Commonhold’s fragile foundations: risk and reality

Default risk in flat ownership is simple: it’s the risk that an owner stops paying their share of the building’s costs - maintenance, insurance and reserve funds. The result is a shortfall. And in Commonhold, that shortfall isn’t absorbed - it’s redistributed.

Commonhold is marketed as a simpler, fairer model. No landlords, no ground rents, no hidden costs - just owners managing their own building. But it’s not just a legal shift- it’s a structural one. 

Financial responsibility is shared, but enforcement is diluted - and that creates a fragile foundation.

Yes, the Commonhold Association can enforce payment or even seek a forced sale. But the board is made up of fellow owners, not a commercially driven landlord. In reality, enforcement may be slower, more politicised, and inconsistent. Everyone is liable, but accountability blurs. And when arrears appear, the system does not dampen the shock - it magnifies it. Instead of a landlord stepping in, the cost is pushed onto the remaining owners, putting pressure on those who do pay.

Under leasehold, forfeiture may be controversial - but it keeps lenders engaged and payments flowing. The landlord bears the risk, and the building continues to function. In Commonhold, if a flat has no equity, any unpaid charges are likely lost and that risk gets passed on.

Value follows certainty - not ideology
Supporters of Commonhold often cite simplicity and transparency. But markets do not just reward clarity - they reward security. A flat is only worth owning if it is a reliable store of value. We have clearly seen what uncertainty does in sectors of the flat market, take short leases, which are renowned to sell at a discount. The discount, destruction of value, is not just down to the lease term, but because lenders step back and cash buyers move in. This results in depressed values and an opportunist’s market.

Commonhold could face the same dynamic. If buyers believe a building is underfunded, poorly governed, or carrying arrears, confidence drops - and with it, access to finance and lower resale value. 

When risk becomes communal, how can confidence not be affected?

Does the Commonhold framework have the tools and authority to manage that risk? And just as importantly - will the average Commonholder have the appetite to enforce?

Managing agents: the new risk managers
Much of the enforcement burden in Commonhold will shift to managing agents. And that is where incentives matter.

As Warren Buffett said: “Show me the incentive, and I’ll show you the outcome.”

Commonhold is being sold on the promise of lower fees. But if headline income or commissions shrink, agents will look elsewhere - and arrears enforcement could become a revenue stream. In the early stages, flat owners may welcome firmer cash collection, but it won’t take much before it feels more like parking enforcement than community management.

The sector’s larger managing agents don’t like arrears - they thrive on them. Missed payments trigger letters, charges and legal referrals. In larger blocks, with complex structures and big budgets, flat owners will want to preserve the value of their homes, which depends on consistent collection. And in these larger estates professional managers will most likely have the real control. And that’s where tension builds. What begins as good governance can tip into cost layering, where small charges accumulate, inflating service charges over time.

If agents are rewarded for income recovery, and many will be, the same frictions familiar in leasehold could re-emerge under Commonhold, just under a new banner.

The Real Reform Test
If Commonhold is to succeed, it must be more than a landlord free ideal. The aim is not to resist reform - but to strengthen it. The system needs to be financially resilient, operationally robust, and professionally supported. Lenders must feel confident in the buildings they are financing, whilst Commonhold owners need to feel they are part of something stable. Most won’t be willing, nor financially able, to take on any added ownership risk. After all, in the early years of Commonhold reform, there will need to be an element of trust in the system participants are buying into.

Limiting risk means enforceable rules on budgeting and reserve funds, legal mechanisms that actually recover arrears and structures that give associations meaningful protection. And yes, proper regulation of managing agents. Otherwise, we are just rebranding the same problems, and the agents many of us have grown to distrust, may continue operating much the same - just for different paymasters.

Without strong foundations, Commonhold could become just as problematic as leasehold, only for different reasons. Fairness is not enough. What we need is stability – in a model that scales, that operates transparently, and gives owners, buyers, and lenders lasting confidence.

Reform that cannot manage the risks simply won’t last – it will steadily weaken over time, undermining trust and value.