What is a Commonhold Property?

How does commonhold property ownership work?

Commonhold property ownership is relatively new and rarely used in the UK, although it is much more widespread in countries such as the USA and Australia. However, the UK government aims to make it the standard form of ownership for new-build residential flats as part of its Leasehold and Commonhold Reform Bill, which will be introduced later in the year. 

A commonhold property consists of:

• units; and
• common parts

Commonhold turns the owners of each unit in a shared building, such as flats, retail spaces and offices, into freeholders rather than leaseholders. It also gives them shared ownership of the common parts, removing the requirement for a landlord.

To look after the common parts of the building, the unit owners form a commonhold association. It handles the insurance and maintenance requirements of the building and its shared areas and manages financial contributions from its members. As members of the association, all the unit holders have a say over the management of the building, ensuring a collective approach to property management.

What are the differences between commonhold and leasehold?

Now that we understand the meaning of commonhold, let’s look at how it compares to the more prevalent leasehold system.  

Ownership

• Commonhold - Commonholders own the freehold of their business units or flats and have joint ownership of the shared areas through their commonhold association.
• Leasehold - Leaseholders have a right to occupy an individual unit for a specific period as determined by the lease. They do not own the shared areas or the land the building sits on.  

Duration

• Commonhold - Commonholders have indefinite ownership of the unit and shared ownership of the common areas until they sell their flat or business premises to another party.
• Leasehold - As a leaseholder, you buy the right to live or work in a unit for a set period. As the term of the lease shortens, the property’s value can fall, and you may face additional costs for a lease extension. 

Landlord

• Commonhold - Commonholders own their individual units and the building’s shared areas, so there’s no freeholder (landlord) with ultimate ownership of the property.
• Leasehold - Leaseholders own the right to occupy their unit, but the actual building, its shared areas and the land it sits on are owned by the landlord. The leaseholder must pay the landlord ground rent and a service charge for the maintenance of the building and its shared areas.

Control

• Commonhold - Commonholders run the building together and collectively pay for maintenance and repairs. They also have more direct control over their living or working environment and are not subject to the terms of a lease.
• Leasehold - Leaseholders have far less control over how their building is managed. Their lease can also place restrictions on how they use their property, commonly preventing alterations, subletting, pet ownership and more. 

Complexity

• Commonhold - There can be some complexity associated with commonhold ownership, particularly around the management and maintenance of the building and its shared areas. That can lead to disputes around financial planning and the use (or misuse) of funds. 
• Leasehold - Leasehold properties can bring additional complexity when it comes to selling and remortgaging, particularly when there’s a relatively short lease term. There’s also the potential for disputes when it comes to service charges and the landlord’s management of the property. 

Commonhold commercial properties - what do you need to know?

Commonhold can be an attractive ownership alternative to leasehold for businesses and commercial property investors. However, there’s a lot to consider. It’s an underused and relatively new ownership type, so there’s limited market experience and few examples of the challenges it may bring. There are also still questions about practical challenges such as financing and resaleability. 

That said, it offers more control and freedom from a landlord, ensuring transparency over costs and removing additional charges such as ground rent. That has the potential to make it a fairer and more sustainable way to own property over the long term. 

Here’s a quick walkthrough of the benefits and challenges if you are considering purchasing commercial commonhold property as an investor or owner-occupier.

The pros 

• It’s a practical ownership solution for multi-unit buildings and mixed-use developments
• There’s no lease expiration to worry about, so you can make long-term plans and not have to worry about the value of your investment falling
• You can make key decisions about the property and implement changes or improvements without having to go through a landlord
• The commonhold association can appoint its choice of property manager, giving you more cost control and financial transparency
• You have more control over insurance and repairs
• It can be an excellent option for offices and retail properties, giving you more flexibility while ensuring a high standard of shared space management

The cons

• There’s limited adoption of commonhold in the UK commercial property market
• Converting existing leasehold properties to commonhold can be challenging, with multiple stakeholders, including other businesses and freeholders, having to agree to the conversion 
• Managing the commonhold association can be complex, particularly when individual unit owners have differing views on priorities and expenditure

Commercial property advice and practical solutions

If you would like to know more about buying, selling or managing commonhold commercial property or converting leasehold property to commonhold, we can help. Our experienced commercial property agents and occupier property management teams can maximise the benefits of a commonhold structure and manage buildings, units and shared areas on your behalf. 

Please get in touch for an initial consultation or arrange a meeting at one of our local offices throughout the UK.