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Commonhold is a new form of tenure, introduced to address the problems associated with leasehold property:
commonhold does not lose its value over time in the same way as leasehold, as it does not have a diminishing lease term, and so the unit-holder's interest remains suitable as security for mortgage finance
there is no need for a landlord - the Commonhold Association (the 'CA') and unit-holders manage the commonhold
the commonhold documentation is largely standardised, making it easier to identify unit-holders’ rights and obligations, and
there is only one set of documentation for the whole commonhold
Unlike freehold, commonhold provides a straightforward legal mechanism for making the burden of positive covenants (such as an obligation to pay towards maintenance and services) bind successive owners. Although new in this country, similar systems have operated very successfully in the USA, Canada and Australia for many years.
A commonhold consists of units and common parts. The owners of freehold units are called unit-holders. The common parts are shared facilities such as the roof, stairs and landings. Unit-holders have two distinct interests in commonhold. The first is a direct interest in their unit and the second is an interest, through the CA, in the efficient management of the whole commonhold.
Although particularly suitable for flats commonhold can be used for all types of property with interdependent parts such as units in an office building, a business park or a housing estate where services are provided and some measure of control is required.
Creating a commonhold
The freeholder of land may apply for it to be registered as commonhold. Where the application relates to an existing building or estate, registration requires the consent of holders of a lease of more than 21 years or of any charge. The Land Registry has produced detailed guidance on the steps that must be taken to set up and register a commonhold - Land Registry guidance.
Running a commonhold
A CA must be set up to be responsible for the structure, common areas and services. It will be the proprietor of the common areas and has a duty to manage repair and maintenance works and the provision of services. The CA is a company and must have a Memorandum and Articles of Association in the form prescribed by regulations. Each unit owner will be a member of the CA. The CA must be registered at Companies House.
The CA must manage the Commonhold in accordance with the terms of the Commonhold Community Statement (CCS). The CCS sets out the extent of the commonhold properties, the rights and obligations of the CA and unit-holders and procedures for dispute resolution. The CCS, memorandum and articles should all be registered at the Land Registry.
Time for commonhold to catch on?
Commonhold offers developers and consumers a new and efficient product. It gives freehold ownership of units, standardised documentation and the unit-holder's entitlement to be a member of the commonhold association which owns and manages the common part.
The Council of Mortgage Lenders supports commonhold for new developments and consequently many lenders have indicated their willingness (in principle) to lend on commonhold developments.
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