What is a Commonhold Property?
Estimated reading time 6 minutes
Commonhold is a term you may not be familiar with as the majority of properties in the UK fall under either leasehold or freehold.
Commonhold is a form of home ownership of the freehold in a building or estate. A freehold estate – a block of flats for example – is divided into units (the flats) and common parts (stairs and other shared spaces). The flat would be owned by the unit holder and the common parts are under the ownership of a commonhold association.
What is the commonhold association?
The common parts of the property will be under the ownership, as mentioned above, of the commonhold association. This is a limited company that consists of the owners of each property in the building. Membership to the commonhold association is automatic for all property owners within the building and comes with a degree of responsibility.
It will be responsible for the upkeep of all common parts within the building. All members are required to sign a statement known as the ‘commonhold community statement’. This sets out the obligations as well as the rights of all the unit holders. It will ensure a set of terms and conditions are met and agreed to. Often it is much like a standard lease, outlining the responsibilities of all that live there as well as agreements over behaviour within the estate. The statement may also suggest a commonhold assessment to be drawn up.
What is a commonhold assessment?
Should a commonhold assessment be drawn up, it will illustrate the costs of managing the estate. This could range from general cleaning of common areas to repairs and maintenance of the building. It is also quite common to find a sinking fund established. This is used to cover significant repairs to the common areas or one of the properties within the estate.
If you have regularly paid service charges in the past, you can think of a commonhold assessment as similar to that. Each homeowner or occupier pays a percentage of the commonhold assessment to the association so that funds are held to pay for the services that provide its upkeep, restoration, or maintenance.
Some unit owners may feel that the charges are not fair and refuse to pay them and where in some property types, a possession order may be put in place for defaulting on payments, no such action can take place in this instance. All the properties are freehold so rather than a possession notice being served, the commonhold association would follow a common debt recovery procedure to get back any missed payments from a debtor. Ultimately, it makes sense to pay it as not only is it part of an agreement held by all property owners in the estate, but it also helps share the maintenance costs of the areas you share and areas you live in.
What are the benefits of commonhold?
Commonholds do provide benefits to homeowners and are sometimes forgotten about by people due to the reluctance of mortgage lenders to offer mortgages on such properties and property developers missing out on the ground rents that leasehold properties may bring.
However, the benefits are worth considering.
- With each property you own in commonhold, you own it as a freehold, meaning that rather than owning a property for a set period, you have it forever.
- You also benefit from there being no obligation to pay ground rent.
- No restrictions over selling your whole part of the commonhold.
- Not restricted by a building landlord’s decisions
- All property owners have equal rights
What are the disadvantages of commonhold?
As with anything that has its pros it also has its cons, and with commonhold, there are a few to take note of. We mentioned above the reluctance of mortgage lenders and this is perhaps one of the main disadvantages in commonhold. Due to the establishment of the commonhold association being listed as a limited company, it could at any time be struck off the register after poor management leads to it going bust. Lenders see their security being put at high risk and may not want to take that gamble.
Further to that, a few additional disadvantages can also become apparent:
- A commonhold association must be formed to ensure the rules of the commonhold agreement are met. This could at times lead to disputes between the committee and neighbours.
- If the property is being converted to commonhold, it can prove to be extremely expensive.
- The variable nature of commonhold agreements could see disputes between homeowners that can only be resolved in court. With commonhold being relatively new compared to other home ownership types, this could see new ground being covered in court which could make things costly, drawn out and not resolvable in a way you had anticipated.
How are disputes settled under commonhold?
There should be rules set out in the commonhold agreement, also known as the Commonhold Community Statement, that outline dispute resolution. Both parties in the dispute should follow this before taking any further action. This way, expensive legal costs can often be avoided, and a suitable resolution found. Sometimes though, things can arise where there are no such rules within the commonhold agreement and seeking legal advice may be the most suitable option.
Are you allowed to convert from leasehold to commonhold?
Those already holding a lease might be able to convert the property to commonhold but it isn’t without its challenges. With the freeholder owning the building as well as the land, all the property owners must be given permission from the freeholder to be able to buy the freehold.
Then, each property owner must agree to convert to a commonhold. Once all are in agreement the process can begin but it can take a lot of time and cost a lot of money. Any such decision should be taken with full guidance from a solicitor.
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