Commonhold Ownership – a way out for trapped leaseholders?
24 March 2022
With events such as the Grenfell Tower fire putting a spotlight on fire safety in private tower blocks, many leasehold property owners have found themselves footing the bill for the removal of unsafe cladding. Clarke Williams, Legal Assistant in our Residential Conveyancing team takes a look at Common Ownership as an alternative to leasehold ownership.
The tragic events at Grenfell Tower block in 2017 had far reaching and lasting consequences for so many of us living in Britain. The Government has been rightly pressured into addressing fire safety concerns in private tower blocks, but for one particular group the disaster has had a direct and profoundly worse impact on their day to day lives.
Many owners of leasehold properties, especially in high rise tower blocks, have been footing the tab for the removal of unsafe cladding since the disaster took place, sometimes facing enormous bills for maintenance work in addition to monthly Ground Rent. Building insurance for this group has sky rocketed as a consequence, some companies quoting increases from £40,000.00 a year to £200,000.00 a year.
Many cannot afford to pay the increases, leaving them with a home so encumbered by increased costs that they essentially become worthless and almost impossible to sell. The Government has recently introduced measures to assist leaseholders caught up in the cladding crisis paying more than £10,000.00 outside of London, and £15,000.00 inside of London. This is positive news, but it still represents an insurmountable amount of money for many.
The Leasehold Reform (Ground Rent) Act 2022 [1], received Royal Assent on 8th February 2022. The Act seeks to restrict ground rents on newly created flats to a peppercorn and limit situations where leaseholders would end up paying large monthly rents alongside mortgages as well as removing the ability for freeholders to charge administrative fees for collecting any rent.
So what is Commonhold tenure and how could it help?
Commonhold tenure is a relatively new type of ownership model in England and Wales but in many ways is similar to a Leasehold title. People wishing to purchase a property under Commonhold tenure will still be buying a portion of a larger freehold estate. The crucial difference however is in how the Freehold title is managed.
In leasehold ownership, a landlord controls the freehold and usually imposes a ground rent as part of a fixed term lease. Under a Commonhold system, properties are divided into units and each unit makes up a share of the overall freehold. The main benefit of this is that individual owners collectively own the freehold and are not tied to a fixed term lease agreement. This collective, known as a Commonhold Association, would each contribute a fee towards the maintenance and upkeep of the common areas of a property and how these fees were spent would be decided by the unit holders themselves, as opposed to a landlord.
Leaseholders can, under current rules, purchase a freehold title for themselves, but this is usually done through the creation of a management company and the unanimous consent of all other leaseholders, the freeholder and their lenders is required to complete the process. Commonhold tenure would protect leaseholders from the imposition of ground rent and from the need for third party ownership, as each unit combined would make up the complete freehold title.
Whether Commonhold tenure will offer a genuine solution to current Leaseholders is less clear. The Government opened a consultation in January 2022 in which homeowners and the housing industry are being invited to provide their views on proposals with specific reference to the leasehold system and its operation [2]. Leasehold Minister Lord Stephen Greenalgh stated; “we want to see many more people have the chance to own their own home and, when they do, to enjoy it and feel confident that it is truly theirs.”[3]
The Government hopes to see wider use of Commonhold tenure in the housing market, even though the idea is still relatively novel, its current take up has been low. A report was commissioned with regards to how to promote Commonhold to the wider market and this was published in July 2020 [4]. The report produced a number of policy recommendations which the Government is considering. The notion that Commonhold would become compulsory for properties previously considered for leasehold has been mooted, but this would be a radical step which the Government does not look to be considering at the moment. Their aims are more focused on presenting Commonhold as an attractive alternative to Leasehold, from both a property development perspective and an occupational one.
Ultimately however, the Governments drive to promote Commonhold tenures may not be enough to help those stuck in Leasehold tenancies today. Capping payments made towards the removal of unsafe cladding is a step in the right direction, but as long as leasehold tenure remains, tenants will remain beholden, to at least some degree, to their freeholders. If Commonhold tenure was to become far more widespread than it is now, it could represent a solution to the issues currently facing leaseholders. However, with such paucity in its uptake and a lack of policy enforcing its use, the Governments hope for Commonhold expansion in the future, will likely be of little comfort to leaseholders facing the problems of today.
Get in touch
If you require advice on any residential leasehold matter, or any other residential conveyancing support, please contact our property team on 01646 683 222 or email enquiries@redkitelaw.co.uk
[1] https://www.gov.uk/guidance/leasehold-reform-ground-rent-act-2022
[4] https://www.lawcom.gov.uk/project/leasehold-enfranchisement/
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.