For most people ‘commonhold’ is an unfamiliar concept. In Australia it’s called the strata system and in the US they use the term condominiums or condos. In the UK, commonhold is still an elusive idea despite legislation designed to promote it (Leasehold and Commonhold Reform Act 2002), which has spectacularly failed to deliver. Since it came into force, a paltry 20 commonhold properties have been created. At the same time there are estimated to be 5 to 6 million residential leasehold premises in England.
Commonhold is a completely different approach because the residents themselves collectively take over and own the freehold of the property through a commonhold association, made up of all residents in the building. Residents own their property as a freehold units and can exercise control by appointing their own managing agent through the commonhold association.
Residents don’t have to deal with the day-to-day management of the building themselves but collectively control and appoint the managing agent. For many older people this level of control is important and can potentially reduce their costs – but requires cooperation between residents.
The scarcity of commonhold properties explains why there hasn’t been a huge surge in demand for this kind of tenure from older purchasers or those already living in leasehold flats. This could eventually change because the Government has asked the Law Commission to investigate how commonhold can be revived and brought into the mainstream.
This initiative sits alongside Government proposals to reform the existing leasehold system for flats and houses. Leasehold means that the provider or landlord has overall ownership of the property and then sells a lease, granting the purchaser permission to exclusive occupation for a fixed period of at least 21 years.
In effect it means if you buy a leasehold property, strictly speaking under the law, you are considered a tenant, and must follow the contractual obligations set out in the lease. This gives the freeholder control over appointing managing agents to maintain and service the property and the right to charge a ground rent. In retirement housing leasehold has raised a range of issues over service charges and fees, as well as ground rent.
Age UK and the campaign group ‘Better Retirement Housing’ (formerly CARLEX) have been particularly vocal about the use of exit fees – a charge made when a leasehold property is sold. This has been subject to investigation by the Competition and Markets Authority and more recently a set of proposals for reform from the Law Commission – now under consideration by the Government.
Given the problems associated with managing agents and landlords one approach is for residents to exercise the ‘Right to Manage’ or alternatively taking control through ‘enfranchisement’ which can include buying the freehold. But these solutions can be difficult to achieve, although the Government would like to change that.
Commonhold is not without its problems and requires safeguards to protect individual residents within the commonhold association. But despite this it still works and is widely used in most countries outside the UK.
Part of the reason it has never picked up in the UK is that the leasehold system allows the charging of ground rent for no defined benefit in return, making it a lucrative proposition for investment. If the Government decides to abolish ground rent it might help to facilitate a bigger role for commonhold as an alternative for older purchasers who want more control and existing residents who feel let down by the current leasehold system.
If you are a leaseholder and are seeking advice you can contact LEASE, the Leasehold Advisory Service, an independent agency funded by the Government.