Leaseholders are among the many people impacted by the cost of living crisis and many are looking to leasehold reform as a means of reducing their property costs. 

There are near daily articles about leaseholders whose service charges have increased exponentially. In a speech on 29 April, the Housing Minister Matthew Pennycook illustrated the requirement for commonhold to be brought forward using examples of constituents whose service charges have escalated under the existing system. The Property Institute will shortly release data on how much service charges have increased by since its last service charge index report in April 2024, which highlighted worrying above-inflation service charge increases. 

But will the commonhold proposals within the Commonhold and Leasehold Reform Bill, as announced in the King's Speech on 13 May, actually reduce the cost of living compared to in a leasehold building? 

The quick answer is that it is too early to tell. In 2020 the Law Commission prepared a detailed report and a list of recommendations on how to reinvigorate commonhold - commonhold having failed following its introduction in England and Wales in 2002. The report’s key message is that occupants should have autonomy to manage the buildings in which they live, and that commonhold is a better model than leasehold for doing so. At no point did the report suggest that running a commonhold building would definitely be cheaper than running a leasehold building. 

There is also little (to no) market evidence anywhere in England and Wales to suggest that commonhold will be cheaper. Irrespective of tenure, the buildings are still made of the same bricks and mortar and must therefore still be managed, maintained, repaired and insured. The responsibilities, and the costs associated with performing those responsibilities, are the same under commonhold or leasehold. It is somewhat farcical to think that a builder would provide a cheaper quotation to carry out roof repairs just because the building was commonhold. On the face of it therefore, it is very difficult to legitimately argue that commonhold buildings will be instantly cheaper to manage than leasehold buildings.   

The cost of acquiring commonhold may also be a potential issue in the context of finances. For those in existing leasehold buildings, there will be a requirement to buy the freehold first, using a process known as “collective enfranchisement”, before then converting to commonhold. Buying the freehold comes with a cost, although the Minister did confirm in his speech on 29 April that they would continue to work hard to bring the cost of buying the freehold down via the Leasehold and Freehold Reform Act 2024 and in future legislation.  

That said, there are theoretical signs that imply that eventually, commonhold will be cheaper. 

For one, the residents’ approach to running the building may be very different to that of a third party commercial entity. The former will prioritise what suits their building the best for their individual needs, whereas the latter will invariably take a more commercial approach. For example, the occupant-owners are more likely to want to obtain competitive quotations to keep the costs down and may take a more “hands on” approach to day to day management, in situations in which they are able to do so. 

The legal framework and approach to building maintenance is also substantially different to that of the leasehold system. The commonhold model mandatorily requires a 10-year maintenance plan for a building, identifying any works that need doing during that period and when they should be carried out. This is then complemented by a mandatory obligation to collect a reserve fund (a pot of money paid in in manageable amounts over a long period of time), with the amount based on the 10-year maintenance plan. Commonholders technically have notice of when works will need doing and a rough indication of how much that will cost. The monies are front-loaded, which is intended to avoid the need for substantial sums at short notice – something which often happens in the leasehold system. A proper framework for building maintenance will invariably, at some point in the future, help to keep costs down on the premise of “prevention not cure”, noting that “cure” often costs more than simple preventative steps.   

Coupled with this, there are fewer processes and “hoops to jump through” in commonhold. For example, whereas under leasehold, major works projects require a full consultation procedure to be followed before the works can be carried out, whereas no such procedure exists in commonhold. Administrative savings will therefore in theory be made by not having to go through the lengthy paperwork exercise. 

Overall therefore, whilst there is no tangible evidence that commonhold will lead to lower upkeep costs, that is not to say that that will not happen in the future. However commonhold will take time to come to fruition, and with the commonhold legislation only just having been confirmed in the King’s Speech, it will be years before there is substantial uptake of commonhold.