In March the Government published a Commonhold White Paper, the first stage of a manifesto promise to abolish leasehold, saying it was “determined to ensure that commonhold becomes the default tenure… commonhold is not merely an alternative to leasehold ownership, but a radical improvement on it”.

A draft Leasehold and Commonhold Reform Bill is due by the autumn, which will reveal how all new properties will be sold as commonhold (where they would previously have been leasehold), changes that Labour’s huge majority will ensure get through to become law before the next general election.

But at the same time it has committed to building 1.5m homes being built within the same time frame, something Keir Starmer has referred to as an ‘almighty challenge’.

If it is to be achieved, it can only be via new housing delivered at greater densities, particularly in urban areas.

In towns and cities where land is scarce and infrastructure is already in place, flats are often the only viable option to meet local need; this is true too of land outside major conurbations which is often constrained by land use designations, such as the Green Belt.

But will house builders be interested in building more flats if Commonhold becomes the default tenure?

But will house builders be interested in building more flats if Commonhold becomes the default tenure?

To date, commonhold has not been well received among housebuilders. The primary concern is that it is untested at scale in England and Wales.

Fewer than 25 commonhold developments exist nationally and for developers, investors and mortgage lenders, that spells risk.

As the government acknowledges there is much to be done with the current version of commonhold (what we have now might be termed ‘commonhold light’).

Commonhold has been around since 2004 but has not become widespread. This is due largely to technical issues including dispute resolution, amendment to the constitutional documents and provisions relating to the termination of a commonhold, along with how control is handed over as a development is ‘built out.’

Leasehold – despite its imperfections, which we acknowledge – is something that developers understand.

It has deep roots in property law, is underpinned by decades of precedent and is woven into standard development funding and sales models. Service charge structures, management companies, exit strategies – all are familiar territory. To roll out new homes at scale and at speed, housebuilders will need to work with a tenure that they understand.

Big questions

By contrast, commonhold raises big questions. How will development finance be structured when there’s no freehold reversion to secure against? How will developers recoup upfront costs of amenities or manage complex phasing on multi-block schemes? What’s the mechanism for enforcing covenants in a mixed-use building?

The economy is rife with uncertainty, but the government cannot risk a slow-down in the property market.

While developers don’t have the reassurance of economic stability, they require stability where stability can be sought. The concern is that until commonhold is more established, its unfamiliarity may lead some to pause or pivot away from building flats altogether.

A more pragmatic alternative might be to allow leasehold for new flats in the short to medium term, but with strengthened protections for leaseholders – while undertaking pilots in the passage towards commonhold adoption.

But if the route to delivering new becomes more legally complex and commercially uncertain, the market will respond cautiously.

That could mean slower build-out rates, fewer starts on site, or exceptions being made for house, rather than flats, even if that’s at odds with wider planning strategy.

There is a very real danger that, in seeking to fix the leasehold system, we risk destabilising an already fragile housing pipeline.

Author bio: Mark Chick, ALEP director and Senior Partner at Bishop & Sewell LLP