The Law Commission today has proposed reforms that would support the expansion of commonhold as an alternative to leasehold.
Commonhold was introduced in 2002 as a new way to own property. Commonhold allows a person to own a freehold flat and at the same time be a member of the company which owns and manages the shared areas and the structure of the building.
The benefits of commonhold
Commonhold offers significant benefits to homeowners compared to leasehold including:
• Owners own their property outright, so their ownership won’t run out in the future – whereas leases expire and extending them can be costly
• There is no landlord – instead, owners have a stake in the wider building and can make decisions about the shared areas together
• There is no ground rent – owners will only pay what it costs to maintain the building and will control that expenditure
• There is no risk of forfeiture in commonhold – in leasehold, if a leaseholder breaches the terms of the lease, the landlord can take back the property with out paying anything to the leaseholder
• Standard rules and regulations apply – which means owners know where they stand, and should also make conveyancing simpler and cheaper.
The Law Commission is proposing a range of legal reforms which will remove barriers to commonhold’s uptake. These reforms, which are now open for consultation, should kickstart commonhold as an alternative way of owning property which avoids the shortcomings of leasehold ownership. The reforms would:
• Allow a commonhold development to include both residential units (incorporating different types of affordable housing such as shared ownership), as well as commercial units (such as restaurants and shops)
• Make it easier to convert from leasehold to commonhold
• Increase lender confidence in commonhold so as to increase the choice of mortgage lenders available for purchasers
• Replace service charges set by a landlord with commonhold contributions which have to be approved by a majority of those paying them.
The need for change
Commonhold ownership is commonly used around the world in countries such as the USA, Australia and across Europe. In England and Wales, commonhold has been available since 2002, but take-up has been poor; fewer than 20 commonhold developments have been built.
There are several reasons why commonhold has not taken off. For example, the system has been criticised for lacking flexibility to cater for larger, more complex developments and for making it difficult for existing leaseholders to convert their lease into commonhold. Legal issues have also made many mortgage lenders reluctant to provide loans against commonhold properties. These are all issues that this consultation addresses.
Recent dissatisfaction with the current leasehold system has led to pressure from the media and campaigners for reform, and demand for an alternative. Legal reform to reinvigorate commonhold is now required and is what our consultation looks to achieve. The government is also considering other non-legal options for reinvigorating commonhold and suggestions for how this could be achieved are included in the consultation paper. These include increasing consumer awareness, improving mortgage lending, or incentivising or compelling the use of commonhold instead of leasehold.