What will commonhold mean for shared ownership?

To date, it is estimated that just 20 developments with fewer than 200 homes have adopted the commonhold structure. Significantly for the social housing sector, the government’s white paper looks to address how commonholds can embrace shared ownership.

The expectation is that shared owners, as other homeowners in a building, will make decisions on the management and costs of their building, benefitting from the rights and protections of the commonhold system. This way, commonhold owners will be afforded greater rights and protection than leasehold owners, although it is not yet clear what these will be.

“The expectation is that shared owners, as other homeowners in a building, will make decisions on the management and costs of their building, benefitting from the rights and protections of the commonhold system”

It is anticipated that the rights of shared owners will be exclusive, meaning that the social housing providers will not have a say in how shared owners vote on a particular budget, leadership election and other matters.

Registered providers that have an ongoing financial interest in a building will be allocated a limited number of votes on certain key decisions, albeit shared with homeowners. The latest Homes England model lease recognised the obligation social providers have towards certain repairs in the initial 10-year term.

The view is that while social housing providers will have a temporary role in contributing to the costs of the new tenure, “they should also have a say on decisions relating to repairs, but only during this initial 10-year window. Providers will be free to delegate these decisions to the homeowner as they see fit.”

Staircasing is addressed in the white paper, suggesting that once a shared owner staircases to 100%, they will acquire the freehold, putting them on an equal footing as other property owners in a building. This is a significant departure from current legislation, which does not permit shared ownership owners to staircase to own a share of the freehold in a building.

The government’s intention is clear that it wants to expand commonhold to both residential developers and social housing providers. Yet it has its gaps. It fails to address the impact commonholds might have on the funding arrangements social housing providers may have. Will lenders agree to lend on sales of commonhold units or to a commonhold association where there are few common parts to act as security on that lending?

“The government’s intention is clear that it wants to expand commonhold to both residential developers and social housing providers”

The white paper fails to address the impact on existing buildings that wish to convert to commonhold and the challenges in encouraging homeowners to join the commonhold association. What would happen, for example, if it proved impossible to create the commonhold association or its members reached an impasse, paralysing decision-making?

The white paper will be followed by a detailed consultation, and we can expect further changes to follow. The intention and direction of travel is, however, clear. The government intends for commonhold to be the default for developers and registered providers by 2029.

Yet, as the proposals stand, shared ownership leases will still be needed, with social housing providers exempt from the ban on the granting of long residential leases.

Jodie Barnes, senior associate, Winckworth Sherwood