The draft commonhold and Leasehold Reform Bill

But what exactly is Commonhold?

Commonhold is a distinct type of freehold ownership where individual property owners each own their unit outright with no expiring term. Together, they share ownership of the communal areas through a ‘commonhold association’, which is a company that they are all members of and jointly control.

Commonhold is specifically designed to be owned, managed and looked after without the involvement of a third party, so there is no landlord and no separate freehold interest.

In commonhold ownership, there is no lease. The Commonhold Community Statement (CCS) is the legal document that defines the rights, responsibilities, and rules for all unit owners within a commonhold. The CCS also provides the governing framework for the commonhold association, outlining how the shared areas and facilities will be managed, maintained, and funded.

In short, the Government believes that "commonhold is a purpose-built, democratic framework for shared living, designed to simplify ownership and eliminate the complexities and unfairness often associated with leasehold arrangements."

Commonhold was actually introduced in the early two-thousands, inspired by the experience of other jurisdictions such as Australia and the USA where land holdings similar to commonhold had operated successfully for decades.

Despite being introduced over 20 years ago however, there are fewer than 200 commonhold units within around 20 commonhold developments throughout England.

It is incredibly rare, so why has the use of commonhold not taken off? The lack of popularity is due to a number of reasons, such as the slightly restrictive and complicated approach to creating commonholds, resistance to change in the market, and an unwillingness by some lenders to offer mortgages on commonhold titles due to perceived deficiencies with the existing commonhold model.

However, advocates of commonhold may point out a number of advantages with its use.

1.  Firstly, the lack of a fixed lease term will be much more attractive to buyers and lenders, with no risk to the value of a commonhold unit going down over time as the lease term get shorter and closer to expiry;
2. Secondly, many believe that a democratized model may give commonholders more of an incentive to participate in the running and administration of their shared properties. They will be able to collectively make decisions and directly shape the way that their property and shared spaces operate;
3. Thirdly, leases can be very complex, even for property solicitors, and a simplified system with standardised rules and procedures which can more easily be understood by all in the conveyancing process should help in streamlining the process of buying and owning shared property.
4. Finally, leasehold has unfortunately been the subject of fairly extensive criticism of late, with many seeing it as unfair, obsolete, and 'feudal'. With its reputation in the doldrums a move to commonhold - perceived to be a more democratic model - may inspire more confidence in consumers and the property market.

However, leasehold has been used as the go-to tenure of flats for decades. It is well established and well understood by the property industry. The Government will need to ensure therefore that the Commonhold system works and can provide a suitable alternative to leasehold, before moving forward with the outright ban on all new leasehold flats. There are a number of shortcomings with the existing Commonhold model which the Government is intending to remedy with this Bill.

The Bill is still subject to the scrutiny of Parliament, but if the Government are able to successfully implement these reforms they are going to significantly disrupt and change the residential property industry for good.

All property practitioners - lawyers, developers, agents, and lenders - will need to become familiar with the commonhold system, so it will be important to monitor these reforms and understand their impact.

For more information or advice, please contact Rory Young in our Commercial Property team.