Commonhold

What Is Commonhold?

Commonhold is a system of property ownership primarily used in England and Wales, where individuals own the freehold of their specific unit within a building or development, while also collectively owning and managing the shared, or "common," parts of the property. This structure falls under real estate finance and aims to provide homeowners with greater control and perpetuity of ownership compared to traditional leasehold arrangements. Under a commonhold structure, the individual unit owner holds a freehold title for their flat or unit, and all unit owners are members of a commonhold association, which is a company responsible for the management and maintenance of the shared areas, such as roofs, foundations, hallways, and gardens.

History and Origin

Commonhold was introduced in England and Wales through the Commonhold and Leasehold Reform Act 2002, which received Royal Assent on May 1, 2002¹⁸. This legislation aimed to provide an alternative to the historically prevalent leasehold system, which has often been criticized for its finite terms and the perceived imbalance of power between leaseholders and freeholders. Despite its introduction over two decades ago, commonhold has seen limited adoption, with fewer than 20 commonhold developments created by 2018, contrasting sharply with the millions of leasehold properties in England¹⁷. The UK government has reiterated its commitment to reinvigorating commonhold, with a white paper published in March 2025 outlining proposals to reform the legal framework and make commonhold the default tenure for new flats¹⁶,¹⁵.

Key Takeaways

• Commonhold grants individual unit owners a freehold title to their specific property within a multi-unit development.
• All unit owners collectively manage and maintain the shared areas through a commonhold association.
• The system was introduced in England and Wales by the Commonhold and Leasehold Reform Act 2002 to offer an alternative to leasehold.
• Despite its intended benefits, commonhold has had very low uptake since its introduction.
• Current government reforms aim to make commonhold the standard for new residential property developments.

Interpreting the Commonhold

In a commonhold scheme, the "unit" refers to the individual flat or house owned outright by a unit owner. The common parts are those areas of the building or estate that are not part of any individual unit, such as external walls, roofs, foundations, common hallways, stairwells, lifts, and shared gardens or facilities. The commonhold association, of which all unit owners are members, is responsible for the financial management and physical upkeep of these common parts. Decisions regarding repairs, improvements, and the allocation of costs are made democratically by the members of the association, offering transparency and control over property management and expenditures. This contrasts with leasehold, where a third-party freeholder typically manages these aspects.

Hypothetical Example

Consider a newly built apartment building, "The Green View Residences," consisting of 20 flats. Instead of selling these flats as leasehold properties, the developer decides to establish them as a commonhold.

1. Creation: The developer registers the entire building as commonhold land with HM Land Registry. This involves submitting a Commonhold Community Statement (CCS), which is essentially the "rulebook" for the commonhold, outlining the rights and obligations of unit owners and the commonhold association.
2. Sale of Units: Each of the 20 flats is sold as a freehold "unit" to individual buyers. So, Sarah buys Flat 5, owning the freehold to her specific flat indefinitely.
3. Commonhold Association: Sarah and the other 19 flat owners automatically become members of "The Green View Residences Commonhold Association Limited." This association legally owns the building's structure (roof, foundations, external walls) and all shared areas (hallways, communal gardens, bike storage).
4. Management: The association's directors (who can be unit owners themselves or appointed professionals) decide on the annual budget for maintenance, insurance, and repairs of the common parts. If the roof needs repair, all 20 unit owners, through their membership in the commonhold association, vote on the repair work and contribute to the cost. This collective approach fosters direct involvement in the maintenance and financial health of the building, providing a clear structure for homeownership.

Practical Applications

Commonhold is a direct application in the property market as an alternative to the traditional leasehold tenure for multi-unit dwellings. Its primary aim is to empower residential property owners by giving them direct control over their building's management and removing the concept of a depreciating asset due to an expiring lease term. This form of freehold ownership for flats can simplify the legal aspects of ownership and potentially enhance property value by eliminating issues such as escalating ground rents or uncertain lease extension costs. The UK government is actively proposing reforms to make commonhold the preferred and workable alternative to leasehold, aiming to legislate a new legal framework based on recommendations from the Law Commission¹⁴.

Limitations and Criticisms

Despite its theoretical advantages, commonhold has faced significant challenges to widespread adoption. One major barrier has been the reluctance of mortgage lenders to finance commonhold properties due to a lack of familiarity and perceived uncertainties about the system's stability, particularly concerning what happens if unit owners fail to pay for building maintenance¹³,¹². Developers have also shown a preference for leasehold structures, which can be more financially advantageous by allowing them to retain the freehold and generate ongoing revenue through ground rent and management fees¹¹.

Furthermore, converting existing leasehold properties to commonhold requires the unanimous consent of the freeholder, all existing leaseholders, and their respective lenders, which is often a complex and costly undertaking¹⁰,⁹. There are also concerns about the practicalities of self-governance, particularly in larger or more complex developments, and the potential for disputes or financial burdens if a commonhold association faces insolvency or unit owners fail to meet their collective obligations⁸. The "one-size-fits-all" approach of the initial commonhold legislation was also criticized for not being flexible enough for modern developments⁷. These factors have contributed to commonhold's limited success as a widespread form of investment.

Commonhold vs. Leasehold

The key distinction between commonhold and leasehold lies in the nature of ownership and control. In a leasehold arrangement, an individual owns the right to occupy a property for a fixed period (the lease term), but the land and the structure remain owned by a third-party freeholder. Leaseholders typically pay ground rent and service charges to the freeholder or their appointed managing agent, and their rights are governed by the terms of a long lease. The value of a leasehold property can diminish as the lease term shortens, requiring costly lease extensions.

Conversely, commonhold provides perpetual asset ownership. Unit owners hold the freehold of their individual dwelling and collectively own and manage the common parts through a commonhold association. There is no expiring lease term, no ground rent, and all decisions regarding the building's maintenance and finances are made by the unit owners themselves. This fundamental difference grants commonhold owners greater autonomy and a direct stake in the building's long-term future, eliminating the landlord-tenant dynamic inherent in leasehold.

FAQs

What is a Commonhold Association?

A Commonhold Association is a private company, typically limited by guarantee, whose members are the unit owners within a commonhold development. This association owns and manages the common parts of the building or estate, such as the structure, external areas, and shared facilities, and makes decisions about their maintenance and repair⁶.

Can an existing leasehold property be converted to commonhold?

Yes, it is legally possible to convert an existing leasehold property to commonhold. However, it currently requires the unanimous consent of the freeholder, all leaseholders in the building, and their respective lenders. This process can be complex and challenging to coordinate⁵,⁴.

Why has commonhold not been widely adopted in England and Wales?

Commonhold's limited uptake is attributed to several factors, including lack of awareness, reluctance from mortgage lenders, developer preference for the financially advantageous leasehold model, and the complexity and cost of converting existing leaseholds. The original regulation was also seen as inflexible for varied developments³,².

Does commonhold remove service charges?

No, commonhold does not remove service charges. Instead, the contributions for maintaining the common parts are determined and collected by the commonhold association, which is controlled by the unit owners themselves. This ensures that unit owners have a direct say in how their contributions are spent and how the building is managed, contrasting with service charges often levied by an external freeholder in leasehold properties¹.