Is Commonhold The Answer?
Commonhold is not a new concept. It was previously attempted to be introduced by Governments; however, it never appeared to take off in England and Wales. The previous law allowed the introduction of commonhold but did not ban new leaseholds. However, this new Bill proposes to ban the use of leaseholds for new flats and make commonhold the position in which flats are to be held.
Commonhold is a form of ownership, common throughout Europe. Essentially what commonhold looks to do is ensure each property in a commonhold system is owned by a unit owner therefore anyone who becomes a unit owner (flat owner) will also become a member of a company which owns and manages the common parts of the estate. This company is known as the ‘Commonhold Association’.
The concept of a Commonhold Association does have similarities to a Right to Manage Company whereby qualifying current leaseholders serve notice under the Leasehold Reform Uban Development Act 1993 and take over the management aspect of their building. However, a further and much welcomed difference in commonhold includes allowing the flat owner to own their properties forever. Under the current system a Lease is owned for a set number of years. Therefore, this gives, in theory, the flat owner a greater ownership right and more say in the way in which the building they own their flat is managed and governed.
Whilst commonhold sounds like a sensible way forward there are practicalities which need to be carefully considered. There is extensive case law currently where, for instance, Right to Manage Companies have not worked when the leaseholders have come together to exercise their right to manage and properties can be left in disrepair and not managed properly. This poses a further problem when leaseholders come to sell. Whilst individuals may own their flats, they will need to work with the other flat owners to maintain the building.
It is also worth noting that many flat owners are not professional property experts. Therefore, they do not have the expertise to properly manage large buildings, or ensure legal requirements are adhered too.
It remains to be seen if this is the answer to issues within the leasehold system and what social and economic issues this could create. There are currently very few commonhold properties within England and Wales. It is hard to obtain mortgages from mainstream lenders and many high street lenders will need to be consulted on this properly and agree to lend on such properties.
This is not only something for future property owners to consider but developers, investors and freeholders also.
Whilst the reform appears at first glance to be good news for flat owners, there are other factors which need to be considered. There will need to be mechanisms put in place if the commonhold is not run properly.
How this will be implemented remains to be seen although it appears from the media surrounding the matter that the Government is heavily backing this change. There is a lot of groundwork to be done before this system can be fully put into place and utilised in England and Wales.
“I am a specialist solicitor within the area of Lease Extensions and enfranchisement. I currently act for both Landlords and Leaseholders in relation to Lease extension, enfranchisement and Right To Manage works.
If you are a developer who is concerned about this in the future, please do not hesitate to contact myself or Andrew Fidler in our Commercial Property Department who may be able to assist you further.”
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