Commonhold: general notes

This document very much a work in progress / palimpsest / unfinished.

In March 2025, the day the law was liberalised on the management of leasehold blocks of flats, the Government also published their white paper on Commonhold, which I posted initial thoughts about on the day it came out:

At the bottom of the post, I set out some thoughts I have about reformed commonhold since reading more of the White Paper. Making commonhold more feasible on a wider array of sites is very important, but this didn't need to be packaged with watering commonhold down. Since the White Paper also contemplates coercively converting some existing leasehold titles to commonhold, it now seriously matters how that is to be achieved.

Conversion of existing leases: Option 1 and Option 2

The two options for conversion of existing blocks of flats, per the Law Commission's terminology, are "Option 1" and "Option 2". This week's white paper mercifully follows the Commission's terminology.

Option 1 entails watering down and complicating commonhold to permit the retention of existing leases and their terms.

Option 2 is coercive, and would ensure that all flat leaseholders become commonhold unitholders whether it is in their interests to convert or not. It entails relaxing the unanimity requirement for conversion, giving all flat leaseholders the freehold title to their flats, within a commonhold.

Of course, the landlord(s) of the flat have a financial interest which may amount to hundreds of thousands of pounds in expected future income. That all needs to be paid up at the point of conversion, and the leaseholders might not have the funds at the right moment; you're effectively asking a group of people to roll over their debts all at the same time, which they might not be willing or able to do. The financials of this are largely unchanged since compulsory collective enfranchisement was introduced in 1993, yet no market has arisen for lending to leaseholders who can't otherwise afford enfranchisement.

Lenders

The government not unreasonably assumes that unless something is done, that market failure will persist. The recent abolition of certain ground rents restricts the options for compensating lenders. But there's

The Law Commission in 2020 did a bit of freelancing and suggested that the government could take the whole problem onto its balance sheet. If some leaseholders couldn't afford to enfranchise, they could get a government-backed loan, secured against their flat.

trilemma

parasitic vitality

(why they couldnt allow SoF)

Commonhold history

Commonhold vs share-of-freehold

The private sector has evolved workarounds for the issues of leasehold mutualisation: if you can afford for everyone in your block to buy their share of the freehold, then you can have a fully mutually owned shared freehold, with 900 year leases for the individual flats and better, agreed terms. The differences from commonhold are not serious. This has been done by using existing company law and land law, which are exactly what commonhold builds on too.

This has meant that top-down commonhold has to compete against bottom-up share-of-freehold. The latter does not require further parliamentary supervision, whereas commonhold was stillborn in 2002 and has since received nugatory parliamentary time. Compared with the *best* of share-of-freehold leasehold schemes, commonhold does not provide large advantages. Compared with the worst it is of course a no-brainer.

So people are being asked (or told?) to rely on Parliament to fix issues that they could likely fix themselves if they went with share-of-freehold.

Managerialising commonhold

Having had more time to think about it, there are some concerning aspects to the white paper: there is now likely to be a lot of tinkering with commonhold as it currently exists, beyond what is necessary, and to the effect that the government is going to end up supervising the internal operation of commonholds much more than currently, and the current state is already pretty bad.

Effectively, the government (or at least the housing department) seems to see democratic control as pathogical, *and* the variability and diversity of leasehold arrangements also as pathological. Some of this will just be down to sector lobbying, the usual anti-democratic tropes. But the simple model of governance that is available under commonhold today is familiar from the operation of any other British company, with which a substantial minority of flat owners will be very familiar from their daily lives interacting with other companies in which they are shareholders or directors.

Today's commonhold is a simple representative democracy: there's an elected board empowered to exercise the powers of the body of members as a whole; individual directors are subject to recall, and the board can be mandated by a supermajority; members don't need to participate, and the company can't discriminate between members due to section 997 of the Companies Act.