At the time we mentioned that the Government was still committed to bringing commonhold law into force on 23 August, although we expressed some reservations about whether that target would be achieved.

After a little more slippage, the Government has now finished drafting the commonhold regulations, and has made an order bringing the commonhold system into force on 27 September 2004.

Quick recap please - can you just remind me what commonhold is?

Commonhold is a new way of owning land or buildings which are split into a number of units. It is designed with blocks of flats in mind, although it could easily be used for commercial property as well. The commonhold concept is similar to the popular condominium system in the USA, or strata title as it's known in Australia. Essentially it works like this:

17 See Commonhold arrives, Property Newsletter, June 2004.

• each unit holder owns the freehold of their unit
• the freehold of the common parts is owned by the "commonhold association", this being a specially incorporated company in which each unit holder owns a share
• the commonhold association repairs and manages the common parts, and levies a service charge
• most legal documents involved in commonhold will be standardised to promote uniformity (and hopefully good drafting!).

Will commonhold be compulsory?

No. Whether you are dealing with existing buildings or new developments, conversion to commonhold will be strictly optional - and will require the consent of virtually everyone with a stake in the property.

Many estates may stick with conventional long leasehold structures for the time being. In the longer term, some residential property developers will want to switch to commonhold, as freehold ownership of flats should be a good selling point. But it is unclear whether commercial developers will follow suit, given that commercial rack rent leases are common in the UK, but long leases at a premium are not.

What will happen in the short term?

Perhaps relatively little. As any changes will be optional, this makes commonhold very different from the other property law changes of the past year, such as the new land registration system (October 2003), stamp duty land tax (December 2003) and changes to the business tenancy regime (June 2004). These all required property professionals and their clients to absorb a large amount of new knowhow with immediate effect.

In contrast, commonhold will only have an effect on those who decide to adopt it, primarily for new developments. In the short term, commonhold may have only a minor effect on the property world. In the longer term, however, it could prove very significant.

 © Lovells