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What does the future hold for commonhold?

Thursday 14 June 2018

In recent years thousands of cases have come to light where punitive clauses and escalating fees have left leasehold homeowners tenants in their own properties. And with the scandal showing no signs of slowing down, could commonhold be the answer?

Commonhold was introduced as an alternative to leasehold under the Commonhold and Leasehold Reform Act 2002 and is a system which allows a person to own a freehold ‘unit’ – like a flat within a building – whilst at the same time be a member of the company which manages the shared responsibility for common services.

However since the 2002 Act became law, only a handful of commonhold developments have been registered, whilst hundreds of thousands of long leases have been granted during the same period.

The Housing White Paper, Fixing our broken housing market (which was released in February 2017), also made reference to the leasehold struggle, and committed to “improve consumer choice and fairness in leasehold”. The subsequent consultation paper, Tackling unfair practices in the leasehold market, marked the first step in fulfilling this commitment, including, amongst other things, proposals to tackle the sale of new-build houses on a leasehold basis and to control ground rent levels in new lease agreements.

In February the Commission launched an eight week consultation looking at why the idea of commonhold has not caught on, and how to make commonhold more common. Following the call for evidence, the Commission are analysing responses in order to address the technical legal reforms necessary for commonhold to succeed.

But this issue isn't new. The Commonhold and Leasehold Reform Act was introduced 16 years ago in order to overcome the disadvantages of leasehold ownership, assuming that once in place, commonhold would become the standard form of tenure for new-build homes. However figures from the Department for Communities and Local Government (DCLG) estimate that around four million private leasehold homes have been built over the last 20 years, with the Leasehold Knowledge Partnership estimating as many as between five and six million residential leasehold premises.

The key difference between the two tenures is that commonhold allows residents to own their flats or houses outright, similar to freehold, meaning they have no landlord. There are no leases to expire and residents are members of the management company, allowing them to vote on matters to do with upkeep. Properties can be sold on as commonhold, unless 80 per cent of owners agree to go to leasehold. 

Professor Nick Hopkins, a Law Commissioner, 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." 

Ultimately the question on everybody's lips is, is commonhold a non-starter? Well, potentially. Commonhold has failed to take off in recent years and a lack of understanding coupled with the fact that developers in large part have chosen to ignore it has made the tenure almost nonexistent. However, what is probably more shocking, is that only 30 per of UK bank and building societies will actually grant mortgages on commonhold properties.

So where does this leave the leasehold/commonhold argument? Whilst we anticipate a number of reforms that will tackle issues with new-build leasehold houses as part of the Government highly anticipated report, which is expected next month, the jury is still out on what to expect for existing homeowners already caught in a leasehold trap.