In January 2021, the Government pledged to ‘reinvigorate commonhold’, an alternative to the leasehold structures through which most people in England and Wales own flats. But what exactly is commonhold?
Although it was introduced by legislation in 2004, only around 20 commonholds have been created since. This low adoption rate is often blamed on low availability of mortgages for commonhold homes. Lenders are reluctant to lend on something so untested in England and Wales. And developers are reluctant to create homes when potential buyers may struggle to fund their purchase.
Commonholds are created by registering freehold land or buildings as ‘commonhold’ at the Land Registry. This provides a framework dividing the land or buildings into units and common parts. In a block of flats, the units are the individual flats and the common parts might be the stairwell, car park and gardens, for example.
The ownership of a flat in a commonhold block has no time limit on it. This is unlike owning the lease of a flat with a fixed length or term, and there is no ground rent to pay.
The common parts are owned and managed jointly by the owners of the flats through membership of a commonhold association (which may employ a managing agent). This is a limited company with specific duties in the management of the common parts. The potential fragility of this limited company is one of the weaknesses of the tenure that concerns both flat owners and lenders.
The association is governed by a Commonhold Community Statement (CCS), which sets out the obligations of the individual flat owners to contribute to the costs of running the building. It also sets out any rules around alterations or letting. This is one document for the whole commonhold, rather than individual leases for each flat.
Each flat owner has the right to give their views on how the building should be managed and therefore influence the costs. Any individual flat owner who disagrees with the community decision must resolve that difference with the commonhold association. There is no recourse to an external body – unlike a leaseholder, they cannot take any grievance to the Leasehold Valuation Tribunal.
One major difference from owning the lease of a flat is that there can be no ‘forfeiture’. A flat owner cannot have that ownership taken away because of their failure to abide by the terms of the CCS, not paying service charges, causing a nuisance to other flat owners, and so on.
This said, the commonhold association does have the normal debt recovery options against a flat owner who fails to pay their share. This could include registering a charge over the flat and ultimately forcing it to be sold to pay the debt. If the flat is let, the commonhold association can require the tenant to pay their rent directly to them to help reduce the owner’s debt.
Crucially, there is no landlord. A commonhold block is self-reliant. This can be very appealing, particularly for those who feel they only encounter their landlord when things go wrong. But under commonhold, when things go wrong, they must be resolved by the flat owners through the commonhold association. Any disputes are with neighbouring flat owners rather than a landlord.
Many flat owners may consider commonhold an attractive prospect: no constantly reducing lease term, no ground rent, no landlord, and so on. But others may be reluctant to take on the responsibilities that fall to commonhold owners, preferring to leave block management in the hands of a landlord.
Flat ownership structures similar to commonhold work well in many other countries, including Scotland, Australia and France. Increased availability of commonhold flats in England and Wales, providing an alternative to leasehold, would give buyers an additional choice in the market and that can only be a good thing.
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