Editor's note: This brief was summarised by The Property AI Newsroom from a report by The Negotiator. Read the original article for full details.

Uncertainty Remains Over Cost Savings of Commonhold vs Leasehold

There is currently no clear evidence that commonhold will be cheaper than leasehold, according to a report summarised by The Negotiator. The article highlights ongoing concerns about rising service charges for leaseholders and examines whether proposed reforms will reduce costs for residents.

Leaseholders have been significantly affected by the cost of living crisis, with many experiencing substantial increases in service charges. The Housing Minister, Matthew Pennycook, referenced these issues in a speech on 29 April, using examples of constituents facing escalating charges under the current leasehold system. The Property Institute is expected to release updated data on service charge increases, following its April 2024 report which noted above-inflation rises.

The Commonhold and Leasehold Reform Bill, announced in the King’s Speech on 13 May, has prompted questions about whether commonhold could offer a more affordable alternative to leasehold. However, the article states that it is too early to determine if commonhold will actually reduce costs. A 2020 Law Commission report recommended giving occupants more autonomy to manage their buildings, suggesting commonhold as a preferable model, but did not claim it would be cheaper.

The article notes there is little to no market evidence in England and Wales to suggest that commonhold is less expensive than leasehold. Both tenure types require buildings to be managed, maintained, repaired, and insured, with similar associated costs. The process of converting an existing leasehold building to commonhold also involves purchasing the freehold through collective enfranchisement, which incurs additional costs. The Housing Minister has indicated efforts to reduce the cost of buying the freehold through recent and future legislation.

The article does mention theoretical reasons why commonhold could eventually become cheaper, such as residents taking a more hands-on approach to management and seeking competitive quotations. The commonhold model also requires a 10-year maintenance plan and a mandatory reserve fund, which could influence long-term costs. However, the report concludes that it is difficult to argue that commonhold buildings will be instantly cheaper to manage than leasehold buildings.