Law Commission: Home-ownership call for evidence – help make commonhold more common
The Law Commission is asking flat owners, housebuilders, mortgage lenders and lawyers to help shape a law which could help people own their flats outright.
The Law Commission is asking flat owners, housebuilders, mortgage lenders and lawyers to help shape a law which could help people own their flats outright.
The independent legal body wants views on a little-known and little used home ownership status called commonhold, which provides an alternative to residential leasehold.
Commonhold was introduced in 2002 as a new way to own property. It allows a person to own a freehold ‘unit’ – like a flat within a building – and at the same time be a member of the company which manages the shared areas and buildings.
Crucially, unlike leasehold, owners own their ‘unit’ outright, so their ownership won’t run out at a point in the future and they won’t have a landlord.
Despite this advantage fewer than 20 commonhold developments have been created since the law came into force in 2004.
As a result, the Law Commission is launching an 8 week call for evidence to find out what’s stopping commonhold taking off.
Law Commissioner Professor Nick Hopkins said:
“It’s clear leasehold law is a problem with some managing agents charging over the odds for the upkeep of shared areas, and the process of extending a lease costly and time consuming.
“Commonhold provides an alternative – giving unlimited ownership of a property and a stake in how the rest of the building or shared area is managed. But less than 20 have been created in the last 14 years.
“We want to find out what’s stopping people, and how the law could be improved to make commonhold more common.”
Leasehold on borrowed time
In England properties are normally bought and sold as either a leasehold or a freehold. A leasehold means that someone owns a property for a set number of years on a lease from a landlord (the freeholder).
There are now estimated to be over 4 million leasehold properties across England but concerns have been raised over this ownership type. More than 6,000 responses were submitted to the recent government consultation on unfair leasehold practices. The vast majority of responses expressed their concerns about the buying experience and living in a leasehold property.
But there is another way – commonhold. Commonhold has a number of advantages over leasehold. These are:
- Ownership doesn’t run out – leases expire and as they do extending them can be costly.
- Standard rules and regulations apply – which should make conveyancing simpler and cheaper.
- Having a stake in the wider building – instead of being managed by a landlord, owners run shared areas together.
So alongside its wider efforts to reform leasehold law, the Law Commission is looking to find out why commonhold’s take up has been so low and will propose reforms to reinvigorate it.
The Commission is asking for views on three broad themes:
- What the difficulties in creating or converting to commonhold are
- What issues make commonhold unattractive to homeowners
- What issues make commonhold unattractive in the wider property sector
Following this call for evidence a full consultation will address the technical legal reforms necessary for commonhold to succeed.
Whilst the Commission will be focussing solely on legal issues, it also invites comments on what other steps should be taken to encourage the use of commonhold. These wider issues will be considered by the Government separately to the Law Commission.
Commonhold Key Facts
- The Commonhold and Leasehold Act received Royal Assent in May 2002 and the main provisions came into force on 27 September 2004.
- Commonhold allows a person to own a freehold ‘unit’ – like a flat within a building – and at the same time be a member of the company which manages the shared areas and buildings. Ownership doesn’t run out and there is no landlord.
- Since the Act came into force uptake has been slow, Manchester and London have just one commonhold scheme each. Leasehold accounted for 98% of all transactions of flats in 2016 and almost half (46 per cent) of new build registrations were leasehold.
- A commonhold can be created as a new development, or one or more existing buildings can be converted to commonhold. To convert, the freeholder and anyone who owns a lease of over 21 years (and certain owners of leases under 21 years) must consent.
- It is not possible for unit holders to grant a residential lease of longer than seven years. This rules out the possibility of incorporating shared ownership leases.
- A commonhold association is responsible for repairing and maintaining the common parts. Unit holders (flat owners) have the right to vote in a number of decisions affecting the commonhold including: alterations to common parts, changes to unit boundaries and appointment of directors.
- Commonhold schemes can be brought to an end if 80% of the commonhold unit owners agree and sign up to an agreement which sets out what happens when the commonhold ends.
- The UK Finance Mortgage Lenders’ Handbook indicates that only around 30% of the institutions listed will lend on a commonhold unit.
Further information
In December 2017 the Law Commission announced that it was to start a project on residential leasehold and commonhold as part of its 13th Programme of Law Reform. This is the first step in the project.
Under 20 commonhold developments have been created since the commonhold law came into force. These include blocks of flats, small housing estates, a retirement village and a holiday park. There are under 100 freehold “units” which are the individual properties (such as flats) forming part of the commonhold development.
The call for evidence can be found at https://www.lawcom.gov.uk/project/residential-leasehold-and-commonhold/
