The recent publication of the Commonhold and Leasehold Reform Bill has prompted both praise and alarm in equal measure. Whilst the Bill has been on the horizon for some time, its delivery has included some unexpected additions, namely the introduction of a cap on existing ground rents of £250, reducing to a peppercorn in 40 years.

The bill is in draft format, subject to scrutiny by the Housing, Communities and Local Government Select Committee and further consultation.

The Commonhold element of the Bill enacts a raft of reforms recommended in the Law Commission’s 2020 report, replacing the current regime. These include:

• A ban on the grant of new leasehold flats, subject to a new consultation – ‘Moving to Commonhold’ ending on 24 April 2026,
• A reduction in the participation threshold to convert to Commonhold from 100% to 50%,
• Introducing Commonhold ‘Sections’, providing flexibility for new developments and mixed-use property,
• Revised dispute resolutions procedures with referral to the First Tier Tribunal (Property Chamber) opposed to the County Court under the current regime; and
• Allowing ‘permitted leases’ to provide for alternative models of ownership, including shared ownership.

The key to the success of Commonhold is the long-term viability of the Commonhold Association and its control over service charges. The reforms seek to address the shortcomings that have not seen Commonhold taken up in any great number since its introduction in 2002.

The stability of a Commonhold Association is generally considered the weakness in the system and a bar to mortgage lenders accepting the form of tenure. To buy into the system, those parties will need to be convinced that the reforms address this issue, although they may not have a choice.

Service charges have been a focus of dissatisfaction with Leasehold, however Commonhold does not do away with service charges. The control over budgets, decisions as to works and maintenance are put into the flat owners’ hands under Commonhold – but that does not stop unit owner’s non-payment, dissatisfaction or disagreement. Maintenance, services and repair will likely be no cheaper under Commonhold, but the Bill seeks to bring owners together to agree costs, budgets and allow them to deal with disputes without litigation.

Whilst the new Commonhold regime will address the issue of a diminishing lease term and third-party control, its long-term viability will come down to the mechanisms for costs and maintaining solvency, with the danger of the property reverting to the Crown, should the Commonhold Association become insolvent.

The inclusion of a ban on the grant of new Leasehold flats within the Bill is subject to consultation. The intention of the Government this time around is to force Commonhold to become the new default tenure. New builds will therefore the testing ground for sale and implementation of the new Commonhold regime. There is no set date for a ban to commence in the Bill  (the Government plans for the ban to commence in 2028), and exemptions will be considered once the consultation closes. The timing of the ban will be crucial, as the new regime will need to be in place, tested and workable for Commonhold to be the future of flat ownership.

If you would like further information or advice on Commonhold or Leasehold reform, please contact William Bethune, Partner, and Head of our Leasehold Enfranchisement team.