Leasehold out, commonhold in: major reform set to reshape homeownership

In a major shake-up of property law, the UK government has unveiled sweeping reforms aimed at replacing the much-criticised leasehold system with a modernised commonhold model. Published on 3 March 2025, the long-awaited Commonhold White Paper sets out proposals that would make commonhold the default tenure for new flats in England and Wales, a move set to transform homeownership, challenge developers, and reshape the responsibilities of legal and property professionals.

The proposed reforms promise to give flat owners greater control over their homes by abolishing ground rents and landlord control, while introducing new governance rules, financial protections, and dispute resolution systems. But with major implications for the housing market, the legal sector, and existing leaseholders, the path to implementation could be complex and contentious.

What does the White Paper say?

The reform aims to modernise commonhold ownership by implementing most of the Law Commission’s 2020 recommendations under its report called “Reinvigorating commonhold: the alternative to leasehold ownership”. Key changes include introducing “sections” to divide management responsibilities in mixed-use developments, allowing shared ownership leases, and granting developers more rights during construction. The voting threshold for local rule changes will increase to 75%, and clearer processes will be set for appointing and replacing directors. Compulsory insurance, mandatory reserve funds, and the ability to borrow for emergencies will strengthen financial stability. New dispute resolution mechanisms, stronger debt recovery powers, and protections for minority unit owners will enhance fairness. Safeguards will also address CA insolvency, ensuring commonholds can continue operating under a successor association. These reforms aim to create a more flexible, secure, and sustainable system of property ownership.

Impact on Legal Professionals and Managing Agents

Lawyers advising on residential property transactions will need to navigate a more complex landscape. Directors of the CA, who are typically volunteers, will need to comply with company law, property legislation, and health and safety regulations. Legal professionals will likely see increased demand for guidance on director duties, conflict management, and the nuances of commonhold community statements (“CCS”), a standardised document which acts as the commonhold’s rule book.

Managing agents may face new challenges too. Although CAs will handle building maintenance and insurance, disagreements among unit owners could lead to prolonged disputes. The government’s decision not to mandate ombudsman membership for commonholds adds uncertainty, though new dispute resolution mechanisms and Tribunal access may mitigate some risks.

Concerns for Property Developers

For developers, the reforms introduce both opportunities and hurdles. The introduction of “sections” within commonhold developments will allow tailored management and budgeting for different areas, which is useful for mixed-use schemes. However, developers will need to carefully draft CCS provisions to retain sufficient rights for completing and marketing units, balancing these against owners’ long-term control.

The mandatory establishment of reserve funds may ease buyers’ concerns about unexpected costs, but developers will need to factor this into pricing and marketing strategies. And while the ability to borrow against commonhold assets adds financial flexibility, it could complicate project financing, especially given the high voting thresholds required for significant decisions.

Risks for Existing Leaseholders and Landlords

Although the reforms will not immediately affect current leaseholders, the government intends to streamline the conversion process from leasehold to commonhold. This could create a two-tier market, where leasehold flats lose value relative to new commonhold properties. Leaseholders may feel pressured to push for conversion, but non-consenting owners could slow this transition, leaving buildings in legal limbo.

Landlords, meanwhile, face an uncertain future. The proposed “mandatory leaseback” model for conversions would strip landlords of decision-making power while leaving them with limited revenue streams. This could disincentivise investment in existing leasehold properties, potentially affecting building upkeep and tenant relations.

Under this model, leaseholders who choose not to participate in the conversion can remain as leaseholders. The CA would take ownership of the building’s freehold, while the previous freeholder would be required to take a leaseback, becoming the head-lessee for the non-consenting units. They would receive a 999-year lease, with no option for further lease extensions, and any ground rent would continue to be paid to the former freeholder, now acting as an intermediate landlord between the leaseholder and the commonhold association. The former freeholder would also receive a fair payment when a non-consenting leaseholder later decides to convert their flat to commonhold.

A Long Road Ahead

The government acknowledges the scale of this transition and promises a phased approach. While new build residential developments might see commonhold adoption by 2029, a fully integrated system of commonhold and leasehold properties could take decades.

For developers of commercial properties, reforms are likely to take longer to implement. The White Paper notes that the reformed commonhold model could be suitable for these settings but provides no concrete timeline. This suggests that changes in the commercial sector may be addressed in a future white paper.

For legal professionals, developers, and property owners, the message is clear: start preparing now. Understanding the intricacies of the reformed commonhold model will be key to navigating this evolving landscape and protecting clients’ interests. Whether advising on commonhold formation, drafting CCS documents, or guiding leaseholders through potential conversions, staying ahead of the curve will be essential in years to come.