Commonhold: Has it worked?
27 September 2016
Over a decade ago, the UK parliament passed an act called the Commonhold and Leasehold Reform Act (2002). This act introduced commonhold, which is a system of property ownership of the indefinite freehold tenure of a part of a multiple-occupancy building, such as a flat, with shared responsibility and ownership for common areas and services of said building. It was offered as an alternative to leasehold, and was the first new type of legal estate to be implemented in English law since 1925.
The act also provides a way for leaseholders to transfer landlord management rights and functions over to a Right-To-Manage (RTM) company, such as ourselves, especially when it comes to block management. The RTM company then deals with anything regards the maintenance and upkeep of the building, services provided for the occupants of the block and any other issues that would be dealt with by the landlord. For more information on Right-To-Manage, please have a look at www.lease-advice.org/advice-guide/right-to-manage/.
To summarise what is involved in owning a commonhold property, say you have a block of flats with no overall landlord. If one occupant then is a freeholder, they will create a commonhold association, which will incorporate all other tenants in the building. This association have the responsibility of maintaining common areas of use and services. The advantages of this scheme allows there to be no set period of time where you have to leave, since you are a freeholder; all decisions made are done by the property owners, meaning no input from dodgy landlords, as standard documentation will be the same throughout all commonhold properties; and that the property will not depreciate in value, unlike leasehold properties, since the value of a lease decreases as it nears the end of its lease period. What should appeal to buyers of a commonhold property is that there are no leasehold conditions to be met, and there is no landlord to deal with.
With so many good advantages, why has there been so little commonhold ownerships throughout England and Wales? One reason that one source cited was that there was a reluctance in the housing market to go through with the scheme. According to one article on lovemoney.com, ”Developers were reluctant to build blocks of flats on a commonhold structure in case they didn’t sell; mortgage lenders weren’t massively keen to lend on commonhold properties; solicitors didn’t fall over themselves to get involved; and all this meant a lack of demand from buyers for commonhold properties”. The article also mentions that since the legislation requires everyone in a leasehold to submit to a commonhold, including mortgage lenders and freeholders, if there were some who wished not to go down this route, there would be no point in doing so, hence why so few blocks turned into commonhold properties.
Even though it is not a complicated process, commonhold properties have all but died out. However, with a constantly fluctuating housing market and future post-Brexit reviews of the market to come, commonhold may pick up again; albeit not in the style of a ‘boom’, but at a more gradual and calm pace.