes insolvent due to the limited powers it would have if a unit holder is in arrears.
The debrief
Following our discussion with our client it was agreed that a better route forward would be for the four willing flat owners to simply exercise their right to buy out the freehold owner by starting a collective enfranchisement claim and we are now instructed by those flat owners.
Everything that our client was seeking from commonhold will be achievable once she has a share of freehold in the building, as she will then be running the management and upkeep of the building alongside the other participating leaseholders via a resident management company. We observed there is nothing to stop the tenants from revisiting a commonhold conversion if this becomes desirable down the line. However, it feels as though there is a long way to go before converting a leasehold building to commonhold becomes truly desirable. The Leasehold and Freehold Reform Act 2024 will already make it easier for more leaseholders to exercise a right to acquire the freehold and take over the management of their building or, alternatively, to just exercise their right to manage, if there is an appetite to do so.
Please see our article: Commonhold: what do I need to know about it? if you would like further information on commonhold.
We are always happy to discuss the conveyancing process and how to manage a transaction.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, January 2025