Introduction
Following our previous update in February regarding Labour’s intentions to transition from leasehold to commonhold, the UK government has now published its White Paper on the future of commonhold, detailing its plans for reform. These reforms mark a significant shift in the housing landscape and are likely to have profound implications for the property insurance market, particularly as they relate to the management and insuring of residential properties, including flats. As we continue to monitor developments, this alert provides an important update on the latest proposals and their potential impact on insurers.
Government White Paper – Key Developments
On 3 March 2025, the Ministry of Housing, Communities and Local Government (MHCLG) released a White Paper outlining the government’s proposals for reforming commonhold ownership in England and Wales. The key highlights include:
- Increased Flexibility for Different Property Types: The proposed reforms aim to make commonhold a workable model for all types of developments, including mixed-use buildings, and will allow shared ownership homes to be incorporated into a commonhold structure.
- Enhanced Safeguards for Unit Owners: The reforms include measures to increase security for unit owners, such as mandatory public liability insurance, reserve funds, and greater transparency and oversight of budgets.
- Strengthening Commonhold Management: New rules will provide clearer processes for appointing directors, establishing repair standards, and ensuring reserve funds are used appropriately for maintenance and repairs.
- Public Liability Insurance and Buildings Insurance: The White Paper mandates that commonholds will be required to take out public liability insurance, with unit owners also entitled to request copies of these policies for transparency.
What Does This Mean for Insurers?
The proposals outlined in the White Paper introduce several new dynamics for insurers. While many of these elements are still in development, the potential challenges and risks for the insurance industry are already clear:
- Increased Complexity in Insurance Arrangements: Under commonhold, individual flat owners will have responsibility for insuring their own units, while a collective insurance policy will cover the common areas. This creates a more complex insurance environment, with the potential for disputes over coverage between owners, insurers, and the commonhold association. Insurers will need to consider how best to structure policies to cover these new arrangements and minimise the risks associated with such fragmentation.
- Risk of Deferred Maintenance and Disputes: As discussed in our previous alert, the decentralisation of responsibility for maintenance under commonhold may lead to deferred maintenance issues. The experience in the US with condominiums demonstrates that when individual owners are responsible for maintenance, there is often a reluctance to invest in the upkeep of communal areas. The White Paper aims to mitigate this risk through mandatory reserve funds and clearer processes for funding repairs, but the risk remains that poorly managed commonholds may result in increased claims for property damage and associated liabilities.
- Public Liability Insurance and Coverage Gaps: The White Paper’s proposal to make public liability insurance compulsory will be a key area of interest for insurers. However, insurers will need to ensure that commonhold associations have adequate cover, particularly given the potential for increased liability exposure arising from communal areas. Insurers may also need to address gaps in coverage, especially where commonhold associations fail to maintain the appropriate level of reserves or neglect repairs.
- Emergency Funds and Financial Solvency Risks: The reforms introduce flexibility for commonholds to borrow funds in emergencies, either through loans secured against the property or from unit owners’ contributions. While this is designed to provide financial resilience, it could complicate insurers’ assessments of risk and solvency, especially if emergency borrowing is necessary to cover large claims. The need for clear guidelines on financial solvency will become increasingly important for insurers to understand the potential for financial instability within a commonhold.
Timeline for Consultation and Legislation
The next steps in the government’s reform process are as follows:
- Consultation on Leasehold Reform (Late 2025): A formal consultation on banning new leasehold flats is expected to take place later in 2025. This consultation will help clarify the specifics of how leasehold reform will unfold and its potential impact on existing and future insurance structures.
- Draft Leasehold and Commonhold Reform Bill (Late 2025): A draft Bill will be introduced in late 2025 to set out the legal framework for the reformed commonhold system. This will include provisions for how the new system will operate, including insurance obligations, financial contributions, and dispute resolution mechanisms.
- Code of Practice for Apportioning Costs: The government will also issue a code of practice to provide guidance on how costs should be apportioned within a commonhold, particularly in relation to shared expenses such as insurance premiums.
Conclusion
The publication of the White Paper signals an important milestone in the government’s shift from leasehold to commonhold ownership, with far-reaching implications for property insurers. The introduction of compulsory public liability insurance, clearer rules for reserve funds, and the flexibility for emergency borrowing represent significant changes in how insurance and liability risks will be managed in commonhold properties.
We will continue to monitor developments closely and provide further updates on how insurers can prepare for these changes as more details emerge from the consultation and the draft legislation.
Should you have any questions or require further assistance on this matter, please do not hesitate to contact us.
Richard Houseago - Partner and Coverage Special Interest Group Lead
rhouseago@keoghs.co.uk
Natalie Larnder - Head of Market Affairs
nlarnder@keoghs.co.uk
