The commonhold revolution

In December 2018 the Law Commission published a Consultation Paper on commonhold reform: “Reinvigorating commonhold: the alternative to leasehold ownership”. In it they make provisional proposals to make commonhold work for homeowners, developers, mortgage lenders and the wider property sector.

So what is commonhold?

Commonhold was introduced as a new way to own property by the Commonhold and Leasehold Reform Act 2002 (CLRA 2002). It is not a new and distinct type of estate in land, but rather a form of freehold that provides a structure to manage the relationship between separate, individually owned properties within a larger building or development.

In brief, the freehold of each “unit” is owned by a “unit owner”. A unit may be part of a larger building, for example a flat in a block of flats, a separate building within a larger development or even an area of land not connected to a building, for example a car parking space.

The common parts of the building or development, i.e. the connecting land/space between units, is managed by a Commonhold Association, of which each Unit Owner is a member. The Commonhold Association (“CA”) has many of the same traits as that of a limited company, including the adoption of articles of association.

But why would this be beneficial to leaseholders?

The Law Commission recognises that property owned on a leasehold basis is a wasting asset, the value of which diminishes with time. The fact that legislation provides leaseholders with the right to extend their lease term does not address the imbalance of power between leaseholders and freeholders, where leasehold owners really have limited control over their home.

Commonhold provides freehold status which in turn removes ground rent and provides for commonhold contributions to be made to the CA, as set out in the Commonhold Community Statement. Essentially control is handed to the unit owners, allowing greater control over the wider development and removes the requirement to defer to any landlord.

That sounds great, what’s the catch?

Since the CLRA 2002 came into force in 2004 fewer than 20 have been created. The Commonhold Regulations 2004 (SI2004/1829) and Commonhold (Land Registration) Rules 2004 set out the lengthy and cumbersome procedure for creating and registering a commonhold interest in land.

As well as being overly complicated, a real problem is that a number of the largest lenders will not offer mortgages on commonhold titles.

A culture change

Commonhold ownerships, or equivalent schemes, have been successful across the globe including similar jurisdictions such as Australia.

The Law Commission doesn’t see the various challenges to a commonhold system as insurmountable, however recognises that, in order to make it a success, there are not only questions for the law but questions about the way we perceive ownership, property and the communities in which we live.

Have your say, the consultation period is open until 10 March 2019 and comment may be made via the online form here.