Commonhold – Will It Become Common Place?

Currently, the structure of property title within England and Wales mainly consists of leasehold and freehold.  Flats are usually held by way of leases and those leases are granted out of a freehold title creating a leasehold title.  It is usual for there to be separate ownership of the two and the freeholder retains ultimate ownership of the land and building.  The lease will only grant the property to the leaseholder for a set term of years, which diminish over time, meaning that leases are a wasting asset.

Commonhold will seek to allow each ‘unit holder’ (currently leaseholders) to hold the freehold title to their individual property.  It is suggested that all unit owners will form the commonhold association which owns and manages the common parts such as hallways, gardens and roofs, by way of a company limited by guarantee of which every unit owner will be a member.

This is particularly important as this will mean that leaseholders, for example, will no longer have to seek lease extensions. There is no lease and so there is no wasting asset.

There does appear to be many advantages of commonhold for current leaseholders.  Firstly, and perhaps the most attractive to leaseholders, is they would own their flat outright and the property no longer becomes a diminishing asset.  The building in which they live or own will have decisions made by them rather than a third party.  Similarly, costs would in theory reduce and there would be greater transparency.

Commonhold is not a new concept; it was introduced previously but was not really taken up.  There are only around five commonholds currently within the UK.

There are several reasons for this, and these issues could well prohibit it becoming common practice in the future.  One of the biggest barriers to commonhold becoming common place is that there are very few lenders who will lend on commonhold as it currently stands.  This would need to change to allow it to become popular and indeed successful in the future.

There are other obstacles to overcome.  Converting existing leasehold blocks into commonhold requires unanimous agreements from leaseholders and this can be hard to achieve. This requirement often operates as an obstacle to current enfranchisement where the threshold for leaseholders to participate is less.  Given leasehold and freehold concepts are entrenched within property in England, this could result in a two tier system which could in essence confuse the matter further.

The Law Commission has made recommendations to allow the opportunity for commonhold to work to include improving lender confidence, increasing flexibility as to how commonhold associations operate and make it easier for leaseholders of existing blocks to convert to commonhold.