Making Commonhold a workable alternative to Leasehold

The Law Commission report “Reinvigorating commonhold: the alternative to leasehold ownership” published on 21st July 2020 came up with 121 recommendations for Commonhold reform.

Whilst the law commission report states that Commonhold could work alongside the leasehold system, it is Common Ground’s view that Commonhold should replace leasehold.

Objectives of the law commissions’ 121 recommendations for Improvements to Commonhold legislation

(1) That commonhold is sufficiently flexible to cater for large, mixed-use developments. Our recommendations will ensure developers have a number of mechanisms at their disposal to tailor a commonhold scheme to suit its context. In particular, developers will be able to set up different “sections” within a commonhold to separate the management of different types of interest, such as residential and commercial interests. Sections will enable commonholds to be established where only the unit owners within a particular section are able to vote on matters affecting that section, and only those who benefit from a particular service or facility will be responsible for paying for it.

(2) That developers can build new commonhold developments in phases, allowing for units in completed phases to be sold, while retaining control of the parts of the site still under development. Our recommendations will provide developers with the flexibility and control they need to complete the development through the reservation of rights in the commonhold community statement (CCS). However, our revised scheme carefully balances the needs of the developer in completing the development with the needs and rights of unit owners who have bought their units before the development is complete.

(3) That commonhold developments are made more attractive by enabling them to accommodate shared ownership leases and lease-based financing (called home purchase plans).

(4) That it is much easier for leaseholders to convert from leasehold to commonhold. Our recommendations will enable conversion to commonhold to be possible without the agreement of every person with an interest in the property. At the same time, we ensure safeguards are in place to protect those who have not agreed to the conversion. The process of converting to commonhold will also become easier, quicker and more cost-effective. Our reforms will place leaseholders in control of the conversion process and will prevent tactical delays by those who are opposed.

(5) That there is a robust financing regime that is appropriate for all commonholds, regardless of their size and facilities. Our recommendations provide flexibility in how commonhold costs are apportioned between unit owners; will ensure unit owners have greater involvement in approving commonhold costs, by enabling them to vote on the budgets proposed by the directors; will also provide greater protection to unit owners, by giving them a new right to challenge certain costs in the First-tier Tribunal (Property Chamber) in England or the Leasehold Valuation Tribunal in Wales (the“Tribunal”);to protect unit owners from disproportionate contributions to the commonhold’s expenditure; and ensure that commonholds have adequate funds available for future routine repairs or unexpected expenditure.

(6) The powers of commonhold associations to recover contributions from unit owners who fail to pay their share are enhanced. We recommend a new right for an association to apply to court for the sale of a commonhold unit in order to recover arrears. This new right will help to preserve the solvency of the association and will protect other unit owners from being required to cover the defaulting owner’s share. We build protections into this process to ensure unit owners are not at risk of losing their properties in respect of trivial amounts, and to ensure lenders are kept informed of the arrears and can take steps to protect their security. Our recommendations will also mean that defaulting unit owners retain the balance after the arrears and any mortgage lenders have been paid.

(7) That commonhold associations can respond effectively to emergencies by raising the necessary finance to undertake essential works. We recommend an express power for commonhold associations to offer the common parts as security to lenders, enabling them to access finance on favourable terms, and provide safeguards for unit owners and their lenders to ensure that this action is only taken where necessary. We further recommend protections for unit owners where a commonhold decides to sell part of its land in order to raise emergency funds.

(8) That directors of the commonhold association are appointed in a fair and democratic manner and can be removed if they are failing to comply with their duties. The directors play an important role in managing the commonhold on behalf of unit owners. The failure of the directors to comply with their obligations can impact negatively on unit owners, lenders and anyone else with a stake in the commonhold. Our recommendations ensure that directors are subject to the oversight of unit owners and can be removed and replaced if they fail to comply with their duties.

(9) That unit owners adversely affected by a decision of the commonhold association are protected by providing a right to apply to the Tribunal for an appropriate remedy. Our recommendations ensure that unit owners in the minority are able to challenge decisions that are not in their interests, while still enabling the commonhold association to function effectively on democratic lines.

(10) The CCS is made a more transparent and easy to navigate document for unit owners. Our recommendations will also ensure that the CCS provides unit owners and other occupants with certainty as to their rights and obligations, while retaining sufficient flexibility to change the rules of their commonhold when desirable.

(11) That the commonhold is kept in good repair and properly insured. It is vital for all unit owners that the fabric of the building is properly maintained and protected in the event of damage. Our recommendations clarify how the commonhold association should deal with routine management and maintenance of the common parts, and ensures that adequate insurance can be procured.

(12) That lenders in the commonhold regime are reassured and their positions protected, including in the unlikely event of a commonhold association’s insolvency, or on the voluntary termination of the commonhold. Our recommendations also ensure that the court has a greater role in safeguarding the interests of unit owners who oppose termination.

(13) That there is improved efficiency and cost-effectiveness in resolving disputes through the encouragement of early communication between unit owners and the commonhold association. We make recommendations to simplify the dispute resolution processes and prevent owners from being caught out by technicalities. We also recommend that unit owners, who breach the terms of the CCS, should be required to reimburse those who have incurred legal and other costs when taking action.