The government is having a second attempt at getting the commonhold system to work
The Law Commission’s long-awaited recommendations to transform home ownership in England and Wales are set out in three reports covering leasehold enfranchisement; exercising the right to manage in leasehold ownership; and reinvigorating commonhold.
Commonhold was introduced in 2002 and provides an alternative form of ownership to residential leasehold.
Government has previously acknowledged the problems associated with the use of leasehold, such as the disproportionate costs of lease extensions; poor value property management; inefficient sales process; and poor practices.
If implemented, the aims of the recommendations are to reinvigorate commonhold tenure as a “preferred alternative” to leasehold and to make it “workable”. Other recommendations include giving leaseholders a route out of leasehold by making it easier to convert to commonhold.
Hema Anand, residential property partner at BDB Pitmans, commented: “Leasehold ownership has been toxic in the press and in parliament for many years now.”
She said the proposals “address inconsistent legislative requirements, streamline processes, reduce corresponding costs, grant greater protection to poorly advised leaseholders and help to keep unscrupulous landlords in check”. ‘Commonhold 2.0’ is, she commented, expected to be “much less cumbersome than its unsuccessful predecessor”.
Janet Armstrong-Fox, head of private client property at Collyer Bristow, noted that since commonhold was introduced, fewer than 20 commonhold developments have been created. She said: “Commonhold has struggled to gain any degree of acceptance, particularly among lenders”.
But while lenders are “growing less wary”, she said until they are generally “more comfortable with commonhold and have a better understanding of it, the perceived limited availability of mortgage finance for commonhold homebuyers could be the biggest stumbling block to Commonhold taking off as a popular form of home ownership”.
Tom Allfree, head of residential property at Wedlake Bell, said from homeowners’ perspective it is a good idea in principle. “There is no third-party landlord with the owners (together) owning the building in which their flat is situated, with no lease terms to worry about.”
He also noted the hard work on the Commission’s part in identifying the issues that have prevented developers from being able to embrace the tenure.
He added: “It will be interesting to see whether the recommendations, if implemented, lead to greater take up of commonhold by developers; an increased willingness by lenders to lend on commonhold units, and a greater demand from home owners.”
Adam Colenso, also a partner at Wedlake Bell, described the over-arching principles about bringing an end to those aspects of leasehold ownership that have come in for criticism in recent years as “laudable”.
“However”, he warned, “very careful legislative drafting would be needed to ensure that the well-paved road of good intentions does not lead to a destination that is worse than the status quo ante.
“As the report makes clear, the commonhold system will not take root unless there is some motivation given to developers to apply it (because it is mandatory or there is a financial inducement).”
He added that it will be interesting to see what steps government is prepared to take at a time when it is also encouraging further building of homes during a likely substantial period of recession.