Leasehold has come in for some bad press in recent years, with calls for it to be abolished in its current format which the new government has added its voice to. Yet, despite commonhold, the framework for an alternative, having been on the statute books for over two decades, fewer than 20 commonhold developments have been established. We have seen neither a flood of buildings being converted to commonhold, nor new developments set up under the new regimes from day 1. Why is the lack of enthusiasm for change designed to rid the market of unfair practices once and for all?

New leasehold reform laws have made it progressively easier for leaseholders to take over block management from unsatisfactory freeholders or to buy the freehold out and effectively become their own freeholder. These tried-and-tested processes have the desired result of better and possibly less expensive management, albeit still under the leasehold system.

Of course, that doesn’t explain why new blocks aren’t being developed and sold as commonholds and various theories place the blame at the door of mortgage lenders wary of a new type of risk, and developers and investors reluctant to lose the revenue stream that freeholds provide or the flexibility to sell individual flats as development progresses.

A new impetus

The current government is giving commonhold another shot in the arm, including consulting on options to restrict the sale of new leasehold flats so commonhold becomes the default tenure.

Commonhold was originally introduced in 2002 under the Commonhold and Leasehold reform Act (CLRA).  The Law Commission put forward proposals to address concerns with it   in 2020, and in2021 a Commonhold Council was set up to  prepare the market for more commonhold.

Now we are promised a draft Leasehold and Commonhold Reform Bill to:

  • Enact remaining Law Commission recommendations to strengthen leaseholders’ rights to extend their lease, buy their freehold, and take over management of their building.
  • Reinvigorate the commonhold tenure by modernising and improving the original 2002 legal framework and improving mortgage lenders’ confidence in this new form of tenure.

What is commonhold?

A commonholder, otherwise known as a ‘unitholder’, owns the freehold to their individual demise (flat or house), which includes the interior walls, ceiling, floor coverings, and space between them. However, the common parts of the building are owned and managed by a Commonhold Association, a registered limited company, which has a separate title at the Land Registry.

Membership of a commonhold association is restricted to the unit holders, who are each entitled to join.  Each member will have the opportunity to get involved with the management of the building because, like any other type of property, a commonhold property will need to be insured, maintained, cleaned and may be subject to occasional major works such as a new roof. This will be paid for by the unit holders with the monies collected by the Commonhold Association, which will also be responsible for arranging works and services.

The Commonhold Association must abide by both company laws and its articles of association, which set out the duties of the association, which are set out in a standard format in the Commonhold Regulations.

A Commonhold Community Statement (CCS) sets out the rights and responsibilities of the commonhold association and each unitholder and provides a framework for managing the building. It also dictates the financial contribution payable by each unitholder for the management, repair, and maintenance of the building, and it must be registered together with the title documents for the commonhold at the Land Registry. Unlike in the leasehold system, there is just one CCS document for the entire building, rather than individual documents for each unit. The Commonhold Association can use normal debt-recovery procedures if unitholders fail to pay their contribution.

In a jam today?

This may be cold comfort if you are looking to change the way your block is owned and run right now. Given the rate of change to date, people will be forgiven if they do not expect to see a new framework for commonhold that satisfies all parties soon. Leaseholders and freeholders alike must rely on the reform of leasehold for the foreseeable future.

The last Government seemed to be making positive moves towards encouraging further leasehold reform and the uptake of commonhold, the alternative to leasehold, but were stalled by the decision to call a general election. Not all was lost, and the Leasehold and Freehold Reform Act 2024 (LAFRA) was passed as one of its last Acts to at least keep the reform ball rolling.

Among other things, LAFRA set out reforms to lease extension (with a new right to a 990-year extension with ground rent at a peppercorn), marriage value (to be abolished), leaseholders’ ability to self-manage and/or buy the freehold (to be easier), and service charges (to be more transparent and easier to challenge). It isn’t the end of the reform story and it isn’t fully in force until various commencement orders are made, most of which are expected to come in 2025-26  but it is progress.

So, the current laws on leasehold remain for now. So, if you are wondering what to do, you may find the following advice from the Leasehold Advisory service useful:

Disclaimer:

The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.

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