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For several years, I’ve commented on the ebb and flow of political opinion on residential leasehold reform. In particular, I’ve highlighted how a partial solution to the archaic and discredited leasehold system already exists. Introduced by the Commonhold and Leasehold Reform Act 2002, commonhold – the first new form of property ownership in over 75 years – has effectively spent over two decades in suspended animation.
For more information on how commonhold works, see my article: What is commonhold?
How does it work?
Commonhold solicitors create a commonhold framework from freehold property, whether that’s land or a new or existing building. It comes into existence on its registration as commonhold at the Land Registry.
The framework is straightforward, dividing a freehold property into units (i.e. flats) and common areas, allowing a ‘unit holder’ to own the freehold of their flat.
The freehold of the common areas is owned by a ‘commonhold association’, which is a company limited by guarantee. Typically, those include the structure of the building, corridors, stairs, any garden, and car park. Membership of the association is available to all unit holders, each contributing proportionately to the cost of maintaining and repairing the common areas and insuring the building.
Unit holders must comply with the association’s rules. But, as each owns the freehold of their flat, unlike leasehold, there ‘s no restriction on selling or transferring their property. And, of course, without a landlord, there’s no risk of forfeiture.
Why didn’t it take off?
Originally, confidence was high that the new system would take off. But it struggled to gain traction, with fewer than 20 schemes registered. One reason was that mortgage lenders proved reluctant to lend, citing concerns over possible insolvency of the associations.
However, it also quickly became clear that the concept was unattractive to developers. After all, they benefit handsomely from ground rents, extension premiums and other income streams that leaseholds create.
Commonhold solicitors
In my last commonhold update, I discussed why the days of new leaseholds are probably numbered, even if most existing leaseholds will survive – for the time being, at least. Of course, much depends on who occupies Downing Street after the general election. But in his keynote address to the British Chambers of Commerce last year, Sir Keir Starmer pledged to enact the Law Commission’s 2020 package of reforms, including “reinvigorating commonhold”.
The rapid introduction of commonhold for new developments may prove a considerable shock for a legal profession well-used to leasehold transactions but with no commonhold experience. Indeed, there’s been relatively little in the legal press concerning what may be just over the horizon.
Should you have any questions concerning commonhold, contact me on 01793 615011 or submit the Contact Form below.