Commonhold: Panacea or Placebo?
Leaseholds are today the most common form of ownership especially in the South, with new build flats nearly rivalling new build houses which has been compounded by the shortage of square footage.
However, there are increasing issues with this type of tenure which is leaving a sour taste of home owners across the country. The most common issues I come across in practice surround service charges, maintenance and repairs, and neighbour nuisance.
The most recent scandal to come to light involved properties which had doubling ground rent clauses. Taylor Wimpey were one of the perpetrators and in light of the backlash from the public and pressure from the government, have now set up a scheme to vary these onerous lease terms.
In response, the government published a consultation last summer titled ‘Tackling Unfair Practices in the Leasehold Market’. The consultation closed in September 2017 and the responses was published in December 2017.
One of the proposals made is to ban leaseholds for almost all new build houses in England.
Recently, it has been queried as to whether a way round the ‘toxic’ leasehold is to look to what we already have in place in England: the commonhold.
The commonhold was introduced formally by the Commonhold and Leasehold Reforms Act 2002. It was supposed to bring flat ownership into the 21st century and was to mirror the US style condo system.
Each flat owner commonly together owned everything and there is no distinction between freehold and leasehold title, or rather a merging of the two. The flat owner (‘Unit Holder’) will own their own flat and also a collective interest as a member of the Commonhold Association which owns and manages the shared parts of the property. Unlike leaseholds there is no term – the flat owner will own indefinitely (until sale/transfer of ownership).
However, despite having been around for more than 10 years, only about 15-20 commonhold developments have been built since 2002.
This is caused by a number of issues – the fact that to convert an existing leasehold to commonhold will be costly and complex and require freeholder consent, and lenders are reluctant to provide funding for a commonhold purchase. It also requires developers to buy into the system, which they are slow to because they benefit from selling the leasehold and freehold titles separately.
For the commonhold to really take off, will require more government backed measures, public education and a change in ownership culture and attitudes from developers and lenders.