Commonhold reform: what investors and developers need to know

Freedom. Democracy. Flexibility. No, those aren’t the words of Washington, Franklin, Hamilton et al while signing the US Constitution. They are, in fact, taken from a recent White Paper and are used to describe the key benefits of the Government’s proposed new commonhold model for homeownership in England and Wales.

If you thought the Government’s manifesto pledge to build 1.5 million houses during its Parliament was ambitious, it has now committed to making "commonhold" the standard form of ownership for residential flats within the same timeframe. Once commonhold reforms are in place, the Government proposes to ban the sale of new-build flats on a leasehold structure (subject to limited exceptions), with the commonhold model used in its place.

What is commonhold?

Commonhold is a form of freehold ownership, where an owner of a flat owns their "unit" outright, with no expiring term.

Each unit owner is a member of the "commonhold association" for the block – a company limited by guarantee that owns and manages the shared parts of the building or estate. Unlike the traditional leasehold model, there are no individual leases; instead, the commonhold association will manage the development in accordance with its articles of association and the "commonhold community statement" (CCS) – a standardised rule book that sets out the rights and obligations of unit owners.

Although commonhold was first introduced in the UK in 2002, uptake has been minimal. This has largely been due to practical uncertainties (given the limited number of commonhold developments) and hesitance from lenders as to the financial stability of the model. However, with the proposed ban on the sale of new leasehold flats, commonhold will (in theory) become increasingly mainstream. The Government also plans to make it easier for existing leaseholders to convert to commonhold – by reducing the required threshold of consent from 100% to just 50% (matching the threshold for enfranchisement).

The Government’s aim is to give power back to the people, as unit owners will have greater control over the management of their building, meaning escalating ground rents and opaque service charges could eventually become a thing of the past. However, this rebalancing of power will have significant implications for developers and investors alike.

Why property investors and developers should take notice

The transition to commonhold means developers will lose the traditional income streams from the leasehold structure – such as ground rents, service charges, lease extension premiums, and the ability to sell the freehold. This shift may raise concerns about the financial viability of residential and mixed-use development schemes. To ensure profitability, developers will need to maximise returns at the point of sale, rather than relying on longer-term revenue to offset development costs.

Control is also a key consideration. Commonhold limits a developer's influence over a project once any new units are sold. Decision-making on management, how charges are distributed between owners, and completion logistics will be shared with the commonhold association – a challenge for structuring phased or complex schemes that require flexibility to adapt to changing circumstances. The developer’s ability to make decisions about a project and how it is managed, how charges are distributed between unit owners, and what rights it will have during construction of the wider site will be affected as a result.

However, the Government's White Paper does propose mechanisms to support developers within the commonhold model. These include:

1. Sectioning for cost and decision-making: Developers will be able to create sections within the commonhold to compartmentalise voting and cost sharing between units – for example, so that only those with access to certain facilities will have a say in their management, and pay for the costs associated with them.
   
   The Government anticipates that developers will establish these sections at the outset (ie during the planning and construction phases); however, it has said there will be scope to create these at a later date and to also combine or dissolve them – but this is likely to require high consent thresholds from unit owners.

2. Reserve development rights: Developers will also be able to reserve the rights they need to see out the development of the site (such as adding new units in later phases or reconfiguring the site) in the CCS. A developer would however be wise to incorporate these in the CCS at the outset, as the Government has said that any changes to existing rights will need unanimous agreement from the unit owners.

Complex structuring and documentation will be required to make commonhold work for complex buildings and estates which combine different residential and commercial interests and occupiers as well as different uses and designs.

Will commonhold get off the ground?

The Government will need to rapidly build public and lender confidence in the new commonhold system. It is also unclear how the commonhold system will tie in with the Government’s current proposed leaseholder reforms which are passing through Parliament.

Furthermore, will commonhold actually achieve the desired result? The management and maintenance of estates involve difficult decisions, cooperation and participation that don’t just go away with commonhold...

What should property investors and developers do now?

Engagement is key. Developers, landlords and residential stakeholders should participate in the Government’s consultation process expected later this year to understand and influence how these reforms take shape.

While the reforms focus on residential flats and mixed-use developments, their effects will be felt across the wider property sector. The White Paper has already signalled that commonhold may be extended into the commercial property market in the future – meaning that in the future it could apply to commercial blocks, retail, industrial estates and shopping centres. Detail on the proposed reforms is limited at this stage, but it is certainly food for thought, and would signal a seismic change in the commercial property market.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, June 2025