Most people are aware of freehold and leasehold tenures and how they work in principle. But commonhold, on the other hand, is a tenure that is not as common as it sounds, and it appears to be less known despite being introduced in 2002. However, with the recent discussions and consultations taking place, could Commonhold potentially be considered again by developers in the near future?
Although commonhold was initially expected to be used for residential flats instead of leasehold, it can also be used for houses, mixed use and commercial developments.
Whereas with leasehold property the leaseholders do not own the “common areas” as the Landlord does and they only “own” their property for a number of years, the idea behind commonhold was to remove the need for a Landlord and join the freehold ownership of a single property within a larger development, with membership of a company limited by guarantee (which would be known as the Commonhold Association). That Commonhold Association would then own and manage the common parts of a development.
As the Commonhold Association’s members are all those people who own a “unit” within the development, this tenure was designed to ensure that the owners are in control of the development and how it is run.
The Commonhold Association manages the development as per the Commonhold Community Statement which will set out the rights and obligations of the owners, how issues are to be resolved, what is included within the commonhold properties, etc.
As freehold is not always the best tenure for property, for example where there are areas that are to be used in common with other owners (e.g. stairways, the roof, roads, gardens, etc.), leasehold property could also sometimes be undesirable, for example if a Landlord, Management Company or leaseholders fail to adhere to the terms of the leases.
It was hoped that commonhold property would be an alternative to leasehold and would resolve the problems that leasehold property can have. The advantages of commonhold property include:
- The commonhold owner is able to sell or lease their property, subject to legislative restrictions. This differs from leasehold property where leaseholders may be prevented from being able to underlet or assign under the lease.
- With leasehold property, the value of the property declines as the lease term reduces, but this does not happen with commonhold property as there is no lease.
- As the Commonhold Association is run by the owners of the commonhold properties, they should be able to implement what they need when they need it. It is likely that such implementations will take place on a majority vote, which will help if there are only one or two “disruptive” commonhold owners who do not agree with a proposal.
- The documents that are drawn up for commonhold property are fairly standard so there are fewer risks of errors.
- There is an Ombudsman service for any disputes that arise.
Although this could be a more cost effective remedy than issuing County Court proceedings or an application to the First-tier Tribunal, it may not be as effective for commonhold owners who consistently breach an agreement or fail to make contributions. Whereas the remedy of forfeiture is available to Landlord’s of leasehold property, there is no such remedy with commonhold.
So, the question perhaps is why hasn’t commonhold worked so far and been popular? The answer to that is unknown for sure however, what can be seen is a lack of commonhold properties being developed. Developers probably cannot see an issue with leasehold properties and, therefore, may not see any benefit in selling property as commonhold as opposed to leasehold.
Another potential reason for the lack of commonhold properties could be down to mortgage companies who may not, at the time, have been eager to offer mortgages over commonhold properties. As with anything “new”, nobody wants to be the first in case it doesn’t work.
As for those properties that were already developed, they may not have chosen to convert to commonhold as it would require not only the freeholder’s agreement, time and money to convert, but also the agreement of each and every leaseholder in the block (which can be a difficult thing to achieve the more leaseholders there are).
Dani Green, Solicitor at Bolt Burdon