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“Did someone say commonhold?" I heard of that once ... a long time ago.
The concept of Commonhold was initially introduced under the Commonhold and Leasehold Reform Act 2002. Although popular and widely used in other countries it did not take off in the UK. Issues with lenders refusing to accept commonhold properties as security for mortgages, lack of incentives for developers to create commonhold developments resulted in only a handful of commonhold sites existing in the UK.
The Law Commission Reports released on 21st July 2020 at 12.01 a.m. proposing radical and fundamental reform of the Leasehold System in the UK look to reinvigorate the introduction of Commonhold Ownership. See our blog on the Law Commission update here.
Why you ask?
The intention is to rid ourselves of the concept of “leasehold” and all its issues – diminishing unexpired terms of years, high ground rents, excessive service charges and unaffordable premiums for lease renewals, to say nothing of absent landlords. Commonhold looks to introduce a scheme where the dwelling – to be called “the Unit” – is owned and not leased by the owner – to be called a “Unit Owner”. There will be no lease term and no ground rent addressing many of the issues currently faced by the owners of leasehold properties.
So what is “Commonhold”?
Well, it’s popular in many countries as an alternative to our leasehold system. The Unit Owner owns the Unit outright, so there is no lease term to diminish and no landlord to threaten forfeiture for rent arrears or breach – sounds great for Unit Owners!
The common areas of the site will be registered to and owned by a Commonhold Association of which the Unit Holders are members/shareholders.
At the time of purchase of a Unit on a Commonhold Development the Unit Holder will sign up to a Commonhold Community Statement the content of which will be determined by statue and supplemented by “LOCAL RULES”. All Unit Holders are required to sign up to the Commonhold Community Statement. The Statement will contain regulations and obligations similar to those you may see in a modern lease. The Statement will determine obligations on the part of the Commonhold Association – insurance maintenance etc and those on the part of the Unit Holder – contributions towards maintenance costs and observance of regulations governing the day to day use of the Unit. The Local Rules are voted for by the Unit Holders and can be subject to change but subject to a majority vote.
The proposals indicate the likelihood that individual blocks within an estate can have different Community Statements to address unfairness in the calculation of service charges in situations where one block within an estate may be larger or have the benefit of apparatus not in another – lifts would be a good example and is an old favourite to be disputed under the leasehold system and service charges! So, one Commonhold Development comprising of 5 blocks could have 5 different Community Statements.
Forfeiture would become a thing of the past.
The intention is to place the Unit Holders in control. To allow them, subject to satisfaction of conditions, to make their own rules and to control the level of service charges.
Not without its possible quirks, the Law Commission are keen to see the introduction of the Commonhold System in the UK.
The challenge is in persuading developers to adopt the concept of Commonhold as an alternative to leasehold and in ensuring that lenders are not obstructive in accepting commonhold properties as security for mortgage loans.
The conversion of existing leasehold developments to commonhold is likely to be quite a challenge as it is very much in its infancy, despite having been around for quite a while now.
So we wait, with bated breath, for the conclusion of the proposals set out in the reports of The Law Commission – watch this space.
For advice about any of the subjects mentioned in this blog, please contact Dani Green on 01295 661458 or by email on email@example.com.