Out-Law News 2 min. read
09 Mar 2018, 5:17 pm
Its call for evidence on commonhold was one of the recommendations of a recent report by the government on residential leasehold reform. It precedes a wider programme of work by the Law Commission, which is ultimately expected to produce recommendations on ways to make it easier, faster and cheaper for leaseholders to purchase the freehold of their property or extend a lease.
Professor Nick Hopkins, who is leading the project, said that the Law Commission wanted to find out what was discouraging the use of commonhold, and whether the law could be improved to make it more common.
"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," he said.
"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," he said.
Commonhold was introduced in 2004 under the Commonhold and Leasehold Reform Act 2002 as a new form of property ownership. It allows a person to own a freehold 'unit', such as a flat within a building, while at the same time having a part share in the company which manages shared areas and buildings.
Unlike leasehold, commonhold owners own the property outright and do not have to pay ground rent to a landlord. Under the leasehold model, the property owner owns the property for a fixed period of time. However, fewer than 20 commonhold developments have been created since the law came into force, compared to the estimated four million leasehold properties which now exist across England.
During its recent broad consultation on prospective areas in need of law reform, the Law Commission heard that there were a number of issues with the commonhold model which potentially made it unattractive to homeowners, developers and mortgage lenders. Currently, only around 30% of lenders are willing to lend on a commonhold development, according to the Law Commission.
Property law expert Paul Pinder of Pinsent Masons, the law firm behind Out-Law.com, said that there were "many issues" with the commonhold regime as currently drafted, meaning it was "difficult to see how it could be made fit for purpose without significant changes being made to it".
"In particular, the 'one size fits all' approach adopted by commonhold is simply not flexible enough for the majority of schemes being developed now," he said.
"It will be interesting to see whether the outcome of this call for evidence leads to the government actually re-invigorating commonhold. The quicker and simpler approach, at least in terms of tackling the issues arising from the sale of leasehold houses, would be to implement the Law Commission's proposals on reforming the law of freehold covenants, which were published in June 2011. This would make it easier to create long-term arrangements that are legally binding for the maintenance of shared structures, facilities and open spaces, thereby eliminating one of the key drivers for using a leasehold structure," he said.
The Law Commission is particularly seeking views on the difficulties of creating or converting to commonhold; and why commonhold might be unattractive to both homeowners and the wider property sector. The call for evidence closes on 19 April 2018. It is interested in both the legal issues, which it will address in a future consultation, and wider issues, which will be considered by the government.
The government announced in January its intention to ban almost all new leasehold arrangements for new-build houses as of 21 December 2017, although it will "continue to work with the sector and other partners to consider the case for exemptions to the policy and its retrospective application". It also intends to take action on escalating ground rents, including by reducing them to zero on new long leases, and to make it easier and cheaper for leaseholders to purchase the freehold on their properties.