As part of its response to practices that have developed in the residential long leasehold market, the Government is taking a second look at commonhold – with the aim of reviving it.
What is commonhold?
Commonhold allows a person to own an apartment in perpetuity (like a freehold) without the need for a lease and at the same time to be a member of the company which manages the shared areas in the development. The fact that the owner has the apartment in perpetuity with no lease and in-built management arrangements for common areas is a particular advantage and could be a big attraction to buyers of new homes.
However, less than 20 commonhold developments have been created since it was introduced in 2002, one reason being various issues identified with the current commonhold model. Yet other countries have successful structures to enable the ‘freehold’ ownership of apartments, such as strata title in Australia and condominium in America.
Law Commission consultation published on 10 December 2018
In February 2018 the Law Commission launched a call for evidence, to find out which aspects of the current law have hindered the uptake of commonhold. The information gathered helped to shape the proposals in the consultation.
Various theories exist as to why commonhold has not taken off, including shortcomings in the law governing commonhold, lenders’ unwillingness to lend on commonhold units and developers’ reluctance to embrace a new system.
The consultation looks to address only the legal shortcomings. The other barriers to uptake are being considered by the Government, including measures it may need to take to incentivise commonhold or whether its use should be made compulsory. The Law Commission has included an additional question (question 105) to gauge developers’ views on the proposals in order to assist the Government in considering these measures.
The consultation document is 478 pages long and the proposed reforms of interest to developers include:
- making commonhold workable for mixed-use and multi-block developments
- enabling developments to be built in phases
- the ability to incorporate shared ownership properties within a commonhold.
Other proposals of interest include:
- consideration of how to make it easier for existing leaseholders to convert from leasehold to commonhold
- ways for a commonhold association to enforce payment of commonhold contributions, with a proposal that the association should have an automatic statutory charge over commonhold units to secure the payments that would take priority over other mortgages
- a mandatory requirement for directors of the commonhold association to maintain a reserve fund for emergency and major works.
With the Government’s recent announcement that it will legislate to ban leasehold for new build houses and impose a cap of £10 per annum on future ground rents in long residential leases, developers may want to look again at commonhold. If so, this is the time to help shape the new-look commonhold to make it a viable option.
The consultation closes on 10 March 2019. It can be found using this link: https://www.lawcom.gov.uk/project/commonhold/
This blog post was written by Sally Newton, Senior Associate and PSL in Gateley Plc’s Real Estate team.
 Introduced by the Commonhold and Leasehold Reform Act 2002.