I am fed up with being stuck in my leasehold home and have heard of a fairer system called commonhold. Can I swap over? I bought my flat five years ago and I don’t see eye to eye with the person who owns the freehold.
Anna Favre, partner in residential estates at law firm Cripps Pemberton Greenish, says this reader is not alone in these frustrations. Criticism of the use of leasehold ownership intensified following the widely reported “leasehold houses scandal” over new-build properties principally located in the north of England, but it is a nationwide issue.
Problems associated with leasehold properties include the obligation to pay high ground rents to freeholders, high administration charges and short leases, resulting in people being unable to sell or mortgage their homes.
There is a growing sense of injustice and a perception that external investors holding a stake in a person’s home — as a source of income — creates imbalance and unfairness. The relationship of landlord and leaseholder is viewed by many as inherently adversarial and has led to renewed interest in a new form of home ownership known as commonhold.
Similar to Australia’s system, commonhold provides indefinite freehold ownership of property with shared ownership of common areas and services. There is no concept of a flat but instead the land is divided into units, whether commercial or residential, and managed jointly by each unit owner as a member of a commonhold association.
The commonhold association must keep to the rules of a commonhold community statement (CCS), which defines the physical extent of each unit and the common parts. It fixes the amount that each owner has to pay towards maintenance costs and sets out their obligations. It is seen as giving property owners greater control of their property, by contrast with what the government considers the competing interests of landlord and leaseholder.
However, despite its much lauded introduction in 2002, fewer than 20 commonholds have been created since the legislation was introduced. This is partly because it is difficult to transfer a property from leasehold to commonhold and also because it has not been widely adopted by mortgage lenders and developers. Leasehold as a form of home ownership has continued largely unchallenged.
This may change. In July, the Law Commission published its recommendations on commonhold reform with the aim of ensuring that “commonhold becomes the primary model of ownership of flats in England and Wales”. The report contains more than 120 proposals, including those that protect the interests of lenders, ease the move from leasehold to commonhold, improve the clarity and flexibility of the CCS and give detailed consideration to resolving disputes.
If the government implements these recommendations, conversion from leasehold to commonhold ownership may become swifter and easier.
John Stephenson, partner and head of enfranchisement at law firm BDB Pitmans, says leasehold can truly be described as a toxic tenure, unloved by leaseholders and politicians alike. But if commonhold is the answer, why has it not become the tenure of choice for flats already? It is the ugly duckling born in 2002 which refuses to become a swan.
All flats in England and Wales are held on a leasehold basis, save for a few in localised areas. Some flats are described in sale particulars as “share of freehold”, which means that in addition to having a very long lease of around 999 years or thereabouts, the seller is a member of the company owned by the leaseholders which owns the freehold of the building, so there is no external landlord.
With commonhold there is no ground rent to pay and the commonhold association of the flat owners owns the common parts. It is rather like a tenant-owned management company, charging costs similar to service charges for their maintenance.
Commonhold has been available for many years but it is tricky to set up. It can only be created out of freehold property. It is very difficult to convert an existing building structure of freehold and leases to a commonhold — it needs to be set up before the flats are first sold.
The take up of commonhold also depended on the acceptance of developers and mortgage lenders (and their lawyers). With no incentives to accept this new tenure, though, why would they wish to depart from a freehold-leasehold structure which, for all its faults, is accepted in the market?
The Law Commission has now looked again at commonhold and its recommendations include measures designed to make it easier for leaseholders to convert to commonhold; to help enforce payment of the commonhold’s costs; to ensure commonholds are well maintained and insured; and to improve mortgage lenders’ confidence in the ownership model.
It remains to be seen whether these proposals — which are very unlikely to come into force before 2023 — will become an established part of English property tenure.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
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