Why Commonhold doesn’t work (in it’s current format)

Whilst Commonhold is a legal form of property ownership, there are currently only 20 Commonhold developments in the UK.

The Commonhold and Leasehold reform act of 2002 has a number of shortcomings, but it is Common Ground’s opinion that Commonhold can be a workable and, indeed, represent an improvement to the leasehold system by implementing the recommendations of the law commission report “Reinvigorating commonhold: the alternative to leasehold ownership” published on 21st July 2020

The report addresses the shortcomings of the current legislation by combining the “tried and trusted” parts of leasehold legislation with greater power for “unit owners” (leaseholders in the current leasehold model), greater flexibility for Developers and Commonhold Associations and greater security for mortgage lenders.

There are a number of reasons why the current Commonhold system doesn’t work and the most salient are listed below.

1. Cold, hard cash

When the legislation was introduced in 2002 it was pitched as an alternative to Leasehold rather than a replacement
Developers make money from selling both the leases of the flats and the freehold interest of the building. The freehold interest has value as the freeholder can derive income streams such as ground rents, insurance commissions and event fees.

With Commonhold, the developer loses this revenue stream as the Freehold interests are split between the “unit owners” (lessees under the leasehold system) and Commonhold Association (will own the common parts)

2. Lack of flexibility

The legislation in its current format doesn’t cater for a number of developer requirements notably

– It doesn’t cater for mixed use developments which might include such things as shops or leisure facilties
– It doesn’t accommodate shared ownership leases. Developers are legally bound to build affordable accommodation on large scale developments and shared-ownership leases are a key fact of affordable housing.

3. Financial Concerns

– Many mortgage lenders do not offer mortgages on commonhold properties due to concerns that their positions are not protected in circumstances such as a commonhold association’s insolvency, or on the voluntary termination of the commonhold

– there is currently no quick and effective way for an association to recover money from those who fail to pay commonhold contributions (service charges in leasehold)