Commonhold - a second attempt

On paper, it solved many of leasehold’s most entrenched flaws. In practice, it barely happened. More than two decades later, fewer than twenty commonhold developments exist in England and Wales.

The government is now embarking on a second, far more ambitious attempt to make commonhold the default tenure for new flats and to end leasehold for future developments entirely. Understanding why the first attempt failed is important to ensuring the next one succeeds.

Creating an alternative without changing incentives

England’s leasehold system is deeply rooted in financial structures, legal practice, and the business models of developers and investors. A new tenure was placed on the statute book, but the economic incentives that sustained leasehold were left untouched and those with real power in the housing market had little incentive to use it.

Developers preferred leasehold because it maintained long-term income streams from the leasehold structure through the collection of ground rents, service charges, lease extension premiums, and the potential to sell the freehold. It also provided them with control over management contracts.

Mortgage lenders presented an additional obstacle. Because commonhold was so rarely used, lenders had little experience with the tenure and were reluctant to lend against commonhold units. Valuers lacked comparable transactions and conveyancers were unfamiliar with commonhold community statements. Additionally, insurers had no established frameworks for covering commonhold associations.

Unrealistic conversion rules

Perhaps the most crippling flaw in the original legislation was the near impossibility of converting existing leasehold blocks into commonhold. The 2002 Act required unanimous consent from all parties involved before a conversion could proceed. In practice, this gave a single uninterested leaseholder or the landlord the power to block the entire process.

The unanimity requirement also reflected a deeper issue. Freeholders and long leaseholders who had purchased their interests as investments stood to potentially lose significant value in a conversion. Their consent was required, but their economic interests were directly opposed to the reform. The legislation offered no mechanism to compensate them or to override their objections in the public interest. 

Management concerns

Critics of commonhold have long argued that replacing landlords with neighbour-run governance will not automatically eliminate disputes or poor management. Commonhold may remove exploitative freeholders, but it cannot fix the fact that buildings, particularly large, complex blocks, are expensive and difficult to manage. Commonhold associations will still need to collect service charges, maintain reserves, enforce covenants, and arrange for major works. Without professional management frameworks, there is a real risk that some associations will struggle.

The experience of right to manage (RTM) companies under the Commonhold and Leasehold Reform Act 2002 offers a useful example. Many RTM companies have found it challenging to administer buildings effectively, particularly where directors are volunteer leaseholders without property management expertise. Commonhold associations would face similar challenges at a larger scale. The government has previously acknowledged these concerns in its Commonhold White Paper, including proposals for stronger regulation and professionalism of managing agents, particularly for larger or more complex buildings.

Looking forward

On 27 January 2026, the Ministry of Housing, Communities and Local Government published the draft Commonhold and Leasehold Reform Bill, a comprehensive piece of legislation that repeals and replaces the existing commonhold regime under the 2002 Act. The draft Bill was published for pre-legislative scrutiny, accompanied by a public consultation on moving to commonhold, that closed on 24 April 2026. The Housing, Communities and Local Government Committee has been undertaking pre-legislative scrutiny and, on 13 May 2026, the King’s Speech confirmed that the Commonhold and Leasehold Reform Bill will be formally brought before Parliament in the current session.

The draft Bill’s key provisions directly address many of the structural failures that doomed the first attempt. It mandates commonhold for new-build flats, banning the grant or assignment of long residential leases of new flats from a date to be set after the reformed framework is fully operational. This removes the optionality that allowed developers to ignore commonhold the first time. Developers will have statutory development rights to continue building out sites after some units are sold, and governance structures will allow the developer’s vote share to reduce proportionately as units are sold. Furthermore, the Bill introduces a comprehensive new legal framework for commonhold associations, including mandatory reserve funds, enhanced powers to appoint and remove directors via the Tribunal, a statutory framework for budgets and expenditure, and the ability to create commonhold sections to govern different parts of mixed-use developments separately.

Critically, for existing leaseholders, the draft Bill reduces the conversion threshold from unanimous consent to fifty per cent of qualifying leaseholders. This aligns conversion with wider enfranchisement processes and removes the single-party veto that made the 2002 scheme unworkable. The freeholder’s consent will also be required, together with that of any lenders holding a charge over the freehold or any lease, meaning it is likely to remain necessary for leaseholders to acquire the freehold before converting. The lowering of the threshold does mean that buildings may convert to commonhold while still containing some leasehold flats, creating complex hybrid management structures that will require careful regulation.

Alongside the commonhold reforms, the Bill aims to cap existing ground rents at £250 per year, reducing to a peppercorn after forty years, and abolishes leasehold forfeiture, replacing it with a court-led enforcement process. These measures significantly weaken the economic model that sustained leasehold and, over time, should make commonhold commercially more attractive relative to retaining existing structures.

Commonhold failed the first time, not because the concept was flawed, but because the implementation was inadequate. The 2002 Act introduced a new form of tenure without addressing the economic incentives, institutional frameworks, and conversion mechanisms needed to make it work. The result was a theoretical alternative that almost nobody used. The draft Commonhold and Leasehold Reform Bill represents a substantially different approach. By mandating commonhold for new flats, reducing the conversion threshold, capping ground rents, and abolishing forfeiture, it attacks the structural conditions that sustained leasehold rather than merely offering a voluntary alternative. Challenges still remain: lenders will need confidence, professionals will need training, and buyers will need educating. If the legislation is well implemented and properly supported, commonhold has the potential not only to replace leasehold for new developments but to transform the experience of flat ownership for millions of existing leaseholders.

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