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The commonhold system is likely to be introduced this spring. Typically, commonhold will apply to flats (although, in theory, virtually any land can become commonhold).
What happens is that the common parts are held by the commonhold association, with the flats being held indefinitely as commonhold units. It is thus very similar to a block of flats where the freehold is owned by a management company owned by the lessees, and all the lessees have 999-year leases. The commonhold community statement is the equivalent of the lease. There are however, several reasons why commonholds are likely to be extremely rare in practice:
- Existing blocks of flats will only be able to convert to commonhold if everyone
with an interest in the block consents. This includes the freeholder, every
lessee, and also every mortgagee of every lessee, as well as anyone who has
registered a caution or a charging order over any part of the block.
- Commonhold will not be compulsory in new developments (ie developers will
still be able to sell buildings on long leases).
- Unit holders will be restricted in their ability to grant leases of the
flats they own. In particular, the grant of a term of years in a residential
commonhold unit will only be allowed if prescribed conditions are met.
- It seems likely that commonholders will only be allowed to take lodgers
with the permission of the directors of the commonhold association.
- There is no cheap and effective means of enforcing service charge demands.
This is because forfeiture is prohibited, and there are no special provisions
where service charges are automatically a charge on the commonhold unit.
In practice, it is likely to be this last point that amounts to a fatal flaw in the commonhold system. The availability of forfeiture for leases means that leasehold demised premises are charged with arrears, and thus the mortgagee is obliged to pay the service charge in order to retain the security. In practice, flats are unsellable unless arrangements to clear arrears on completion are in place. But those means of enforcement do not apply to commonholds. Instead, the commonhold association will have to bring ordinary county court proceedings to enforce service charge obligations, and any judgment will have to be enforced in the usual way.
It is worth remembering that the CML Handbook requires that with leases the conveyancer certifies that there are ‘adequate covenants arrangements in respect of... maintenance and repair of the structure’. Presumably, a similar requirement will be introduced for commonholds, and the weaknesses of the enforcement mechanisms given to commonhold associations means that conveyancers would be ill advised to give such certificates. In short, therefore, unless this issue is addressed (or unless the CML takes a more relaxed view) the outcome is likely to be that commonholds will, in effect, be unmortgageable. For an excellent article on the problems of commonhold see [2003] NLJ 1907.
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