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The Essential Facts Of Commonhold

By: Andy Szebeni

Commonhold is a relatively novel type of land ownership in England and Wales which was implemented in 2004 and was first introduced in the Commonhold and Leasehold Reform Act 2002. It is intended to be an alternative to the long leasehold system and is essentially freehold ownership of individual apartments, homes and non-residential units within a building or an estate.

The remainder of the structure or estate forming the Commonhold is owned and managed jointly by the apartment owners that are referred to as 'unit-holders', through a Commonhold association. Ownership is not restricted to a number of years, which distinguishes it from leasehold ownership where there is a lease contract - typically in the region of 100 years - with the freeholder.

Commonhold is uncommon but not unique in home ownership around the world and resembles strata Title, which has been used in Australia for approximately 50 years. It is furthermore similar to a number of other property-owning systems throughout the world, such as condominiums in the US.

A Commonhold consists of both ‘units’ and ‘common parts’. The common parts are any portion of a development which is not a unit. This could incorporate communal facilities something like the stairs, roof or landings. The common parts are owned and maintained by a limited company known as the ‘Commonhold association’. Membership of the Commonhold association is limited to unit-holders. Consequently, unit-holders have 2 different interests in Commonhold. The first is a direct interest in the unit and the second is an interest in the membership of the Commonhold association.

The Commonhold association must run the Commonhold in accordance with the terms of the Commonhold Community Statement (CCS). The CCS sets out the coverage of the Commonhold properties, the rights and obligations of the Commonhold association and unit-holders and processes for dispute resolution. The Commonhold association must be registered at Companies House and have equally a memorandum and articles of association. The CCS, memorandum and articles ought to all be registered at HM Land Registry.

The main benefits of Commonhold over leasehold are that:

- Commonhold does not lose its value over time in the same way as leasehold flats for the reason that it does not have a diminishing lease term
- there is only 1 set of records for the whole Commonhold
- a landlord is not necessary - the Commonhold association and unit-holders manage the Commonhold
- the Commonhold documentation is standardised, making it less complicated to ascertain unit-holders’ rights and obligations

On the other hand, the Commonhold association may never surrender a unit where the owner is in breach of the provisions of the CCS. This means it is extremely awkward to claim service charges. Under leasehold, the ultimate sanction - albeit an extreme and tough one to apply - is to take back the apartment from the owner.

There does exist, however, no ‘right to Commonhold’ (as there is a right to buy one's freehold) and conversion is feasible only if all concerned parties is in agreement. That means all the flat owners plus the freeholder. In the case of an existing leasehold development, if each and every one of the leaseholders agree although the freeholder does not consent, it may nonetheless be viable to convert to Commonhold if the leaseholders exercise their statutory right to collective enfranchisement (buying the freehold). In the event that the lessees have purchased the freehold, they are able to submit an application to convert it into a Commonhold.

The take-up of Commonhold has been rather low and it is estimated that fewer than one hundred developments in the UK have changed from leasehold to Commonhold. Given the payback of acquiring one's share of freehold in addition to the much greater familiarity of the housing market with leasehold tenure, Commonhold is not often high on the list of priorities for owners of flats.

Mortgage companies and the flat-buying community are conservative by character. Considering the fact that property is time and again the individually largest-value acquisition made by the majority of consumers in their lifetimes, it is not surprising that nearly all are unwilling to put in danger their life savings on an untried form of ownership.

Developers are not interested in general in Commonhold tenure and it is probable to be they who might steer new Commonhold creations, where 100% of flats are included. The current freehold structure permits an inbuilt bonus value while creating a development of apartments. The developer will put up for sale the flats for instance to those who wish to live in them. The developer can then separately sell the freehold to investors and commercial entities that will get a return on their investment in the freehold - principally through the ground rent.

Commonhold does not inevitably get over lots of of the perceived shortcomings of leasehold tenure either. Assuming that apartment owners acquire their freehold from the current reversioner - possibly using their right to buy under Section 13 of the Leasehold Reform, Housing and Urban Development Act 1993 - each leaseholder with a share of freehold is virtually their own freeholder. The lease then acts as a group of established regulations under which all the leaseholders are bound. Every shareholder then has a vote and part control in running the freehold company.

In the instance of Commonhold, each leaseholder has a stake in the Commonhold company and is still bound by an accord. The equivalent sets of disagreements and power struggles will occur between neighbours as with a block that has acquired its freehold. In actual fact, scores of developments that have not acquired their freehold happily let the freehold company to coordinate many of the communal elements of the block or development, confident in the understanding that they need not be concerned about the politics.

Hence, although the theory of Commonhold is quite appealing and apparently very democratic, the practicalities in its application mean that it is rarely a serious option to consider when flat owners wish to take more control of the developments.

Article Source: http://articles.tiptopweb.info

Andrew Szebeni helps run the administration at the Association of Leasehold Enfranchisement Practitioners. ALEP has in excessive of 100 vetted embers including specialist solicitors/surveyors. How to buy your share of freehold.

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The Essential Facts Of Commonhold