Laura Severn, Director at LMP Law investigates

If you know anything about commonhold and leasehold home ownership, you will be aware that The Law Commission has been leading the conversation regarding commonhold being a better alternative to leasehold for many years now. It has recently conducted a “Reinvigorating commonhold” consultation process. However, it has yet to take off, and a lot of people are wondering whether it’s really the better way to go about things. There are conflicting views, but I lean towards commonhold home ownership not being as beneficial as many people have been led to believe due to constraints within the current legislation.

What is Commonhold Home Ownership?

Commonhold home ownership allows an individual to own the freehold of a unit, such as a flat or apartment. The idea is that a commonhold association owns the freehold of the building, whilst homeowners hold the commonhold to each individual unit. Everyone is required to take care of their unit, and the commonhold association will take care of other areas, and each unit is able to vote on how the building is operated and managed. Of course, this does come at a financial cost to homeowners.

The Law Commission is hoping that commonhold agreements could solve a number of problems that those with leasehold agreements commonly run into, but I’m not so sure. Despite commonhold home ownership first being introduced back in 2002, only a handful have been created thus far. This doesn’t do much to support the argument that says commonhold is the way to go. There are also examples of the commonhold equivalent in other countries such as Australia giving rise to litigated cases in the housing courts.

The Advantages and Disadvantages of Commonhold Home Ownership

There’s no denying that there are some important advantages that come with commonhold home ownership. For example, there’s no need for homeowners to worry about a diminishing leasehold interest, which means that many commonhold properties are likely to attract a premium as a result. Another advantage is that every commonhold will be identical for each unit, meaning that no one benefits more than others. It leaves homeowners safe in the knowledge that identical rules and regulations are in place for everyone in the building, which could lead to a more transparent and fair way of running things. It’s also possible to argue that commonhold home ownership will give people a greater say over how their building is run, as they will be able to take steps towards rectifying problems via the commonhold association. However, that’s not to say that commonholds are not without significant disadvantages – an example of one is that the wishes of the commonhold association are not yet deemed to be properly enforceable or it’s expenditure recoverable if a unit holder refuses to pay their share.

Though The Law Commission have been commenting on and researching commonhold home ownership for a while now, it just doesn’t seem to be catching on in the major way that they hoped. One major factor is the fact that lenders are not able to offer mortgages on the properties. There’s a lack of understanding and trust from lenders in the commonhold home ownership system, which means that securing a mortgage is no easy task. 

Although, watch this space as there are bog discussions taking place with lenders at the moment as to what changes they would like to see to the legislation to feel secure enough to lend. There are also some developers trialing the system at small newly built developments. In the current climate, it’s still easier to choose a leasehold property. Outside of the property industry, there is also a lack of awareness that there’s a potential alternative to standard leasehold agreements at all.

In light of the above, there have been several changes proposed to the way in which commonhold home agreements work, but these have yet to take effect. The Law Commission has suggested that changes could make it easier for existing leaseholders to convert into a commonhold, as at the moment it’s a long and arduous process. Homeowners don’t have much of an input towards the running costs of their commonhold at the moment, and this may well be putting people off. When someone is paying for commonhold home ownership, they are going to want to have some say in how things are done. It’s difficult to say whether these changes will encourage people to adopt commonhold home ownership or whether leaseholds will remain to be the majority of the market.

All in all, it’s possible to say that commonhold home ownership isn’t all it promises to be (yet). I am sure that we will see more and more schemes being bought to market and tested. However, personally, I’d love to see more of the current energy being focused on making leasehold ownership more fair and workable for all.

Laura Severn is the author of our ‘legally blonde’ pages and a Director at LMP Law.  During 2019 Laura will be keeping you up to date on key cases and legal news that will be of interest to Property Managers and Residents Management Companies.