Commonhold: Freeholds for Sale!

The UK property market is regarded as one of the most mature and sophisticated in the world. However, in one respect we have lagged well behind other countries, that being the ability to transfer the freehold of a unit within a property where the unit is dependent upon the maintenance of other parts of the property. A good example of this is a flat within a block where each flat owner will need the structure of the building and its common parts to be maintained.

The problem is not limited to blocks of flats. It applies to all properties where there is a dependence on the maintenance of other property; for example, retail units in a shopping arcade or retail park, units on an office park, and floors within office blocks

The reason there has been a difficulty in selling freeholds in such situations is that under English land law the obligation to perform positive covenants entered into upon the transfer of a freehold does not pass automatically to subsequent owners when the freehold is sold on. A positive covenant is simply an obligation to do something, such as in the case of a flat owner an obligation to contribute to a service charge incurred for the maintenance of the structure of the block and the common parts.

Conversely, if a leasehold interest is created the obligation to perform positive covenants will pass...