Can commonhold land ownership ever be a successful solution?
March this year saw the Law Commission carry out a thorough consultation on the topic of commonhold land ownership. The aim was to gauge industry opinions on a set of proposals, each focusing on improving the scheme.
Unfortunately, the response was largely negative, with many feeling the proposals were biased towards consumers. However, the Ministry of Housing, Communities and Local Government (MHCLG) appears to have ignored these criticisms and is pushing on regardless.
Debbie Irwin, a partner in our real estate team, explains the issues surrounding commonhold:
First introduced by the Commonhold and Leasehold Reform Act 2002, commonhold land ownership was seen as a revolutionary measure, giving tenants greater rights and freedoms than ever before. More than anything, the Act offered a potential solution to rogue landlords and excessive ground rents, by helping to create a level playing field.
There may have been good intentions behind the idea of commonhold, but the implementation was largely unsuccessful. Although it solved one issue, a number of others were created. In fact, the Law Commission stated that since 2002, fewer than 20 commonhold developments were built. Additionally, the Conveyancing Association revealed in 2017 that there were a mere 175 commonhold owners. Compare this to the four million leasehold homes in England alone, and the extent of the Act’s shortcomings are clear.
Why did it fail?
1. A lack of understanding – People were ill-informed about how commonhold works in practice, particularly how the process functions without a landlord.
2. Too many assumptions – Commonhold relies on tenants agreeing on certain decisions, but what happens if they don’t?
The Act seems to assume there will always be agreement and offers little guidance for when there isn’t.
3. A lack of inclusivity – Commonhold doesn’t consider homeowners who need mortgages or the protection of lenders.
4. It made things harder for developers – Properties are built in phases, with flats sold at different times. Therefore, developers have less land to back up their own loans
One proposal involves bettering the rules of the Commonhold Association. The Association provides commonhold tenants, who are automatic members, with the necessary rules and guidance needed to carry out the process. However, it fails to address unbalanced voting powers. The mixed use of developments is now a common occurrence, so residents and businesses need to have balanced voting powers to ensure everyone’s requirements are met.
Additionally, the recent proposals glossed over who is to be in charge of a commonhold development now that the majority of people work part- or full-time jobs. Contractors must be paid and insurance obtained, but who has the time to do this alongside a career?
Once again, lender and developer issues have largely been ignored. The MHCLG still seems unwilling to solve the problems commonhold has created for the wider industry.
• Improve the leasehold system instead of trying to fix an unsuccessful scheme
• Improve communication between tenants, landlords, lenders and developers, allowing them to work together
• Provide advice and codes of practice for tenants and landlords
• Extend the rules for challenging service charges – regulation is needed
As it stands, commonhold is unlikely to be the perfect solution to the housing crisis. A major overhaul is required to make the scheme accessible to a range of people, rather than just a niche few. Other solutions must be considered to allow everyone to benefit from any further changes.