It’s finally time for Residents line to change its articles on Commonhold and Leasehold Reform from the future tense to the present. It is now possible for new interdependent developments to be built on a Commonhold rather than a Leasehold basis. It is also possible for a group of Leaseholders or owners of freehold flats to convert to Commonhold tenure.
The practical detail is contained in the Commonhold Regulations 2004 which provides standardized documents for both the Commonhold Association (CA) and the Commonhold Community Statement which specifies the properties and rules of the Commonhold.
In a Commonhold development the Commonhold Association owns and manages the common parts and its members are exclusively Freehold owners of the Commonhold units, but subject to the rights and obligations inherent in Commonhold prescribed by the Commonhold Association and Community Statement.
The Commonhold Community Statement specifies the properties and rules of the Commonhold. Land can be registered as Commonhold only if there is:
Only unit holders can be members of this company and it must have standard Memorandum and Articles of Association which are prescribed in schedules 1 and 2 of the 2004 Regulations. Any additional provisions must be clearly labeled as specific to that Commonhold.
There must also be a Commonhold Community Statement (CCS) which is prescribed in schedule 3 of the 2004 Regulations.
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The Commonhold Regulations 2004 are very precise, later amendments to the CCS are only allowed within strict parameters of these regulations under the 2002 Act.
Details of particular Commonholds such as insurance and payment of Commonhold Assessments will be found in the “local rules” contained within each CCS.
A CCS cannot restrict the right of the unit holder to sell, mortgage or otherwise deal with their unit although restrictions apply on leasing residential Commonholds. Leaseholders can convert to Commonhold provided that they are unanimous with the freeholder and any immediate leaseholder and they have the consent of any other parties with a charge (e.g. mortgage) over the flats. Thus, in practice, conversions are likely to involve smaller blocks. Commonhold may also appeal to the owners of leasehold flats where the freehold is collectively owned, who by converting can make their property more marketable.
The Directors of the Commonhold Association need not be members, but have a duty to manage, run and enforce the Commonhold obligations set and consult on annual Commonhold assessments together with emergency assessments if the need arises.
If units are let, the Commonhold Association can direct the tenant to pay the rent to the CA if the unit owner fails to pay for assessments. Any disputes are resolved by recourse to conciliation and mediation with access to a Commonhold Ombudsman.
The clean break principle means that once the unit is sold any debts that are owed at the time of transfer will become the responsibility of the new owner.
If you want to gain further understanding of how Commonhold works and how it differs from conventional forms of ownership there is a learning package available at www.landregistry.gov.uk called Guide to Commonhold.
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