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Commonhold
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Home Page Contact Us About James Driscoll Commonhold Queen's Speech 2004 Leasehold Reforms Practice Points Tenure |
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THIS COMMON SENSE IS LONG OVERDUE
The arrival of the new'commonhold' law should have obvious appeal for the social rented sector and represents a radical new approach to property development  IT WAS ALONG TIME COMING BUT, AT LAST, "Commonhold" came into force on 27 September, Now it is possible, forthe first time, for new property developments such as a block of flats, or another interdependent building, to be developed on a freehold ratherthan a leasehold basis with a new statutory scheme for the management ofthe common parts of the development.
Commonhold can be used for new residential developments such blocks of flats, or for an estate with flats and houses, as well as purely commercial developments, such as an office block, or fora new mixed-use development. (Residential leaseholders can also opt to convert to a commonhold.) Commonhold is based on the experience of Australia and the US where similar schemes have operated successfully for decades. The Law Commission recommended its adoption in 1987. Under part one ofthe Commonhold and Leasehold Reform Act 2002, and the very detailed regulations made underthat piece of legislation, commonhold is now available for new developments. Different to leasehold Under a commonhold, flats (called "units") in a block, forexample, will be owned freehold and the owner entitled to be a member ofa Commonhold Association (CA) that owns and manages the commonhold. Oncea new commonhold development has been completed and the last unit sold, only unit-owners can be members ofthe CA. In other words, owning a commonhold flat is quite different to owning a leasehold flat. One has freehold ownership, not a time-limited lease, and one also is a member or owner of the CA, which has the common parts and manages the commonhold. Another difference from leasehold ownership is that the documentation for every commonhold is prescribed by regulations. No commonhold can be set up without a CA, a company limited by guarantee with a constitution that is prescribed in the regulations. And each commonhold must have Commonhold Community Statement (CCS). This describes the property in the commonhold and contains the rules ofthe development. The basic form ofthis document has also been prescribed by regulations, though, obviously, it allows forthe addition of the specific rules of the particular development, such as the size of the unit holders' contribution to the costs of managing the com monhold, and rules on how units can be used. Additional clauses can be added (such as rights allowing a developer to complete a new development) provided that they are clearly stated to be additional provisions affecting that commonhold. In this way, the legislation introduces standardised documentation in common form, unlike leasehold developments where, in practice, there is a wide divergence in drafting styles (and also many poorly drafted leases). The other fundamental difference lies in the management of the development. Unlike leasehold developments, where there is alandlord, commonhold is managed bythe CA on behalf of its members, who are the unit owners. Commonhold management will be conducted on a non-adversarial basis with a statutory policy on using conciliation, mediation or arbitration, rather than litigation. Indeed the act provides forthe appointment ofa commonhold ombudsman. Many will see commonhold has having a far simpler system forthe setting of budgets, and the application ofthe rules ofthe commonhold, than leaseholds. None ofthe recently enacted new and complex rules governing leasehold management introduced by part two of the 2002 act would apply to a commonhold. With these features of freehold ownership, standardised documentation and a simpler form of management, commonhold has an obvious appeal forthe social rented sector. A social landlord, for example, could let commonhold flats on rented tenancies. Shared- ownership excluded There is, however, one matter at least which remains to be clarified: residential commonhold flats (or houses) can only be let in the short term. This rules out shared-ownership schemes in the traditional form for the time being. However, the department for constitutional affairs (which has responsibility for commonhold) is to draft additional regulations that will allow for shared ownership. Pending this, some social landlords may consider other ways of delivering low-cost home ownership, such as through a co-ownership model. Another factor for social landlords is the right to buy. Although this only applies only to flats and houses, the definition of a house in the housing legislation has been amended by the 2002 act so as to treat commonhold units as "houses". As a result, a social rented tenant living in a commonhold unitwill be able to exercise the right to buy the freehold to the commonhold unit whether it is a flat or a house. James Driscoll : Published in "Housing Today" on 15 October 2004 |