Your go-to guide to mastering commonhold

Commonhold may shake up the way we own properties in the future, and it’s worth knowing how it could affect you.

If you’re considering selling or buying a home, it’s important to know what commonhold means, especially as the UK property market shifts in how ownership is managed.

Here’s everything you need to know about this relatively new concept and why it might matter in your property journey.

What is commonhold?

Commonhold is a form of property ownership that aims to give flat owners more control over their homes and shared spaces. Unlike leasehold, where you essentially 'rent' your property for a fixed term from a freeholder, commonhold allows you to own your property outright - indefinitely. It's a concept that's been successful in many countries around the world, and now it's finally gaining traction in England and Wales.

Although it was introduced by the Commonhold and Leasehold Reform Act 2002 as an alternative to leasehold, it has rarely been used, due to outdated legislation that didn’t accommodate modern multi-use developments. Despite this, the recent white paper from the government reignites interest in commonhold, positioning it as a more transparent and fair system for homeowners.

What are the pros of commonhold?

• Full ownership: Commonhold eliminates the need for lease extensions and the hassle of negotiating with freeholders. This means that, as a homeowner, you will own the property indefinitely, providing greater security for your future.
• Greater control: As a member of the commonhold association, you are directly involved in deciding how the building is maintained and how service charges are spent. This offers you more control over costs and ensures decisions are made in your best interest.
• No ground rent: Under commonhold, homeowners don’t pay ground rent, unlike in leasehold arrangements, where rent can increase over time.
• Better transparency: There’s one governing document, the Commonhold Community Statement (CCS), which sets out the rules for the property. This avoids the potential confusion of having different lease terms for each flat, as is often the case with leasehold.

What are the cons of commonhold?

Although commonhold may sound like a promising concept, it’s also important to understand that there are some downsides, for example:

• Collective responsibility: With no external freeholder, the responsibility for maintaining the building rests entirely with the homeowners. While this can give you more control, it can also lead to problems if you are reluctant to invest in necessary repairs.
• Lack of awareness: Despite its potential, commonhold is still a relatively new concept, with some particularities yet to be figured out. This is why legal and technical adjustments are still needed before commonhold can be a widely viable option.
• Potential for disagreements: Commonhold is a democratic system, but that doesn’t always mean harmony. Changes to the Commonhold Community Statement can be made by a majority vote, which may leave some owners feeling sidelined if the decision doesn’t align with their interests.

Leasehold vs freehold vs commonhold

For a more informed journey and a better understanding of commonhold, it may be helpful to compare it to other forms of property ownership, particularly leasehold and freehold.

• Leasehold: You own the property for a fixed term, but not the land the property is built on. You'll likely pay ground rent and service charges, and may face restrictions on what you can do with the property.
• Freehold: You own both the property and the land it stands on outright. This gives you more control and fewer ongoing costs, but can be rare for flats. It's the dream for many homeowners - complete ownership and control.
• Commonhold: A middle ground that combines the best of both worlds. You own your flat outright (like freehold) but share responsibility for common areas with other owners (similar to leasehold, but with more control).

Why should sellers and buyers care about commonhold?

As a seller, a commonhold property can be an attractive selling point, especially for potential buyers who are wary of leasehold complications. The absence of ground rent and the ability to have more control over the property’s management makes commonhold a desirable option for those who are looking for more control and ownership.

For buyers, commonhold provides a sense of stability and security. If you're considering a flat in a building with shared spaces, knowing that you have a say in how things are managed - without being worried about the escalating ground rent - can be a significant advantage. It's also a step toward a more modern property ownership model, which could become more common in the future.

It's important to note that commonhold is still quite rare in the UK. However, the Government’s recent announcement to ban the sale of new leasehold flats and make commonhold the default tenure could lead to a significant change.

Is commonhold the future of property ownership?

While commonhold is still not as widespread as leasehold or freehold, there is growing support for its adoption in the UK. In fact, recent discussions have pointed towards a shift away from leasehold properties, with some industry experts even calling for a ban on new leasehold flats in England and Wales. This will help the widespread use of commonhold, providing an alternative option that could reduce some of the more outdated 'trends' in the property market.

However, it's important to note that this transition won't happen overnight. The Government plans to publish a draft Leasehold and Commonhold Reform Bill later this year, setting out the legal framework for how reformed commonhold will work. And, while leasehold and freehold properties will continue to dominate the market for now, understanding commonhold could give you a competitive edge in the future property market, offering greater control, stability, and fairness in the ownership process.

Wherever you are on your property journey, knowing the differences between commonhold, leasehold, and freehold can help you make more informed decisions.