Leasehold structures provide maximum control in management and in recovery of contributions through a service charge mechanism. The drawback is that residual responsibility then remains, along with a longterm reversionary interest in the scheme.

Outright disposal of the units on a freehold basis may be preferred, especially where the common facilities are extrinsic to the units themselves, (estate roads, landscaping and car parking for example). To relieve the developer of the long-term residual responsibility for the common facilities, the freehold interest in them is often transferred to a management company. The challenge then is to ensure that the individual freehold unit holders contribute their share of costs to the management company.

Careful structuring is necessary because English property law has never developed so as to permit positive obligations (such as to pay upkeep costs) to be enforceable against (and as between) freehold owners.

Two structures which are commonly adopted to overcome this difficulty are:

• an "estate rent charge" reserved on the sale of the freehold unit with a right of re-entry. This allows enforcement by the developer/management company of obligations to contribute to upkeep costs; or
• a chain of indemnity covenants whereby, on each transfer of a freehold unit, a fresh covenant is given by the transferee in favour of the transferor and/or the management company to contribute to upkeep costs.

Chains of indemnity covenants are a less than satisfactory solution; the longer they grow the more liable they are to be broken by the insolvency, or disappearance, of one of the parties or the neglect of one of them to take a covenant.

However, in a recent case, the management company of a business estate was successful in having the transfers of two units set aside. The freeholders had failed, in breach of the terms of the scheme, to obtain indemnity covenants from each new transferee, in favour of the management company. It helped that depriving the management company of the contribution appeared to be a principal motivation.

Resort to the courts may not have been necessary if the scheme had also included the usual restrictions on the registered title of each freehold unit. These would have prohibited registration in the name of the new owner without evidence that the indemnity covenant had been given to the management company. Nevertheless the decision is helpful.

An entirely new solution became possible on 27 September with the availability of the new commonhold system in England and Wales. This is the first attempt in this country to introduce a system of community land ownership similar to the Australian strata title or the US condominium. In a commonhold scheme, individual units are still owned as outright freeholds and the common facilities are held by a private company limited by guarantee. This is owned and controlled by the unit holders themselves and known as a commonhold association. The structure of the scheme must conform with the Commonhold and Leasehold Reform Act 2002 and the Commonhold Regulations 2004.

If this structure is adopted then positive obligations between freehold unit holders can be enforced through standard dispute resolution procedures. Additionally, any incoming unit holder will be liable for any outstanding service charge owed to the commonhold association. All this is automatic so there is no need to get involved with licences to assign which would make it feel like a leasehold. This means that other unit holders do not end up financing the debts of other outgoing unit holders.  © Berwin Leighton Paisner