Commonhold is a type of freehold tenure introduced under the commonhold and Leasehold Reform Act 2002 which has not seen much take up. It has however been brought back to the forefront following the election of the new Government and their commitment to making commonhold the default tenure, with their intention to ban the sale of new leasehold flats.
Commonhold removes the third party from a building or development, by having the residential units owned on a freehold basis, with the common parts held by a commonhold association with each of the unit holders having a share in that company. There are no leases, but a single commonhold community statement which governs the building and estate.
The current commonhold regime is restrictive in its lack of flexibility for different ownership structures, which the new Government will be seeking to address in the Draft Leasehold and Commonhold Reform Bill. The reforms recommended by the Law Commission, which the Government has indicated they will be following, include:
- 'Permissible residential leases' such as shared ownership (where Homes England fundamental clauses are contained), with the tenant obtaining the freehold share on 100% staircasing.
- Event fees being permitted for specialist retirement properties, although there is a lack of provision for commercial operators to be present, which is crucial to retirement product purchasers.
- Abilities for new development to complete commonhold 'sections' for parts of a new estate to be completed opposed to the whole.
The main issue for commonhold will be the incentive for its use, where existing developments have a third party freeholder and long leases set up, tenants would still have to purchase the freehold in order to convert, requiring funding and at least 50% of the tenants to join together to instigate a collective enfranchisement claim. Where this has already been carried out by the tenants, a commonhold structure would be similar in its operation to a tenant owned freehold.
It is therefore likely to be new developments that are forced to use commonhold opposed to requiring conversion for existing buildings and tenants. Although some concerns and issues have been addressed in the Law Commission's recommendations, there remain lending and exemption practicalities that will need to be worked through with the concerned parties to make commonhold a success in the future. Further engagement with lenders, developers and specialist landlords will be key to the reinvigoration of commonhold.
