WILL COMMONHOLD BECOME COMMON?
The mere utterance of the word commonhold usually instils terror and panic into the heart of most right minded property lawyers. Understandable, since so only about 20 commonhold developments have been created since Trevor Aldridge’s 2002 Commonhold and Leasehold Reform Act introduced the concept of freehold flats and community ownership of the common parts writes Mark Adcock, Solicitor and former lawyer with the Law Commission.
It never caught on because there was nothing beneficial to developers in it. The more traditional legal environment of granting long leases had the considerable advantage of an increasing reversionary interest, and an income through ground rent meantime. The arrangement results in flat owners owning the freehold of their flat and ownership of the common parts through a Commonhold Association.
The law as it stands is deficient. There are several weaknesses with it, most notably the problem that arises if the commonhold association enters into liquidation and the obligation for all owners to participate in the conversion process.
Set against a political background of aversion to leasehold ownership generally, the Government tasked the Law Commission to design a system that would ‘reinvigorate’ commonhold as a means of ownership and to address the current weaknesses. The result was a consultation paper published in December 2018 making proposals on how the system might be improved and expanded. It included:
- Proposals on how commonhold might be used for larger, mixed-use developments including residential properties shops, restaurants and leisure facilities
- How shared ownership leases and other forms of affordable housing might be included
- How existing leaseholders could convert to commonhold and gain greater control
- What might improve mortgage lenders’ confidence in commonhold so as to increase the choice of financing available for home buyers
- And how it might provide homeowners with a greater say in how the costs of running their building are met
A final report is expected in the Spring. Given the increasing constitutional aversion for the traditional leasehold – freehold arrangement, it is highly likely that commonhold will be the compulsory means of ownership (whether it be wholly residential or mixed use) for all new build developments. It is also likely that the end product of collective enfranchisement will be compulsory commonhold ownership. After all, the current system resembles that model anyway. Only in this way, will commonhold become the preferred ownership model, thus removing the problem of the depreciating leasehold term and perceived imbalance between the lease parties.
Will it work? Only time will tell, but there are those who countenance that not everyone is so keen to be working with their neighbour on controversial issues surrounding property maintenance and management, and that the current scheme does provide some neutral involvement where either the freeholder or a separate management company is responsible. Further a law that prohibited the new grant of a leasehold flat for less than say 999 years at a nominal fixed rent (if any) would overcome the problem of a depreciating reversionary term and unrealistic future ground rents. Probably the central political issues with the current system.
The devil will be in the detail, but what is pretty certain is that property lawyers will soon have to bite their lip and get to grips with the culture of a third and widespread land tenure.
The good news? Amazon are selling copies of Trevor Aldridge’s book on-line for 41p!