You might already be familiar with the terms freehold and leasehold, but what about commonhold?
If you haven’t the foggiest what we’re talking about - you’re likely not alone. Back in 2002, The Commonhold and Leasehold Reform Act ushered in commonhold as a new system of property ownership and management but, despite being a common form of ownership across the pond in America, commonhold didn’t quite make the splash it was supposed to in England and Wales.
In this article, we’re going to look at why commonhold hasn’t stuck as a viable option to leasehold and what the future looks like for this ‘revolutionary’ form of property ownership. But, before we do, let’s look at what commonhold actually is and what it means...
What is Commonhold?
Commonhold is a form of freehold property ownership that enables individual properties within a building or larger development to be owned on a freehold basis.
It can apply to flats in a block, houses on an estate, or properties in an office block.
Commonhold provides a structure to manage the relationship between separate freehold properties and to manage common parts shared between them, like gardens, entrance halls, landings and staircases, as well as external walls and the roof.
Commonhold properties are known as “units” and their owners “unit owners”.
Unit owners form the commonhold association, a limited company that is responsible for managing the commonhold and its common parts.
You’d be forgiven for thinking that this sounds a lot like leasehold, but commonhold isn’t intended to be a copycat. Instead, commonhold aims to build on the freedom and control offered by freehold ownership, while recognising the importance of community when properties are interconnected or linked in some way (i.e. through shared spaces).
The aim is to make it possible for people to have freehold ownership of flats, where previously they were restricted to leasehold.
What is the Commonhold Community Statement?
The Commonhold Community Statement (CCS) forms the rules for how a commonhold is used and managed.
It is not optional, but rather set out in schedule 3 to the Commonhold Regulations 2004 (SI 2004 no 1829).
As such a CCS must contain:
A definition of the commonhold;
Commonhold allocations (i.e. how much each unit has to contribute to the costs of the commonhold and the reserve fund);
The rules of the commonhold.
It is possible for the commonhold association to tweak the CCS. For example, they might make changes to rights related to shared spaces, or even update local rules. However, any changes have to be officially registered at the Land Registry.
The Rules of The Commonhold
The rules of the commonhold are the muscle behind the commonhold association and the unit-holders, giving them the authority to make sure everyone’s playing by the book.
The rules of the commonhold say that:
The commonhold association is in charge of repairs, maintenance and insurance;
Every year, the association must estimate the funds needed from unit-holders to manage the building and unit owners must pay the percentage allocated to their unit. The associations can produce emergency assessments or other assessments in special circumstances;
A reserve fund can be set up to cover future or emergency expenses. Unit holders are expected to pay into the reserve fund and a reserve study should be repeated every 10 years to check if it’s necessary.
If a unit holder does not pay the percentage allocated to their unit, or the reserve fund, and the unit is let out to a tenant, the commonhold association can divert rent directly to them to meet the conditions of the commonhold assessment.
While unit holders have the freedom to let their residential property, if they’re granting a lease of seven years or less, there can’t be an upfront payment, aka a premium.
Disputes between unit owners should be dealt with in a specific way.
Local rules should follow a specific annex including interest for late payments (if any), rules for how units and common areas are used, specific details about insured risks and who can use limited-use areas and how.
If a developer wants to keep the option open to develop the land or the commonhold later on, that right doesn’t last forever. Once the developer finishes building and sells the last unit, the development rights end.
Dealing with commonhold disputes
The CCS also lays down the plan for dealing with disputes in a way that everyone can sort things out without needing to take legal action.
Let’s take a look at what’s in the CCS toolkit for dealing with disputes. There are three distinct procedures.
Unit Holders or Tenants vs The Commonhold Association
If a unit holder or tenant wants to enforce a right or duty against the commonhold association they can serve a complaint notice (Form 17) that details the complaint.
The association should serve a reply notice (Form 18) within 21 days, which answers how the association proposes to deal with the complaint.
If the complaint isn’t adequately addressed, the unit holder or tenant can start legal action.
The Commonhold Associations vs Unit Holders (or Tenants)
If the association wants to enforce a right or duty against a unit holder they can serve a default notice (Form 19) that details the complaint.
The tenant or unit holder then has 21 days to respond. Following this response, the onus is on the association to take appropriate action that is the best interests of the whole commonhold community.
Unit Holder (Or Tenant) vs Unit Holder (Or Tenant)
If a unit holder or tenant wants to enforce a right or duty against another unit-holder or tenant, instead of dealing with the offending unit-holder or tenant, they must ask the commonhold association to deal with the problem using Form 21.
The association has 21 days to reply using Form 22.
If they agree with the complaint, the association can take appropriate action that they deem to be in the best interests of the community.
If they do not agree with the complaint, they have 21 days to decide whether the complaining unit holder or tenant can take the case further and serve a notice directly to the offending unit holder using Form 23.
The offending unit holder or tenant has 21 days to respond using Form 24.
If the complaining unit holder or tenant is not satisfied with the response it may be possible to start legal proceedings or, if the commonhold association continue to refuse them the right to take action, the complaining party can serve a complaint directly to them.
The advantages of commonhold
As we’ve mentioned, the commonhold model was introduced to make freehold ownership of flats more accessible while offering ways and means to manage shared spaces in the community. As such, there are quite a number of benefits to be enjoyed by commonholders, like:
Freedom of Ownership
Commonhold gives you the freedom of freehold ownership. You own your place outright, whether it’s a flat, house, or piece of land - with no leasehold restrictions.
Community Control
You and your fellow commonholders run the show within a mini-democracy where decisions about the building or estate are made collectively.
No Leasehold Headaches
With commonhold, you don’t have to worry about leases running out, extending the lease, or negotiating with freeholders.
Simplified Management
The Commonhold Community Statement (CCS) is a one-stop document for the rules and guidelines of a commonhold. It streamlines the management of the building or estate, making everything clear or straightforward, including resolving disputes.
So, why Is commonhold…not so common?
Commonhold was supposed to offer a modern alternative to leasehold and overhaul the world of property ownership. The intention was to create a system that was transparent and set up to benefit the building or estate and its owners, not some profit-driven third-party landlord.
But the reality in England and Wales tells a different story. Commonhold fell flat for a few reasons, including poor drafting, omissions in the law, and a lack of oversight.
Commonhold reforms
The UK government has acknowledged the potential of Commonhold and is thinking about changes to encourage its expanded use.
With the help of these changes, commonhold properties should become less problematic and more appealing to developers and homeowners. Making property ownership more transparent and simple is the aim. The future of commonhold appears bright with these reforms, possibly reshaping the UK real estate market.
Recent changes in commonhold legislation
The UK government has been closely examining commonhold properties recently. They aim to increase consumer preference for them. This is so owners and managers can own and manage their properties without the complications associated with leasehold.
One goal of the changes is to simplify the commonhold formation process. They also wish to assist those who wish to convert commonhold and leasehold. These modifications are the result of input from experts and property owners. They predict that more people will choose Commonhold due to these updates.
The future outlook of commonhold ownership
Commonhold home ownership is growing. Because of its many benefits. Indeed, the government is considering making it the main form of home ownership.
This may lead to more commonhold construction. Property owners have more freedom with commonhold ownership. Make sure commonhold ownership is right for you before buying a home. UK home ownership is easy with it.
Get help with property from a Lawhive solicitor
We have a new way to own property in the UK called commonhold. It is more open and democratic, and it solves many problems that come with leasehold. If you are thinking of getting into commonhold or have any real estate questions, our solicitors can help. Just tell us about your case to get started.