The Commonhold and Leasehold Reform Act 2002 introduced commonhold as an alternative to leasehold property ownership in England and Wales. However, commonhold has not gained significant traction, largely due to its complexity and lack of support. The Leasehold and Freehold Reform Act 2024 aims to overhaul property ownership laws, proposing reforms to make commonhold more accessible to developers and homeowners. These changes could significantly impact businesses across property development, management, and legal sectors, driving innovation and adaptation.
What is Commonhold?
Commonhold allows individual units within a building or development to be owned outright by the occupants, while shared areas (like hallways, gardens, and elevators) are collectively owned by all unit owners through a commonhold association. This differs from leasehold, where the land is owned by a separate freeholder, giving commonhold a more democratic structure. Despite its potential, commonhold has not been widely adopted due to its complexity and lack of understanding among developers and potential homeowners.
Benefits of Commonhold
Commonhold offers several advantages over leasehold:
- Long-Term Ownership: Unlike leaseholds, which lose value as the lease term decreases, commonhold provides permanent ownership of individual units;
- Improved Property Management: In leasehold properties, landlords and managing agents often oversee maintenance. Commonhold allows unit owners to manage their own affairs through the Commonhold Association, ensuring more accountability; and
- Standardised Documentation: Commonhold uses standardised agreements, reducing the inconsistencies often seen in individual lease agreements. This makes property management simpler and more transparent.
These benefits make commonhold an attractive alternative, addressing issues like depreciation of leasehold values, inconsistent management, and complex lease terms.
Limitations of Commonhold
While commonhold offers many benefits, there are some limitations:
- Collective Decision-Making: Like share-of-freehold arrangements, commonhold requires all owners to make decisions collectively. This can lead to disagreements over property management, especially when owners have differing priorities;
- Lack of Statutory Protections: Unlike leaseholders, commonhold owners do not have legal protections to challenge the reasonableness of service charges, leaving them vulnerable to unfair charges; and
- Restrictions on Leasing: Commonhold also limits the ability to lease units for more than seven years, which could deter investors or owners who want long-term rental income.
Impact on Businesses
The proposed reforms could significantly affect businesses in several areas:
- Property Development: Many developers currently focus on leasehold properties, where they retain control over the land and collect ground rents. With commonhold, developers may lose these revenue streams. However, commonhold could offer a more transparent and secure ownership model, which may appeal to buyers.
- Mortgage Lending: Lenders may be concerned about the absence of forfeiture as a method of debt recovery in commonhold (as this allows landlords to regain control of a property if the tenant defaults on rent). Without this option, lenders may face challenges recovering debts if owners default, raising concerns about the financial stability of commonhold.
- Property Management: Businesses in property management will need to adjust to the collective ownership model of commonhold. Instead of relying on a single landlord or agent, management responsibilities are shared among owners. This could create opportunities for property management companies to offer services tailored to the unique needs of commonhold communities.
- Impact on the Housing Market: If commonhold becomes more widely adopted, buyers may increasingly prefer properties with clear, long-term ownership structures that do not involve ground rent payments or the risks of leasehold enfranchisement. This could lead to changes in property pricing, demand, and investment strategies.
Conclusion
The Leasehold and Freehold Reform Act 2024 represents a significant shift in property ownership law. While the transition to commonhold may present challenges, it offers businesses the chance to innovate and adapt in a market that values transparency and long-term security, and businesses in the property sector must embrace these changes to stay competitive and meet evolving consumer demands.
This article was first published in London Business Matters in March 2026.
Disclaimer: The information on the TV Edwards website is for general information only and reflects the position at the date of publication.
