Brought in by the Commonhold and Leasehold Reform Act 2002 (the 2002 Act), commonhold is the new system of land ownership where flats can be held as freehold. The 2002 Act and the Commonhold Regulations 2004 came into force on 27 September 2004.

What exactly is commonhold?

A commonhold consists of units and common parts. The units are individual freehold properties, such as flats, offices and shops. The owners of freehold units are called unit-holders. Common parts are any part of a commonhold development which is not a unit. This will include all facilities that the unit-holders wish to enjoy in common, and must include all the shared facilities such as the roof, stairs and landings in any building where there is more than one horizontally divided unit.

The commonhold association

The common parts are owned and managed by a limited company called a commonhold association (CA), membership of which is restricted to unit- holders. Therefore, unit-holders have two different interests in commonhold. The first is a freehold interest in their unit and the second is a shared interest through the membership of the CA with ultimate control vested in the members as a whole.

The commonhold community statement

The CA is required to manage the commonhold in accordance with the terms of the commonhold community statement (CCS). This sets out the extent of the commonhold properties, the rights and obligations of the CA and unit-holders, and procedures for dispute resolution. It is a form of binding local law that can be tailored to each specific scheme, and applies and can be relied upon by all commonhold unit-holders – this ensures that positive obligations can be relied upon. The core provisions of every CCS are in standard form (even down to the numbering), thus making for a substantial degree of harmonisation. In the longer term, this will enable a much better understanding of the obligations entered into by purchasers of units than is ever possible with a long lease.

Registration of the CA and the CCS

The CA must be registered at Companies House and have both a memorandum and articles of association, again in a standard form. The CCS, memorandum and articles will all be registered at HM Land Registry and available for inspection.

Core principles of commonhold

Commonhold is a recognition of the co-operation required between any community of owners living within a defined area while permitting the benefits of freehold title to each of the community proprietors. The core feature is that two or more freehold owners each have title to properties within the land registered as an estate in commonhold land. Each freeholder has a title to a commonhold unit and, therefore, exclusive permanent ownership of a specified piece of property while having the benefit of, and being subject to, enforceable community rules and regulations.

Positive features of commonhold

Sensible management and ownership of common parts

In particular, a developer is able to prescribe that certain parts of a commonhold are used for specific purposes and only by specific authorised unit-holders. These are known as limited use areas.

No developer problems

There is no lingering freehold title to torment developers who wish to walk away with their profits, nor later to be vested in a company whose interests are different and in opposition to those of the residents (the torment of so many long leaseholders).

Benefits of group buying

By grouping together, commonhold unit-holders are able to use collective weight in terms of buying and bargaining power through the CA.

Access roads

Cutting an access road into slithers and including it within individual titles or lumping it all into one title is no longer required as a best fix – commonhold allows the perfect solution.

Laying down the law

{josquote}There is a recognition that the proprietors of terraced houses often have a great deal in common with one another through the sharing of some facilities.{/josquote} Commonhold enables us to set down a local law within a terraced arrangement which adds to the attractions to potential purchasers of such properties.

Apartments as freehold units

Commonhold enables apartments to be owned as freehold units and does away with the fundamental flaw of long leases – the ever-decreasing value being directly tied to the term of years.

First commonhold application

The Stokes Partnership has just submitted the first commonhold application in the south of England. This development is in Blandford Forum in Dorset and should be fully registered by the middle of August. We then anticipate that completion of the sale of the first unit will take place very quickly and trigger activation of the commonhold. It is anticipated that this will be the first activated commonhold scheme in the country.

Our firm has more commonhold schemes with different clients in the pipeline and we believe that use of commonhold is now going to snowball. Land Registry and other sources tell us that there has been a race to the finish line, over the last few months, to get the first scheme registered – these other developments are not far behind!

The University of Bristol’s Professor David Clarke, principal author of Clarke on Commonhold (Jordan’s, 2004), provided extremely useful assistance, guidance and affirmation of our approach throughout putting our schemes together.

Our practical experience – problems overcome

We are currently dealing with four commonhold schemes for two different developer clients.

Blandford Forum, Dorset

The development in Blandford Forum is, in essence, one L-shaped building comprising ten terraced houses and four apartments together with car parking for all 14 units and an access road serving the scheme.

One can see the general layout of the scheme from the plan. The key features of this are as follows:

The commonhold units – this plan shows the ground-floor layout only.

• Pedestrian walkways.
• Car-parking spaces – we decided to include the parking spaces within the common parts and to make them a limited-use area. Each unit-holder has a specified and dedicated parking space for their exclusive use and enjoyment. At the same time, the parking spaces are part of the common parts and therefore fall within the ownership of the CA. Therefore, uniform management and maintenance of the parking spaces is guaranteed and should ensure that, in years to come, the common areas within this scheme are kept in excellent condition. This would not have been the case with either a freehold or a leasehold scheme.
• Access road.
• Bin store.
• Stairwell – we prescribed that this area only be used by the apartments being served by this stairwell.

This was a straightforward scheme which cried out for commonhold. It is now being processed at Weymouth District Land Registry.

Crewkerne, South Somerset

This scheme threw up one of the major flaws with commonhold as it stands at present – the commonhold assessment or service charge. A probably unintended effect of the wording of s38(2)(a) of the 2002 Act seems to mean that an assessment cannot be divided into two or more parts (as often happens with a service charge) to reflect the different levels of benefits received by a mixed development of (say) terraced houses and flats.

This development consists of 22 units – five terraced houses, a block of eight apartments and a separate block of nine apartments, with an access road serving the whole development.

To circumvent the inability to create separate assessment funds for contributions by the different types of units, we simply created three distinct commonholds, with the service road being included within one scheme as a common part and easements being granted in favour of the other two commonholds subject to payment for maintenance determined according to use.

The key features of the Crewkerne scheme are as follows:

• The terraced house commonhold – we decided to make this a commonhold in order to be able to intelligently include the access road within the terraced houses. This was important as these units are the most valuable and their residents are likely to be the most interested in maintaining the access road.

The CCS has been stripped down to an absolute minimum. However, we have included basic local rules which every group of terraced houses would want dealing with:

(a) Specifying use.

(b) Nuisance.

(c) Maintenance of the common parts.

(d) Insurance – one of the possible benefits of commonhold in this situation is that the terrace unit-holders can apply for group buildings insurance. If for any reason it proves unattractive then any unit can opt out.

• The block of nine apartments.

• The block of eight apartments.

• The access road – this was included with the common parts of the terraced house commonhold. Those unit-holders within the apartments who have the benefit of parking spaces are granted specific rights of way over the access road.

• Once again, with all three of these commonholds the parking spaces are included within the common parts and are limited-use areas for specific unit-holders.

The proof is in the pudding and our developer client has buyers for seven of the nine apartment units in phase 1 of this development.

Passive resistance – breaking inertia

There has been some resistance to commonhold along the way, none of which has been truly substantive. We have had to carefully address concerns of all interested parties in order to ensure that everyone is on side:

The buyers

We found that the prospective buyers have been the most positive group. Why wouldn’t they be? They are able to purchase freehold apartments/units with all of the benefits of the local laws contained within the CCS.

Banks

Both on the developer and buyer sides of lending, the banks have been jumping on the commonhold bandwagon. Resistance that we have come across has largely been as a result of the banks simply not having the systems in place to deal with commonhold (although one or two have raised some of the continuing concerns over the details of the statutory scheme in place to cover the eventuality of the CA being wound up).

Despite some 50 or so lenders signing up to commonhold within Part II of the Council of Mortgage Lenders handbook, an awful lot of institutions were not ready to receive applications. We have been contacting some of the banks’ legal departments in order to see if the issue was a fundamental problem with commonhold – largely, it has not been.

The developers’ banks on both schemes (two very well-known lenders) have taken some persuading. However, we now have the HM Land Registry CON1 (consent to commonhold) forms in from both lenders.

The buyers’ solicitors

Despite being on the statute books since 2002, and in force for 11 months, we have found a very mixed response (and some very strange attitudes) on the high street.

One practitioner attempted to spoil a purchase for prospective buyer. He advised his client that commonhold was never going to take off! The same practitioner also said that he was not prepared to invest time and money in training his people, and completely refused to act on any commonhold scheme.

To counter the negativity we have encountered, we have put together a panel of firms across the country that are happy to deal with commonhold and that are recommended by the agents to buyers. The prospective buyer referred to above, undeterred, found himself with one of the panel lawyers and is now proceeding

The agents

Most agents had not even heard of commonhold. We have invested time in conducting meetings with the agents and continuing to discuss and educate. The production of brochures introducing the concept assisted the agents and the prospective buyers.

A matter of best practice

Clearly, this is a legitimate form of land holding and advisers simply cannot afford to ignore commonhold any longer. Developers may have been a little slow on the uptake of commonhold (this may have been because advisers had not been giving their developer clients the correct scheme advice), but things are beginning to change. In many instances commonhold is by far the most appropriate and best answer. Failure to advise clients of the option of commonhold may be seen as being negligent in the years to come.

A track record

Commonhold was first considered properly in the Commonhold Interdepartmental Group in the House of Commons in 1986. It went through many changes and governmental committees before it finally emerged in the 2002 Act. Commonhold has had the best legal academics and practitioners in the country involved in its preparation and it is here to stay.

There are precedents. It has been successfully working and growing in the US (where it is called ‘condominium title’), Australia, New Zealand and Singapore (‘strata title’) for decades.

Commonhold will evolve organically as any law does. This does not mean that practitioners can sit back and wait – the fundamentals of commonhold work. Adaptation and careful drafting allow us to embrace commonhold now. © Property Law Journal