A cross-party group of MPS – the Housing Communities and Local Government (HCLG) Committee – is scrutinising the draft Commonhold and Leasehold Reform Bill.
As part of their work they invited written evidence from the public, published an online survey and held a number of in-person panel sessions.
In Shared Ownership Resources’ written evidence, below, we focus on what commonhold reforms mean for shared owners, and what shared ownership means for commonhold reform.
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Key recommendations
- A task force should be created as a matter of urgency to review shared ownership, in the context of ongoing legal reform, to ensure that the Act works as intended for shared ownership leaseholders and commonholders.
- The task force should comprise members with a deep and detailed understanding of both commonhold and shared ownership ensuring legal expertise and lived experience expertise drive reform.
- Nothing in the Act should result in shared ownership leaseholders being placed in a materially less favourable position than other leaseholders within the same development.
- Nothing in the Act should result in shared ownership leaseholders being placed in a materially less favourable position than they would have been prior to the Act.
- Shared ownership leaseholders should not be excluded from ground rent reforms.
- Reforms should ensure that shared ownership offers an achievable pathway to commonhold (as ‘full home ownership’).
- The draft Bill should not close off the option of allocation of the costs of repairs and maintenance in proportion to the share held.
We are not comfortable with the term ‘unit’ to describe peoples’ homes and have avoided this terminology in our submission.
1. How effectively does the draft Bill meet the Government’s own policy intentions, including its commitment to “bring the feudal leasehold system to an end”?
1.1. Shared ownership cannot be described as ‘feudal’ as the scheme was introduced in the late 1970s. However, it is delivered as a landlord and tenant lease arrangement. There are currently over 250,000 households in shared ownership homes in England, many of whom purchased under previous models with short 99-year leases or 125-year leases as standard.
1.2. In our evidence to the 2022 DLUHC consultation, Reforming the leasehold and commonhold systems in England and Wales, we said:
1.3. Unresolved problems encountered by many (not all) shared owners include challenges to transitioning to full home ownership (whether via 100% staircasing or a gain on sale), unaffordability over the long-term, poor value-for-money, weak accountability and other pitfalls arising from complex ownership arrangements, short leases, service charges, ground rent and (for some) an absence of viable exit routes.
1.4. The draft Bill does not bring the shared ownership scheme to an end. In fact, there is a risk that commonhold reform could unintentionally create a large class of shared ownership leaseholders excluded from protections.
2. Does the draft Bill provide a workable legal framework to support commonhold as the preferred, default tenure for flat ownership by the end of the Parliament?
2.1. In 2020, the Law Commission published evidence from a leaseholder raising concerns that the inclusion of shared ownership in commonhold would be: “tantamount to eroding the founding principle of commonhold, namely, to eradicate the third-party absent landlord and the associated problems of leasehold”.
2.2. No one knows whether shared ownership leaseholders will be better off, or worse off, under the legal framework provided by the draft Bill.
3. Will the Government’s proposal for a cap on ground rents of £250 a year, changing to a peppercorn after 40 years, tackle unregulated and unaffordable existing ground rent charges?
3.1 The proposed cap is intended to protect people from paying unregulated and unaffordable ground rent on the homes they live in. However, if ground rent paid on a landlord’s share in equity is exempt from proposals in the draft Bill, this would create a two-tier system disadvantaging shared ownership leaseholders.
4. How does the draft Bill seek to address the respective property rights of leaseholders and freeholders?
4.1 In 2020 the Law Commission told the University of Cambridge Centre for Housing and Planning Research (CCHPR) that:
‘The model shared ownership leases published by Homes England would suggest that shared ownership leaseholders do not generally pay a ground rent until they have staircased to 100%, at which point the rent on the unacquired share is replaced by a minimal ground rent (such as a peppercorn). However, we have heard from a number of shared ownership providers who have told us that ground rents of up to several hundred pounds per annum are routinely included in their shared ownership leases. Our leaseholder survey also revealed that, of 19 shared ownership leaseholders who submitted responses, 15 had some sort of ground rent obligation.’
4.2. In 2022, The Times reported a case of a shared owner with a 25% share in a three-bedroom flat who discovered a “minimum rent” clause for £750 a year that increases in line with RPI every five years only after he staircased to 100% in 2019.
4.3. As of 23 May 2022 – for shared ownership homes delivered through Homes England’s AHP 2021 to 2026 or SOAHP 2016 to 2021 – any ground rent should be either nil or at a peppercorn per annum. However, this does not apply to all shared ownership homes and is not retrospective.
4.4. It is unclear why entrants to an ‘affordable homes’ scheme should be liable for ground rent at all, with some considering that they were mis-sold their shared ownership homes. An immediate, retrospective peppercorn ground rent on shared ownership homes would be fairer than the proposed interim £250 cap.
5. Are there any potential loopholes in the draft Bill’s provisions to cap ground rents, including through the use of headleases?
5.1. There is a real concern that capping ground rent on shared ownership homes could be problematic for social housing providers.
5.2. These arguments, made in the industry press, further explain such concerns.
5.3. If housing providers are not subject to ground rent caps on their own head leases, there is a particular concern they may seek to pass on those costs to their shared ownership leaseholders, whether directly as ground rent or via other charges. The Bill does not clearly set out a position in this regard.
5.4 In our 2023 report, Shared Ownership: the consumer perspective, we recommended that:
‘Government should make peppercorn ground rent a requirement for all parties with an interest in any shared ownership lease, with retrospective application.’
6. Does the draft Bill establish converting to commonhold as an achievable option for ordinary leaseholders?
6.1. Shared ownership leaseholders who have not staircased to 100% will not be qualifying leaseholders. For context, the majority are unlikely to staircase to 100%.
6.2. Government is supporting staircasing by allowing people to purchase smaller shares. But this does not remove barriers to staircasing to 100%.
6.3. For commonhold to be an achievable option for shared ownership leaseholders, it would be necessary for staircasing to 100% to be achievable from a technical perspective (no staircasing caps) and to be affordable.
6.4. Shared ownership leaseholders will not be qualifying leaseholders for the purposes of holding an initial vote to convert to commonhold. However, they will not be able to opt out regardless of whether such a conversion appears in their best interests or not. For example, they may consider that they have more rights under Right to Manage than a commonhold arrangement.
6.5. Pepper potted shared ownership flats in a mixed-tenure block could also potentially impact the ability of other households to meet 50% collective enfranchisement thresholds.
7. How does the draft Bill allow for commonholds to be flexible and tailored to suit the needs of all development types?
7.1. Shared ownership is implicitly excluded from this question as it will exist in parallel to commonhold, not as commonhold. However, it is vital to note that the shared ownership scheme contains a great deal of heterogeneity – not least in relation to development types – and that the draft Bill does not address the needs of shared ownership leaseholders, including those in complex ownership structures, those in Older Person’s Shared Ownership (OPSO) schemes or those facing barriers to exit in rural designated protected areas due to obsolete staircasing caps.
7.2. Event fees (exit fees) can pose significant problems for beneficiaries and executors of OPSO homes. Yet the Bill makes reference to: ‘power to provide exemptions for categories of property to be established in regulations’ citing ‘leasehold retirement properties’ as an example. It therefore seems that the Bill could do little to help those in OPSO (and other leasehold retirement homes) where event fees can militate against resale.
8. What framework does the draft Bill establish for ensuring fair collective decision-making in commonhold associations?
8.1. Where a shared ownership leaseholder holds a lease with a 10-year Initial Repair Period (an ever increasing number of people under the ‘new’ model lease for grant funded homes) the landlord, rather than the shared ownership leaseholder, is the commonhold association member. This has important ramifications for both shared ownership leaseholders and commonholders.
8.2. For affected shared ownership leaseholders, an Initial Repair Period removes the right to participate in commonhold association decisions. Albeit it is understandable that housing providers would want some degree of control over expenditure liabilities. (Under the 10-year Initial Repair Period, both parties have liabilities).
8.3. For other commonhold association members, the right of the shared ownership housing provider landlord to participate in the decision making processes of the commonhold association defeats the point of commonhold. Depending how many shared ownership flats are pepper potted in the block, a majority vote could be held by a member who does not live in any of the homes and whose interests may well not align with those of shared ownership leaseholders or commonholders.
8.4. There is a separate issue that the interests of shared ownership leaseholders may not align with those of commonholders. Even where shared ownership leaseholders do have a right to participate in decision making, their perspective on proposed costs may be impacted by how inflation impacts their annual rent increase (and hence total housing costs), a complication that commonholders will not face.
8.5. Shared ownership leaseholders may also have a different perspective depending on the size of their share – perhaps as low as 10% – given they will still be liable for 100% of costs but can only ever make a gain on their % share. This will inevitably give them a different perspective on the value to them of proposed expenditure than commonholders in the same block.
8.6. We have concerns around collective decision-making in commonhold associations where Older People’s Shared Ownership (OPSO) schemes are in operation. OPSO Extra Care schemes are commercially, operationally and legally complex and around ten times more expensive than ‘standard’ shared ownership schemes to deliver. Additionally, such schemes are often delivered under a business model which greatly disadvantages beneficiaries and executors relative to the provider. These are issues that seem unlikely to be resolved by commonhold reform, though we have concerns that such reforms could further complicate the picture.
9. Are the mechanisms for dispute resolution sufficiently robust to address potential disputes which may arise within commonhold associations?
9.1. At present shared owners pay housing costs (rent, service charges and management fees, estate service charges, ground rent and admin fees – as applicable) to their landlord, and have access to the Housing Ombudsman if they are not happy with the outcome of a formal complaint (so long as their landlord is a member of the Housing Ombudsman Scheme).
9.2. Shared owners can also use the First-Tier Tribunal (Property) service to dispute service charges and management fees. However, legal fees can make this risky, deterring some shared ownership leaseholders. The Housing Ombudsman is generally seen as a more consumer-friendly option.
9.3. Will existing dispute resolution routes remain in place for shared ownership leaseholders under commonhold arrangements? (Given they will have a contractual and financial relationship with both the housing provider and the commonhold association.)
Dispute Resolution
28. Commonhold has a dispute resolution system built in that seeks to encourage settlement without recourse to a court or tribunal. The Bill will streamline and improve this dispute resolution procedure. Currently, where a dispute cannot be resolved using alternative dispute resolution, most enforcement requires court proceedings. The Bill will transfer most formal enforcement to the appropriate tribunal, recognising their expertise in property matters….
30. The Bill will also make it optional for a commonhold association to be a member of an ombudsman scheme.
9.4. What about voluntary initiatives? What is the role of the New Homes Quality Board (NHQB) Shared Ownership Code for shared ownership leaseholders in commonhold arrangements? What is the role of the Regulator of Social Housing? And do these various sources of regulation and redress apply differently depending on whether the housing provider landlord and/or the shared ownership leaseholder are members of the commonhold association (or not)?
9.5. From a different perspective, low satisfaction can arise from a mismatch between expectation, aspiration and lived experience. The same mismatch could result in disputes. But including shared ownership in commonhold disrupts existing lines of communication and accountability (however poorly enforced) between government information and guidance, marketing campaigns and delivery of ‘affordable’ homes.
9.6. What is the role of Homes England’s Key Information Document or the NHQB Service Charge Information Document (SCID) if expenditure decisions are undertaken by the commonhold association? How will entrants to the scheme be provided with the material information required for informed transactional decision-making, and by whom?
9.7. The Regulator of Social Housing’s Tenant Satisfaction Measures demonstrate that shared ownership leaseholders’ satisfaction is typically low, and other data indicates that satisfaction declines over time. There is a risk that fundamental flaws in the model will be rendered invisible by the effective transfer of management and responsibility for delivering shared ownership homes to commonhold associations. Including shared ownership within commonhold runs the risk of fracturing existing lines of accountability, reporting, regulation and redress without providing much in return, perhaps not even the right to vote as a member of the commonhold association for up to 10 years (see our response to Q.8).
10. Does the draft Bill’s definition of permitted leases ensure shared owners and owners with lease-based home purchase plans are fully included under the commonhold model?
10.1. During an oral evidence session with the HCLG Committee and Treasury Committee on 10 February 2025, the Minister of State for Housing and Planning stated that: “Shared owners will also benefit… from the wider reforms to the leasehold system that we are making”. However, the framework proposed in the draft Bill further increases the complexity of what is already widely acknowledged to be an extremely complex scheme where entrants may not understand what they are getting into.
10.2. The draft Bill ‘includes’ the shared ownership scheme in the commonhold framework without tackling the specific pitfalls shared ownership leaseholders face.
11. How would the provisions in the draft Bill interact with existing legislation, including the Leasehold and Freehold Reform Act 2024? Might there be any unintended consequences and, if so, how should those risks be mitigated?
11.1. Shared ownership occupies a contradictory and ambiguous space in legislation. Despite a model lease contract that establishes a landlord-tenant relationship, shared ownership is described in the Housing and Regeneration Act 2008 as ‘low cost home ownership’.
11.2. Previous law making has resulted in serious problems for shared owners: for example, the lack of a statutory right to lease extension and the, temporary, flaw in legislation which led to a problem that lease extension – which takes effect as a surrender and re-grant of a lease – was not covered or exempted in the Building Safety Act 2022.
11.3. Will there be any unintended consequences of this draft Bill, in interaction with other legislation, or perhaps related to issues outlined above?
12. Are there any additions you would like to see to the draft Bill?
12.1. A task force should be created as a matter of urgency to review shared ownership, in the context of ongoing legal reform, to ensure that the Act works as intended for shared ownership leaseholders and commonholders.
12.2. The task force should comprise members with a deep and detailed understanding of both commonhold and shared ownership ensuring legal expertise and lived experience expertise drive reform.
12.3. Nothing in the Act should result in shared ownership leaseholders being placed in a materially less favourable position than other leaseholders within the same development.
12.4. Nothing in the Act should result in shared ownership leaseholders being placed in a materially less favourable position than they would have been prior to the Act.
12.5. Shared ownership leaseholders should not be excluded from ground rent reforms.
12.6. Reforms should ensure that shared ownership offers an achievable pathway to commonhold (as ‘full home ownership’).
12.7. The draft Bill should not close off the option of allocation of the costs of repairs and maintenance in proportion to the share held.
You can find Shared Ownership Resources oral evidence to the Committee on ParliamentLive.tv. Alternatively, you can read the transcript here.
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