What the Commonhold White Paper Means for the Property Industry
The UK government has taken a major step towards ending the leasehold system with the publication of the Commonhold White Paper. This landmark move aims to make commonhold the default tenure for new flats, marking the beginning of the end for what many see as a feudal approach to homeownership.
We recognise the massive shift this represents for property owners, property managers, and the broader real estate industry. Here’s what you need to know about the reforms and their potential impact.
Empowering Homeowners with Commonhold
The government’s proposed changes mean that new leasehold flats will be banned, and homeowners will own a stake in their buildings from day one. This will provide greater control, security, and transparency over how properties are managed and the costs associated with them.
Key Features of the Proposed Commonhold System:
True homeownership: Commonhold owners will fully own their properties outright, unlike leasehold, which grants ownership for a set period before reverting to a freeholder.Control over management: Residents will collectively manage their buildings through a commonhold association, with the power to hire and fire managing agents.
No ground rent: Unlike leasehold properties, where leaseholders may still face annual charges, commonhold eliminates ground rent entirely.
Protection from unfair practices: The reforms aim to curb unreasonable service charge increases and ensure greater transparency in costs.
Increased Responsibility for Managing Agents
As commonhold becomes more prevalent, the role of managing agents will shift significantly. With homeowners gaining direct control over property management, managing agents will need to embrace a more transparent and accountable approach. Service charge management will be under increased scrutiny, requiring agents to provide clearer breakdowns of costs, justifications for expenses, and evidence of fair procurement practices.
To adapt, managing agents should:
- Implement robust financial reporting and digital tools to enhance transparency.
- Communicate openly with commonhold associations about service charge expenditures and budgeting.
- Demonstrate value for money through competitive tendering and clear justification of costs.
- Support commonhold owners with expert guidance on building maintenance and regulatory compliance.
Aligning with Global Best Practices
Commonhold is already a widely used tenure system across Europe, the US, Australia, and New Zealand. However, since its introduction in England and Wales in 2002, its adoption has been hindered by legal complexities and a lack of lender support. The government is now addressing these issues to ensure commonhold is a more viable alternative.
The White Paper outlines several key changes to make commonhold work for all types of developments, including:
- Allowing mixed-use buildings and shared ownership homes within commonhold schemes.
- Enhancing protections for mortgage lenders, ensuring greater financial stability for commonhold buildings.
- Strengthening management rules, including clear standards for repairs, reserve funds, and director appointments.
Impact on Existing Leasehold Properties
While these reforms focus on new developments, the government has also reaffirmed its commitment to supporting existing leaseholders—many of whom property managers work closely with. Key measures already in place include:
- Simplified and cost-effective lease extensions and freehold purchases, reducing administrative burden and legal complexities.
- Enhancements to the right to manage (RTM), enabling leaseholders to take greater control over service charges and maintenance decisions.
- Stronger protections for leaseholders against excessive charges, providing more transparency and accountability in property management.
Next Steps: The Legal Framework and Implementation
A draft Leasehold and Commonhold Reform Bill is set to be published later this year, detailing how these reforms will be implemented. Additionally, the government will launch a consultation to explore the best approach to banning new leasehold flats.
Final Thoughts
This is a pivotal moment for property in the UK. At Grosvenor Systems, we will be closely monitoring these developments to understand how they will impact property management, landlords, and leaseholders. The move towards commonhold presents opportunities and challenges, and we are committed to supporting our clients in adapting to this new era of property ownership.
As managing agents navigate this transition, increased responsibility and transparency in service charge management will be paramount. Those who embrace these changes with proactive, open communication and robust financial management will be best placed to succeed in the evolving property landscape.