Improving commonhold

The Committee suggested that the Government should ensure the new mandatory requirement to hold a reserve fund applies to new and existing leaseholders as well as commonhold blocks.  The Committee acknowledges this may increase day-to-day charges for some homeowners but argues it will prevent financial hardship from large unexpected bills for leaseholders; share long-term costs more fairly between successive flat owners; and support the ongoing stewardship of blocks.

Whilst this recommendation is not strictly about commonhold, it is an interesting suggestion which is intended to reduce the risk of a two-tier system of flats once commonhold is mandated.  It follows from a government consultation from July 2025 about leasehold service charges.  In the consultation document, the Government proposed introducing legislation to make it easier to vary a lease to set up a reserve fund in existing leasehold blocks, which would involve the funds being held in trust, with their spending tied to a long-term maintenance plan for the building.  The Government has not yet responded to this consultation, which closed in late September 2025.

The Committee acknowledged that the re-introduction of commonhold will not necessarily result in lower service charges, but stated that commonhold "will improve transparency around how homeowners’ contributions are determined and spent, and give them a say in decisions over what works are carried out and when".  It missed the opportunity to explore whether it should be compulsory for a commonhold association to appoint a managing agent, but this question was asked in the Government's consultation (discussed here) so will already be on its radar.

The Committee made two recommendations about improving the provisions in the draft Bill which relate to converting existing blocks to commonhold.  Firstly, it proposes that when leaseholders choose to purchase the freehold of their building using the existing leasehold enfranchisement procedures, this should automatically result in a conversion of the block to commonhold.  At present, two separate processes would have to be undertaken.  This seems like a sensible idea, particularly as the Committee also suggests that in order to retain consumer choice, leaseholders should be able to opt out of automatic conversion by a 50% vote.

Their second recommendation relates to "non-consenting leaseholders", meaning those leaseholders who decide not to participate in the enfranchisement/ conversion process.  The Committee is mindful that some leaseholders might attempt to game the system by opting out of the initial conversion process but then subsequently converting.  By doing this, they could reduce their costs by only paying for the freehold value of their own flat, not for their share of the cost of buying the freehold for the collective parts of their block, development value, or shared legal fees.  To counter this risk, the Committee recommends that the Government should design a mechanism to calculate what such a leaseholder should pay in these circumstances, in order to shoulder its fair share of the communal costs.

The Committee recognized that, in commonhold buildings, the commonhold association (the "CA") and its directors are responsible for a range of statutory duties regarding the maintenance and safety of the block.  This includes ensuring that the building is registered with the Building Safety Regulator; gathering enough money from the unit-holders to meet any building safety expenses; and verifying all safety-related information before signing certificates or declarations on behalf of the commonhold.

However, rather than considering whether this is an acceptable burden to place on the CA or the directors, or any means to alleviate that responsibility, the Committee focussed on whether freeholders are likely to pass on the right information to the CA at the point of conversion to commonhold.  They recommended that freeholders should be required to disclose information (in a prescribed format) about the building safety status of a block when the leaseholders purchase the freehold.  This is a sensible suggestion but only goes so far; the CA and the directors will still need to understand what the disclosure means and how to comply with the statutory requirements going forwards.  It might be wise to mandate that directors undergo training on their statutory duties and/or the establishment of a Commonhold Database (akin to the forthcoming PRS Database) as a compliance tool.  Any such mandatory information requirement should also be linked to the Government's wider reforms of the conveyancing process, including the introduction of digital logbooks for each property.

The Committee also considered the logistics of decision-making in a CA, where most decisions can be made by majority vote, with a quorum of 20% of members or two members (whichever is more).  They took advice from experts who warned that the current "lack of support for commonholders to understand what they are voting on" could present serious risks for the proper running of a building.  This led to the recommendation that the Government Guidance should include requirements for the CA to issue information for unit-holders to read before a vote, in a prescribed format, and with enough notice, to allow proper decisions to be made.

The final procedural issue that the Committee explored was whether the commonholders would have the requisite awareness of company law or access to legal advice to comply with some of the requirements in the draft Bill, such as strict time limits on filing annual accounts.  In response, the Committee recommended that the final Bill must include provisions giving the First-tier Tribunal in England (and the Leasehold Valuation Tribunal in Wales) discretion to waive minor or technical breaches of the statutory process (such as failure to meet time limits) where these do not affect the outcome of decisions made by CA members.

All shared ownership homes are leasehold, and one of the proposed improvements to the commonhold regime is to allow shared-ownership leases within commonhold, despite the rule in the current regime that residential leases of more than 7 years cannot be granted out of a commonhold title.

Shared ownership properties purchased after 1 April 2021 are eligible for an ‘initial repair period’ in which the landlord takes on responsibility for paying for structural repairs, major external maintenance, and up to £500 of internal repairs.  Although the Bill states that the Secretary of State can make regulations to allow a shared ownership provider to exercise a shared owner’s vote during the initial repair period “for specified purposes”, these purposes are not set out in the draft Bill.  This has given rise to worries that shared owners may not have a vote on matters that directly affect them during the 10-year initial repair period, which is inconsistent with the principles of commonhold.

The Committee has therefore recommended that the Government clarifies when shared ownership providers will exercise the vote of a shared ownership property, either by publishing draft regulations alongside the final Bill or publishing a statement setting out what the "specified purposes" are.  They also recommend that where shared owners will not share the housing provider's vote, the final Bill should allow them to attend CA meetings and participate in then as non-voting members. 

The Committee expressed concern, in the context of ongoing backlogs at HM Land Registry, that the failure to modernise its legacy systems poses a risk to the successful implementation of commonhold.  It recommends that greater digitisation and automation would support it to prepare for an increase in commonhold applications.  This seems somewhat spurious as the number of new housing starts are at low levels currently, and there is unlikely to be a rush to convert blocks to commonhold because of the costs involved for leaseholders in buying out their freeholders.

Although it is by no means a comprehensive list (several more were discussed in our previous briefing), the report is a useful summary of some of the issues that may arise when commonhold becomes the mandatory form of tenure for flats and shows that serious thought is being given to the practicalities of this momentous change.  The Government is obliged to respond to this pre-legislative scrutiny report by 26 July 2026, when we will have another insight into their thinking on the implementation of the new regime.