Commonhold - The New Law Explained

 

The introduction of a Commonhold system for holding land has been suggested on many occasions in the past, in 1965 by the Wilberforce Committee and in 1987 in the Aldridge Report.  Similar systems have been used in other jurisdictions, such as Scotland for some time.

 

A draft bill was published for consultation in 1990 and again in 1996, and having been lost during the elections in 2001 was reintroduced into the House of Lords in June 2001.  It received Royal Assent on 1 May 2002.

 

The usual situation at present is to have a development split into individual units, with each unit held under a leasehold interest.  The freehold of the development is held by a private individual, a private company, or a limited company which is owned by the tenants of the units.  The rights and obligations of the tenants and the landlord are set out in the leases.

Under a Commonhold arrangement each owner will own the freehold to their property.  The freehold of the common parts will be owned by the Commonhold association and the rights and obligations of the unit holders and the Commonhold association are set out in a "Commonhold Community Statement".

 

Is Commonhold a new form of ownership?  Do we now have freeholds, leaseholds and common holds?  Technically probably not - Commonhold is just a rather complicated freehold ownership with extra statutory rights and obligations.  In practice - yes, Commonhold will be seen as a distinct form of land ownership.

In order for land to be Commonhold land it must be:

 

Terminology:

 

"Unit-holder" - every member of the Commonhold scheme

 

"Unit" - the individual property owned by each unit-holder

 

"Commonhold Association" - the collective body of unit-holder's

 

"Commonhold Community Statement" - the document setting our the rules and regulations of the development

 

Unit-holder

 

This is the person entitled to be registered as the freehold owner of the relevant unit.  A unit-holder is also entitled to be a member of the relevant Commonhold Association.

 

Where there are joint owners of the unit, only one may be a member of the Commonhold Association, and subject to any agreement to the contrary this will be the person first named on the register

 

Unit

 

This is the area of the freehold land owned by the unit-holder.  It does not have to be a single block of land - it can be a number of different spaces in different locations within the Commonhold development.

 

Units can be divided either horizontally or vertically - they can be flats, terraced house or detached houses.  However, where the divisions are (in part at least) horizontal, no part of the Commonhold can be over or under any part of the building which is not part of the Commonhold development.

 

Units can be either residential or non-residential - Commonhold developments are not limited to residential developments although the rules relation to residential and non-residential developments will differ in minor ways.

 

The Commonhold itself may contain more than one area of land and these areas need not be adjacent or contiguous so long as a single Commonhold Community Statement provides for the whole area.

 

Commonhold Association

 

A Commonhold Association will be a company limited by guarantee.  Membership will be limited to unit-holders and the Association will have a standard set of Memorandum and Articles of Association which will be prescribed by the Lord Chancellor.

 

The purpose of a Commonhold Association is the same as a freehold management company.  It is under a duty to manage the development in order to allow the unit-holders to exercise their rights and enjoy the occupation of their units.

 

It's primary function, however, is to enforce the terms of the Commonhold Community Statement ("CCS") using whatever enforcement provisions are specified in the CCS.  However it need not do so if inaction would be in the "best interests of establishing or maintaining harmonious relationships between all the unit-holders" and would not cause any individual unit-holder any significant loss or disadvantage.

 

Commonhold Community Statement

 

This contains the rule and regulations governing the development, and sets out the rights and obligations of the individual unit-holders and the Commonhold Association.

 

It will replace the equivalent provisions in the leases by which such "units" have traditionally been held and contain the usual provisions including easements over common parts, service charge provisions and provision of insurance.

 

The CCS will provide for recovery by the Commonhold Association of 100% of it's expenditure from the unit-holders and may also provide for the creation, maintenance and management of a reserve fund.

 

It is intended that regulations will be made prescribing the contents of the statement - however no regulations have been issued at present.

 

The CCS will be able to be amended.  Again the manner in which the CCS may be amended is to be defined by regulations and none have yet been published.

 

Dealing with units

 

The CCS cannot restrict the unit-holders right to transfer the unit and further may not restrict the right of a unit-holder to create, grant or transfer any interest or charge in the unit.  However a new unit cannot be created without the unanimous consent of the Commonhold Association.

 

It is also intended that regulations will be made by the Lord Chancellor restricting the ability of unit-holders to lease their units.  Unit-holders cannot do this unless the lease satisfies certain provisions to be set out in the regulations.  As yet, again, there are no such regulations.

 

The unit-holder must notify the Commonhold Association of any dealing with the unit.  The new unit-holder will be subject to the same rights and obligations as the former unit-holder, as set out in the CCS.  Upon the transfer of the unit, the former unit-holder will be relived from any future, but not accrued, liabilities in respect of the unit.

 

Creation of a Commonhold interest

 

A Commonhold is created by registration by the freehold owner.  This can be done either where there is already multiple occupancy of the freehold property with different parts of the property let to individual occupiers or where the freehold owner owns the property outright.

 

Where the freehold owns the property outright (i.e. before flats in a development has been sold) the registration procedure is simple in that the freehold owner simply applies for registration by sending the required documents.

 

The key to registration is that where there is existing multiple occupancy, all the occupiers of the units must consent to the registration of the land as Commonhold land, as do any mortgagees of any part of the land.

 

There are no provisions providing for enfranchisement of a development directly from leasehold properties held under a third party freehold to a Commonhold structure of ownership.  The owners of the flats would have to purchase the freehold under current legislation and then convert the property to Commonhold.

 

Traditional provisions are contemplated with provide for the introduction into force of the CCS and the transfer of the freehold of the common parts to the Commonhold Association.  However, again no regulations in this respect have been published.

 

Termination of a Commonhold

 

There are detailed provisions dealing with this point in the Act.  There are two basic ways of terminating the Commonhold:

In a termination of the Commonhold other than by order of the court, termination of the Commonhold requires a "termination statement" to be prepared setting out how the freehold interest is to be disposed of and how the rights and liabilities of the unit-holders are to be maintained.

 

If this is approved of by the liquidator, then the liquidator will simply put the termination statement in effect.  If the liquidator does not approve of the termination statement, then the liquidator must apply to the Court for directions.

 

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