Overhaul of home ownership system set in motion

More than two decades ago, the Government introduced a new way in which people could purchase their home in England and Wales.

Commonhold was unveiled as a bright new prospect, already widely used in other parts of the world such as the USA and Australia and set to eradicate the problems associated with leasehold ownership.

Yet, there are just 20 commonhold developments in place in the UK today – so a new white paper has been published to set out plans to finally see commonhold take over from the traditional leasehold ownership system.

What is the difference between commonhold and leasehold?

Leasehold ownership – which is currently in place across almost 5 million homes (House of Commons briefing report) – is when an individual purchases a unit, such as a shop or flat, but they do not own the land the unit is built upon.

Instead, they lease that land for a set period of time, usually at least 99 years, and the conditions of the lease set down any charges or regulations. Once the lease expires, ownership of the land is retained by the landlord.

It’s a system which seemed to make sense as a way of managing developments where there are a number of individual units occupied by separate families or businesses, but where there are also communal areas like hallways or gardens which need to be used in accordance with some sort of rules.

But sadly, it’s also a system which can be taken advantage of: if landlords choose to increase charges, make changes without consulting individual owners, or set down unreasonable rules, then it is difficult for those living or working there to object.

By contrast, commonhold ownership sees the unit owners collectively managing the shared spaces. Each of them becomes a member of the development’s commonhold association, and are held accountable by a Commonhold Community Statement (CCS) rather than a lease. While this gives owners a little more freedom and makes them jointly responsible for the development, much of the CCS will be set down in law rather than being left to individuals to decide upon.

When will the changes come into effect?

Nothing is set to happen imminently – the white paper suggests it could be at least 2029 before the changes are in place, and passing a law to ban the sale of new leasehold developments, which is the ultimate aim, could take even longer.

So effectively, there is no need for anyone to take action just yet, although interested parties may wish to take part in a consultation set to be launched later this year, which will focus on the new law banning leaseholds.

Will commonhold ownership solve the current problems?

It’s hoped by handing responsibility to the owners, that this will eradicate many of the problems with the current housing system. Certainly, there has been success in other countries such as Scotland (where the system is called resident-led ownership) which points to the potential for it to work well in England and Wales.

But the incredibly disappointing uptake for commonhold ownership since it was first launched two decades ago – which was investigated by the Law Commission in 2020 – shows there are challenges within the system which will need to be overcome.

These include the promotion of mixed-used developments (residential and business units on the same site); flexibility for building developers; permitted leases and shared ownership options; the ease of appointing association directors; whether short-term letting will be allowed; the clarity and transparency of CCS rules; and whether all development sizes will be treated the same way or whether a ‘micro-commonhold’ model will be introduced.

The Government also hopes to increase the number of commonhold developments by reducing the percentage of involved parties who need to consent to the switch from leasehold; currently every party must agree, but the new proposal is that just half will have to be in favour for the process to begin.

Other suggestions by the Law Commission include a stringent dispute resolution process and the creation of a commonhold regulator.

It remains to be seen how many of the 121 recommendations made by the commission will make their way into the regulations surrounding the system; how many of the guarantees in this month’s white paper will do the same; and how quickly the Government can put into place all of these plans.

But in the meantime, there are few certainties for those in the property sector: whether those hoping to eventually buy a unit without being hampered by the downsides of leasehold ownership; those managing current leasehold developments; building developers; estate agents; and anyone else with a stake in the UK housing market.