COMMONHOLD - The New Regime
Introduction
From 27 September 2004, the commonhold regime came into effect and it is now possible to set
up commonhold schemes. Although the introduction of such schemes is likely to be gradual, the
security of tenure they will provide for unit-holders and the potential financial benefits from setting
the schemes up is designed to make them popular in the long run. Those in the property industry
will therefore need to understand the nature of these schemes and be aware of the issues
surrounding them so as to be able to decide whether their use is appropriate for a particular
development.
What is commonhold?
Commonhold does not create a new estate in land. It allows a more permanent way of owning units
within a block such as a development of flats, or an office block or an industrial estate, than under
the current leasehold system.
The way commonhold schemes work will be akin to the way existing enfranchised blocks of flats
work. When a commonhold scheme is set up, the property will be divided into individual units and
common parts. Unlike existing schemes, though, the unit-holders will be freeholders of their units.
However, in a similar way to current enfranchisement schemes, the freehold of the common parts
will be owned by a company limited by guarantee known as the Commonhold Association, of which
the unit holders will be members. The role of the Commonhold Association will be to manage the
scheme and, in particular, to manage the common parts and ensure that the unit-holders comply
with their obligations. The unit-holders may be directors of the Commonhold Association, but, given
the nature of its role, it is expected that they will normally appoint professionals instead.
Some of the rights and duties of the unit-holders and the Commonhold Association are to be found
in the legislation, but to a greater extent they are set out in the Commonhold Community
Statement. In particular, it sets out the obligation of the Commonhold Association to insure, repair
and maintain the building. As for the unit-holders, the key duty is to pay the Commonhold
Assessment, which is the equivalent of the service charge under existing leasehold schemes. It
also provides for the means by which to resolve disputes either between individual unit-holders or
between unit-holders and the Commonhold Association. The Commonhold Statement is in a
prescribed form and the scope for alteration is limited.
How is commonhold created?
Commonhold can only be created on application to the Land Registry by the freeholder of the
property. There must be at least 2 parcels of land which will become the units. Certain types of land
cannot be registered as commonhold, such as flying freeholds.
Aside from submitting the relevant documents, such as the Commonhold Community Statement,
with the application to the Land Registry, the freeholder must obtain the consent of all tenants with
a lease of any part of the land which has a term of 21 years or more. The freeholder must also
obtain the consent of the registered proprietors of any mortgage over the whole or part of the land;
if the commonhold scheme goes ahead, any lenders will need to restructure their security and take
out new charges.
If the application is made before there are any unit-holders, the commonhold scheme does not
come into effect until the first unit-holder is registered. During the period when the scheme is held
in abeyance, the freeholder can de-register the land as commonhold. On the other hand, if the
application is in respect of existing leaseholders, then the commonhold scheme comes into effect
as soon as it is registered.
Note that once the commonhold scheme is created, any existing leases of the land will be
extinguished. If the consent of those leaseholders was not required, they must be compensated.
As commonhold units can be let, it will be possible, if so desired, for the tenants to continue in
occupation under new leases.
This guide is for general information and interest only and should not be relied upon as
providing specific legal advice. In relation to any particular matter, readers are advised to
seek advice.
download  |
