Reinvigorating commonhold

As part of its program of reform, the Law Commission have recently launched a consultation on its provisional proposals to reform the Law of Commonhold.

 

What is commonhold?

Commonhold was introduced in 2002 as a new way to own property. It provides a structure (as an alternative to leasehold) which enables a person to own the freehold of a “unit” (e.g. a flat), and also become a member of the “Commonhold Association” (which owns and manages the shared areas).

Despite being introduced back in 2002, fewer than twenty commonholds have actually been created since the legislation came into force.

So far as rules are concerned, each commonhold has a “commonhold community statement” which sets out the rights and obligations of the unit owners and the commonhold association.

In addition, each commonhold must adopt articles of association which govern how the commonhold association operates, and how management decisions about the commonhold can be made.

 

Key Issues

The consultation sets out, in detail, the key issues for consideration by the Law Commission on which views are sought.

 

Issues of interest to homeowners

This chapter of the consultation paper raises a number of issues including:

  1. Conversion of existing buildings to commonhold (currently to convert to commonhold it’s necessary to obtain the consent of everyone with a significant interest in the property, including all long leaseholders).
  2. Changing the rules of a commonhold (presently, some rules are prescribed by legislation and cannot be changed, whereas others, referred to as local rules, can be changed with the support of over 50% of the unit owners.
  3. How costs are shared in a commonhold (there is a current lack of flexibility in how commonhold costs are shared).
  4. Insuring the commonhold has sufficient enforcement powers.
  5. Responding to emergencies.
  6. Resolving disputes in a commonhold.

 

Issues of interest to developers

The paper raises a number of issues that might be of interest to developers, including:

  1. Making commonhold workable for mixed used and multi block developments.
  2. Enabling developments to be built in phases and;
  3. The ability to incorporate shared ownership properties within a commonhold.

 

Issues of interest to mortgage lenders

It’s recognised that commonhold cannot succeed unless mortgage lenders are willing to provide mortgages secured against commonhold units, because most people require the assistance of a mortgage to purchase a home. Lenders will not lend unless they are satisfied that the commonhold unit provides a good security.

The paper therefore raises a number of issues including:

  1. The position of mortgage lenders should a commonhold association become insolvent;
  2. Ensuring the ongoing maintenance of the commonhold; and
  3. The position of mortgage lenders if a commonhold is brought to an end.

 

Responding to the consultation

The consultation closes on 10 March 2019.

Comments on the consultation can be submitted to the Law Commission via the online response form, available on their website, by email or by post.

 

What’s next?

After reviewing all responses, the Commission will decide on their final recommendations for Law Reform, which will be published in a report.

 

 

Cassandra Zanelli

Widely recognised for her expertise in the industry, and listed among the 100 most influential people in residential leasehold management, Cass heads the team at PM Legal Services. Passionate about education and sharing knowledge, she's a regular speaker at conferences, events and seminars, having worked with leading organisations in the property management industry.

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