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Commonhold - Where Art Thou?


May 2018 marks the 16th year of the introduction of “Commonhold” and its availability to land owners in England. ‘I’ve never heard of it…. what is it?’   I hear you say… but you’re probably not the only ones!

 

The concept of “commonhold” was introduced by the Commonhold and Leasehold Reform Act 2002 and was supposed offer a new, exciting alternative type of property ownership from the indoctrinated yet problematic leasehold system. However, since coming into force – only around 20 Commonhold developments exist.  This statistic alone suggests, somewhat ironically, that there is nothing actually ‘common’ about it. The system also carries the undesirable tag of having more books written about it, then actual Commonholds in place. But why has up take been so slow?

 

What is wrong with the leasehold system?

 

Purchasing a leasehold flat means buying a long residential lease of say 99, 125 or 999 years. Like buying a car and then driving it off the forecourt, you are buying a depreciating asset, with your entitlement to reside being limited to however many years remaining from the grant of the original lease. When that period expires, ownership reverts back to the landlord. Common leaseholders complaints concern includehaving to face difficult landlords, finding themselves stuck in a web of increasing onerous ground rent and excessive service charge costs, all subject to a lease becoming shorter and more expensive to renew.

 

What is Commonhold?

 

Commonhold was designed to give property owners tangible ownership rights.

 

Residents own ‘Units’ and collectively belong to a ‘Commonhold Association’ (CA) company, which owns the communal parts of the building. The CA maintains the building in line with terms of the Commonhold Community Statement (CCS), which contains the rights of each unit holder and obligations of the CA along with dispute resolution procedures.

 

The Association promotes democracy and each unit holder has one vote on key issues in terms of repairs, service charges and so on.  The system does away with the lease and imposes no ground rent. The theory being that holders would be able to have a say in the running of the building, which would (hopefully) mean less people being overcharged for things such as repairs.  Sounds like some sort of property ownership utopia doesn’t it– so why has it failed to catch on?

 

Why has it not worked?

 

The key reason is risk and not enough key players willing to take it.  Developers see nothing wrong with the current leasehold system believing it to be tried and tested. Not only service charges and ground rent are lucrative sources of revenue and profit, but also having the option to sell the freehold of a block of flats.. They are also reluctant to leave themselves open to the risk and incur the respective costs in building blocks of flats on a Commonhold basis only for them not to sell.   This coupled with ever cautious mortgage lenders not overly keen on lending on something new and uncertain, preferring the recognised territory of leasehold and freehold, has resulted in demand remaining at a practical zero.

 

Another issue for developers is that at present, new Commonhold units can only be registered with a plan. Once registered it is then difficult to change the plan – especially since new build developments often require change of layouts and specifications during the course of construction. In addition new build developments are built over phases. The legislation as currently drafted provides that a CA is entitled to be registered as freeholder of the common parts as soon as any unit holder is entitled to be registered. This means that completion of phase 1 will trigger the developer losing control over the site, which may result in shoddy workmanship and failure to remedy snagging items.

 

The Act also enables existing leaseholders to convert to Commonhold, but this is subject to agreement from all leaseholders, lenders and the Freeholder too.  Unsurprisingly, very few have or have been able to exercise this option. 

 

The future of Commonhold?

 

Unless developers are enticed by an incentive or there is a strong legislative and political push, the development of Commonhold is unlikely to grow . Plainly developers need to make a profit – it they don’t, they will not build. Commonhold as it stands is unprofitable and therein lies the inherent problem.

 

One ray of light is that the ever increasing problems with Leasehold and notable unfair practices have thrown Commonhold back into the picture. A debate held by the Association of Leasehold Enfranchisement Practitioners (ALEP) suggested that the system has got the potential to work but requires wider awareness and government support to make it easier for leaseholders to convert to freehold and in turn make leasehold a less attractive option.   Peter Haler, previous Chief Executive of the Leasehold Advisory Service, admitted that the current system was flawed and urged us to follow a ‘fairer’ system similar to the Strata title adopted in Australia.  Philip Rainey QC advised that the Government should put ‘serious effort into marketing the concept’.

 

The Law Commission have also asked for the opinions of leading professionals including Yashmin Mistry, Property Practice Group Leader here at JPC Law as to why Commonhold has struggled and what changes could be made to make the tenure more appealing. We are delighted to be sharing our expertise and remaining at the forefront of such landlord and tenant matters.

 

Although it is very disappointing to see that Commonhold, a system which could be the answer to many of the problems associated with leasehold has failed, people are once again discussing the option and therefore perhaps with recognisable support and backing from the top along with a little legislative tweaking – it could become a viable and popular option of the masses.

 

 

Bhavneet Joshi is a Solicitor in the Residential Conveyancing Department.

Please contact him for more information.

E: bjoshi@jpclaw.co.uk

T: 020 7625 7309

General Enquiries:

E: enquiries@jpclaw.co.uk

T: 020 7625 4424 

 

 

 

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