The Law Commission Proposals On Commonhold

• Published date: 13 August 2020
• Subject Matter: Litigation, Mediation & Arbitration, Real Estate and Construction, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Arbitration & Dispute Resolution, Real Estate, Landlord & Tenant - Leases
• Law Firm: Charles Russell Speechlys LLP
• Author: Ms Lauren Fraser

Commonhold was a new form of housing ownership introduced in 2004 by the Commonhold and Leasehold Reform Act 2002. It was intended to challenge leasehold but has failed spectacularly to take off. In the meantime, the leasehold system itself has come under further criticism and scrutiny by the Government, leading to the issue of three Law Commission reports on the future of residential leasehold last month. Our summary of the overall approach can be found here and links to more detailed notes on Enfranchisement here and Right to Manage here.

In respect of commonhold, the Law Commission has been tasked to "re-invigorate commonhold as a workable alternative to leasehold, for both existing and new homes". There are two principal barriers to the more widespread adoption of commonhold. The most fundamental obstacle is that commonhold in its current form does not work. It has a high barrier for conversion, is insufficiently flexible to allow the development of new properties and causes difficulties for those managing commonhold properties. The Law Commission's report sets out 121 proposals which it claims will resolve the structural issues with the regime.

The other obstacle is that developers and other investors in the residential property sector have no incentive to adopt a new and untried form of tenure whilst leasehold continues to work for them. The Law Commission's answer to this is that the Government must either ban new leasehold developments or offer sufficient incentives to developers to use the commonhold structure. Their firm view is that if the Government does not actively promote commonhold, leasehold will continue as the prevailing form of home ownership in this country.

Conversion to commonhold

Unanimous consensus is currently required from the building's leaseholders, freeholder (and other landlords) and any lenders before a conversion to commonhold can proceed. The Law Commission considers this to be an unacceptable obstacle and so has proposed the following:

• Leaseholders may acquire the freehold compulsorily through the new "collective freehold acquisition" process, thus sidestepping the requirement for the freeholder's consent. This procedure is set out in the Law Commissions proposals regarding enfranchisement. The Law Commission has proposed a single "acquire and convert procedure" where leaseholders wish to convert to commonhold.
• Homeowners will only require the support of 50% of leaseholders in a building to convert to commonhold. The...