What is a commonhold property?
8th April 2019
By Lyndsey Hall
If you’ve ever bought a property, you will have come across the terms freehold and leasehold, but you may not be aware of a relatively-new, third option – commonhold.
The little-known alternative for homeowners was introduced fifteen years ago and is effectively a middle-ground between freehold and leasehold. Where freehold means the property owner also owns the land their home is built on, and leasehold means the homeowner pays a ground rent to a landlord who owns their plot of land, commonhold is a sort of group freehold for shared residencies, like blocks of flats.
Homeowners have long bemoaned the leasehold system, complaining of extortionate ground rents, prohibitively expensive leases and strict rules regarding alterations and renovations to the property. Managing agents have also been criticised for over-charging for repairs to common areas in apartment buildings, such as roofs. The Law Commission, the government’s law reform adviser, now wants commonhold to be more widely available in England and Wales and is consulting on reforms.
Commonhold gives ownership and control of the block to flat owners, and is managed by a company made up of the owners. Properties are owned forever under the system, so there’s no ticking clock for renewing a lease, and no landlord charging exorbitant ground rents or maintenance costs. However, uptake has been low, with only 20 commonhold developments created since the Commonhold Act came into force in 2004, including one in London and one in Manchester.
The Law Commission attributes the lack of take-up to shortcomings in the law governing commonhold, mortgage lenders’ unwillingness to lend on such properties, a lack of awareness of the system, and existing financial incentives for developers to use leasehold.
Over four million people own leasehold properties in England, with over half of those on leases of under 80 years, leaving residents vulnerable to inflated lease extension costs.
In 2017, the government announced that people buying new-build houses in England would no longer be obliged to enter into leasehold agreements, and anyone buying a property on a lease of longer than 21 years would not have to pay ground rent. The decision followed revelations that thousands of people buying new homes had been subject to what the government called “feudal practices”, with ground rents doubling every ten years in some cases.
In other cases, homeowners found their freehold had been sold to investment companies without their knowledge, and they were being told they’d have to pay tens of thousands of pounds to buy it.
“It’s unacceptable for home buyers to be exploited through unnecessary leaseholds, unjustifiable charges and onerous ground rent terms,” said former Communities Secretary Sajid Javid. “It’s clear from the overwhelming response from the public that real action is needed to end these feudal practices.”
Have you heard of commonhold properties before? What’s your experience of leasehold, have you ever had issues with extending a lease or buying a freehold? Talk to us in the comments or on Twitter.