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As a newcomer to the property sector, I have been intrigued by the concept of commonhold ownership and its potential to transform the landscape of property ownership and management in the UK. Commonhold presents a modern approach to property ownership that diverges from England’s traditional leasehold system, offering a unique opportunity for individuals to engage in cooperative management of shared spaces.
Understanding Commonhold Ownership
Commonhold ownership allows individuals to own their specific unit within a building while sharing ownership and management responsibilities of the common areas with a commonhold association which comprises all the commonhold unit owners in the building. Unlike leasehold ownership, where a property owner’s rights diminish over time, commonhold grants unit-holders permanent ownership of their units.
Structure of Commonhold
In a commonhold development, each flat or unit operates as an independent entity. This includes not just residential units, but also commercial spaces such as shops and offices. Each unit holder owns their respective unit, while a collective body known as the commonhold association – established as a company limited by guarantee – holds the freehold of the building and its common areas. The articles of association of the Commonhold Association are prescribed by statute and will therefore be identical for any Commonhold Association.
Members of the commonhold association include all unit holders, each granted one vote in decision-making processes. This voting system may be weighted to give more influence on owners of larger units, promoting a sense of fairness within the community. The management of the development is guided by a commonhold community statement (“CCS”), which outlines responsibilities akin to tenant covenants in leasehold agreements. For instance, unit holders are responsible for maintaining their own units, while the association handles maintenance and repairs to shared spaces. The contents of the CCS can be tailored to suit the specific requirements of the particular building and there is flexibility to easily accommodate change to the CCS if this is necessary in the future.
Advantages of Commonhold Ownership
One of the primary benefits of commonhold is that unit holders possess ultimate ownership of their properties rather than leasehold interests that decrease in value over time. This could lead to an appreciation in property value as buyers may be attracted to the permanence and stability that commonhold ownership offers.
Additionally, the commonhold community statement is designed to be straightforward and uniform for all units, enhancing transparency and ensuring that all unit holders are bound by identical rules. This clarity can streamline the initial sale of units, as the associated documentation is standardised for each unit in the building, reducing negotiation time and associated costs.
Challenges Facing Commonhold
One significant concern is the lack of statutory requirement for commonhold assessments (akin to service charges) to be reasonable, potentially leading to unexpected costs for unit holders.
It is essential to recognise that the transition of control from a landlord to a commonhold association may not automatically lead to a harmonious living environment. Like leaseholders under the current regime, unit holders may still face challenges in collectively managing the building.
Commonhold and Mortgage Lenders
As of 2023, commonhold properties are not widely accepted by mortgage lenders, with only 184 UK registered commonhold properties (compared to around 3 million leasehold flats). The primary reason for this reluctance is the perceived lack of structure and comprehensive legislation, which results in insufficient security for lenders. While a few lenders do consider commonhold properties, they typically do so under specific circumstances or for existing mortgages, evaluating each case individually. As of November 2024, only 37 lenders, some like HSBC and Barclays are known to lend for commonhold properties.
Global Perspective on Commonhold
Commonhold ownership is not a new concept; it has been successfully implemented in Australia for over fifty years, where the strata system has become the preferred method of apartment ownership. With more than three million strata apartments, Australia has navigated the complexities of a system similar to commonhold, demonstrating that it can work effectively.
The government have now announced that they are committed to making commonhold the default tenure in the England and Wales and they will be carefully considering future legislation to ensure that there is a workable system.
The potential for direct ownership of flats by commonholders and the ability to self-manage their developments presents a good opportunity for growth and development within the property market in England and Wales.
