The Commonhold White Paper 2025

Key considerations for lenders

In December 2023, we discussed Commonhold in our Insight - "Commonhold: a quick guide for lenders”. In 2024, we saw the introduction of the Leasehold and Freehold Reform Act 2024 and a change of government. 3rd March 2025 saw the release of the "Commonhold White Paper: The proposed new commonhold model for homeownership in England & Wales".

The remainder of 2025 promises a consultation on the proposed ban of new leasehold flats and the publication of the draft Leasehold and Commonhold Reform Bill. The new government is keen to reform the existing leasehold system and expressed a strong desire to reinvigorate commonhold, aiming to make it the default tenure, with a new framework coinciding with the ban on new leasehold flats.

The key drivers for change relate to unfair/excessive service charges and unearned insurance commissions - issues for many existing leaseholders warranting greater reform. While some freeholders may exploit an unregulated environment, not all do - government data shows many leaseholders are satisfied with the current system of professional landlords and managing agents. Regulation is essential to protect all leaseholders.

It raises an important consideration: why abolish leasehold if the position is reformed/regulated for the benefit of all existing leaseholders? This should be considered as part of the consultation. Service charges and insurance premiums are tenure-agnostic and still incurred in commonhold ownership. One argument is to retain leasehold in a regulated environment preventing the creation of a two-tier system of ownership and a wholesale change to long-established residential mortgage practices.

The consultation will address concerns across the commonhold spectrum but may miss unforeseen issues. Whilst leasehold issues have been addressed over generations through legislation, regulation and case law, commonhold has not had this to any meaningful extent.

A significant part of the government's plan hinges on the willingness of lenders to finance commonhold properties. This is crucial to achieving their goal of making commonhold the default tenure. Currently, only a third of lenders state they would lend on commonhold properties. Therefore, substantial work and changes to the framework are needed to convince lenders that their security will not be at risk if they finance commonhold properties.

The government is eager to persuade lenders they will implement those necessary changes. The White Paper boldly states:

“Lenders can have confidence that commonhold units offer them a more secure asset than leaseholds.”

The government further highlights what it believes to be several key benefits of commonhold over leasehold:

No forfeiture, ensuring equity is secure
New emergency measures to reduce the risk of commonhold insolvency
Robust property maintenance plans
Mandatory reserve funds informed by a reserve fund study
An order for sale process that allows commonhold to recover debt

They have focused on addressing lenders' concerns around potential issues with the commonhold association and its possible failings, which could significantly impact their security. What measures are the government looking to include in the new framework to give lenders the confidence to finance commonhold properties?

What if Unit Owners fail to pay?

A key concern was what remedies are available if unit owners fail to pay service charges and action needed by the Commonhold Association? The government acknowledges that the current process for associations can be complicated and time-consuming. They aim to equip associations with greater powers to recover unpaid debts.

The Law Commission Report suggested an association should be able to apply to court for the sale of a defaulting unit owner's unit to recover arrears of commonhold contributions from sale proceeds. The government has confirmed that it "accepts in principle. The details will be set out in the draft legislation." This response differs slightly from the government's usual "accept" statement for the majority of the Law Commission's suggestions. Therefore it would seem some further thought may be needed before publication of the draft bill.

The White Paper confirms lenders should be notified when a debt reaches a level triggering the association's right to seek an expedited order for sale. With this knowledge (assuming they receive it), lenders can take one of two actions to protect their security:

1. Repossess the property according to the mortgage agreement if the unit owner is also in default on mortgage payments;

2. Pay off the debt and add it to the mortgage.

If the lender decides to take no action and the court orders the sale of the unit, the remaining proceeds of the sale will be used to repay any mortgage after the sale fees and association debt are paid. Lenders will have the option to request control of the sale process, allowing them to manage the fees associated with the sale and potentially leave more money available to repay the mortgage.

The idea of the commonhold association having a first charge over units to secure payment of contributions was overwhelmingly opposed by lenders prior to the 2020 Law Commission Report and this idea seems to have fallen by the wayside.

Details around the actual practicalities will be eagerly awaited in the publication of the draft bill. It will be interesting to see what is included to help address lenders' concerns where the loan-to-value ratio is high, levels of arrears significant and the costs of sale and payment of the arrears could further reduce the lender's security.

What happens if the commonhold association becomes insolvent?

The primary measures in the White Paper focus on preventing commonhold associations from facing insolvency. However, these measures cannot always be relied upon, and there will be instances where insolvency becomes the only option.

Associations will be given additional tools to enable them to respond in an emergency, but Tribunal approval will be required when a commonhold seeks to use a charge to raise emergency funds, especially if there is a mortgage secured against any units. Lenders will have the opportunity to set out any objections to this charge before a decision is made.

If an association becomes insolvent, the court will issue a succession order. This order will enable a successor association to fulfil the role of the insolvent commonhold association. The government has also accepted the recommendation that lenders should automatically have the standing to make applications to the court during the insolvency process to protect their interests.

The government has stated this approach should be better for both owners and lenders than current possible outcomes under normal insolvency law, where landlords of leasehold properties become insolvent. However, we need to see the proposed legislation to fully understand how this would work and if it would offer the reassurance and clarity required to persuade lenders the potential insolvency of a commonhold association could have a better outcome than the current leasehold process.

TLT's opinion

In December 2023, we concluded that, “as always, the devil will be in the detail”. We still need that detail, which is due in the draft legislation to be published in the latter half of 2025. We need to determine if the proposed framework will make the remaining two-thirds of lenders willing to lend on commonhold properties. Importantly we need to see what transitional arrangements will be introduced to mitigate any potential disruption to the housing market.

The consultation, to be launched this year, on banning the sale of new leasehold flats, is key in pushing for commonhold to become the default tenure over leasehold. The government has caveated that any ban could only be implemented if a viable commonhold model is in place.

Any steps to make commonhold viable will require a thorough and detailed framework of guidance in place to assist apartment owners and lenders in understanding how commonhold should operate. Commonhold has been around several years, but with little take-up and understanding around what it will look like in practice.

Additionally, we must remember there are still significant portions of the Leasehold and Freehold Reform Act 2024 to be enacted, which will further impact on property ownership in England and Wales. Regardless of the outcome, the landscape of leasehold properties is certain to change and evolve, and lenders will have important lending and policy decisions to make.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2024. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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