The uncommon commonhold – pros and cons

Melanie French, Associate

The UK Government is currently taking steps to change the leasehold model of property ownership to a commonhold model, especially in relation to flats. The intention is to eventually ban new leasehold properties and to make commonhold the replacement tenure.

Commonhold is not a new concept; other countries such as the US, Australia, Scotland, Germany have operated similar systems for many years. Commonhold was originally introduced to England and Wales via the commonhold and Leasehold Reform Act 2002 but failed to become an established tenure system due to failings in the model which made commonhold less favourable to developers.

Due to the surge in bad press relating to leasehold properties, the Government issued a White Paper which made it clear that they seek to provide “leaseholders with greater rights, powers and protections over their homes” by reintroducing the commonhold concept of home ownership through a new legal framework, having learnt from failings of the past. The new legal framework also seeks to banish the sale of new leasehold flats; making commonhold the default tenure.

This article looks at whether commonhold really is the dream model for homeownership that leasehold, in some instances, failed to be.

What is Commonhold

Commonhold is a homeownership system where individuals own the freehold of their individual flat/house within a building or estate. The common parts i.e. entrance halls, stairs, landings, gardens etc. are then jointly owned and managed via a commonhold vehicle which is owned by the individuals of the flats/house within that building/estate.

Pros

• Unlike leasehold properties, there is no overall landlord. Commonhold properties are owned jointly by property owners in the building/estate. There is an argument that commonhold allows individual property owners to exercise more control over decisions affecting their properties and the building/estate of which they form part. Each owner under such model has equal rights.
• Homeowners do not need to worry about expiring leases as there is no time constraints on such ownership under the commonhold model.
• Commonhold avoids the issue of absent landlords or landlords that fail to repair/maintain the building or estate or charge high service charges which include their administration costs.

Cons

• It is up to members of the commonhold vehicle to enforce rules against a defaulting member. The lack of independence and hierarchy could lead to tensions which would result in issues not being resolved in a timely manner.
• Until the system has been in operation for some time, unforeseen issues may arise that could lead to more litigation than first envisaged.
• The cost of converting leasehold property into commonhold property can be complicated and expensive.

Although there are some positives, commonhold in practice is not without its potential problems. To avoid further vilification, developers need to be confident that the new system isn’t going to fail like its predecessor and so are unlikely to introduce commonhold developments on a large nationwide scale until the system has been successfully operating for some time.