The concept of commonhold property has been around for a while now. However, a recent Government move means it could become much more common in future. So here we will look at what commonhold is and what the implications of it being more widely used could be.
What exactly is Commonhold?
Commonhold is a relatively new and quite revolutionary (for English law) form of legal ownership for property.
Currently the law in England and Wales provides for freehold and leasehold. Leasehold is the usual form of ownership for flats or apartments, and houses in some cases. In effect it means that the owner of a leasehold property doesn’t technically own their property outright.
While leasehold appeared to work well for decades it has been called into question of late. Issues such as the construction of large numbers of new build apartments, management costs, the so-called ground rent scandal and the problems with cladding have perhaps helped to bring leasehold into question.
Commonhold is a fundamentally different way of owning property which is partly shared with others: Commonhold owners of flats own their flat outright on a freehold basis and also have a share of the ownership of the common parts of the building.
The launch of the Commonhold Council
Commonhold, or a version of it, is used in most countries around the world and has been for a long time. Scotland reformed its system of land ownership around 20 years ago.
Commonhold was made possible in English law in 2004, but has not been widely used since. This month, however, the Government have set up The Commonhold Council to examine how to introduce what is called a ‘reformed commonhold regime’ and make commonhold a widespread method of ownership of future new build flats.
The Commonhold Council is to be chaired by Building Safety Minister Lord Greenhalgh and supported by a Technical Support Group. The Council’s remit is to advise the Government on the implementation of a reformed commonhold regime, as well as bring forward solutions to prepare homeowners and the market for the widespread take up of commonhold for new supply of flats.
The implications of commonhold
Wider use of commonhold could have major implications for everyone involved in property. Here are some to consider:
* Flat owners will own their flat or apartment and part of the building outright.
Under current rules on commonhold, properties are divided into units (the individual flats) and common parts. The individual owners are members of a commonhold association which operates according to certain rules.
The relationship between owners within an apartment block will be different to now.
* There will be no leasehold, no lease renewals and no ground rent. (The Leasehold Reform (Ground Rent) Bill also proposes changes to leasehold and ground rent in any case.)
* Owners will be able to appoint a management company if they wish to. But they will have a say in who to appoint, costs, and closer control over what they can and cannot do.
* Owners will be able to manage their building directly themselves if they wish to. In some cases, for example, they may be able to do it more economically and save on service charges.
* If commonhold owners can’t (or won’t) agree on the management arrangements for their building some buildings could experience problems with service and maintenance issues.
* It will raise another issue for flat buyers. The exact ownership of the building and how (and if) it works will need to be carefully checked.
* It will affect flat sellers and how easy or hard it may be to sell their flat. Flats in well and cost-effectively managed buildings may be easier to sell and vice versa. That could affect flat values.
* It will create an issue for landlords and investors who are commonhold owners. They will need to consider their relationship with other commonholders, who may be landlords, or owner-occupiers, or a mix of both.
Landlords may have to take an active role in the commonhold association so buy to let apartments may be less of a self-managing investment than they are now. On the other hand, they may gain better control over management and costs.
* It could have implications for mortgage lending. Lenders will need to adapt to lending on commonhold properties.
* It is likely to impact management companies and companies providing services to apartment blocks. Their relationship with flat owners and tenants will be different.
* It will create an issue for estate agents and letting agents, as well as conveyancers, which they will need to consider when selling and letting commonhold property.
* Commonhold can be used for commercial property too. As well as anything else this will create an issue for mixed use developments.
Currently there is no target date for when commonhold might finally replace leasehold. In fact there is no certainty that it will happen. If it does, it is likely to be for all newly built flats from that point on, although it is currently possible to convert leaseholds to commonholds too.
If and when a ‘reformed’ form of commonhold comes in it could have major implications for anyone buying, selling, letting, renting or developing flats, so is certainly something to keep an eye on.