Release the Lease: Would a commonhold system be advantageous over conventional leaseholds?

August 4, 2020

3 min read

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What's going on here?

The Law Commission has stated that it wants to “reinvigorate” commonhold as an alternative to leasehold. This comes in response to leaseholders who feel that their relationship with property is not in line with true home ownership.

What does this mean?

Before exploring commonhold, it is worth noting the differences between freehold and leasehold.

A freehold is outright infinite ownership of a property and the land it stands on. However, a leasehold confers ownership rights in property which last for a specified period of time. In Street v Mountford [1985], the requirements of a lease were defined:

  1. a grant of land;
  2. for a term;
  3. with exclusive possession.

The grant of land under a lease simply means that the leaseholder is given an estate in the land (the same as a freeholder). But, with a leasehold, the “term” is for a specified number of years, rather than infinite occupation. “Exclusive possession” means that the leaseholder has the power to keep strangers and the landlord out of the property, which is also a freeholder power. Therefore, the landlord cannot be living at the property or have unrestricted access. It is then clear that the principal difference between freehold and leasehold is the “term”

Meanwhile, commonhold was introduced by the Commonhold and Leasehold Reform Act 2002 and is traditionally seen in blocks of flats, and other interdependent buildings with shared services and spaces. It seeks to create freehold “unit-holders” who own their own flats, and contain “common parts”, which confer rights and duties to the unit-holders, to look after communal spaces.

What's the big picture effect?

The issue behind this story is that leaseholders feel that they do not truly own their homes. Theoretically, this feeling is correct; leaseholders do not own a freehold title. Commonhold would attempt to bridge the gap between outright ownership and renting, but convey communal responsibility to unit-holders. 

However, a potential move towards greater commonhold ownership is not without concern. Despite being introduced in 2002, less than 20 commonhold developments have been built. Larger developments have been criticised for inflexibility, with mortgage providers unwilling to lend. This is likely due to the limited knowledge of what these developments would realistically entail. 

Naturally, additional concerns regarding commonholds can be noted in light of Grenfell. Since the 2017 fire, a property agents’ survey has unearthed half a million people living in private flats with flammable aluminium composite (ACM) cladding, together with a further 1,375 leased buildings at risk from other types of combustible cladding. Unfortunately, leasehold agreements state that the leaseholder is liable to pay costs if safety amendments are necessary, which is unaffordable for the majority. Accordingly, this raises questions in relation to commonhold, along the lines of who would be liable for building safety costs. If freeholders are not liable for their leased properties, it may be the case that commonhold unit-holders would reject such responsibility: they are neither freeholders nor leaseholders.

Left unresolved, commonhold could become a major problem for the government. Funding obligations to ensure building safety may arise, and mortgage lenders may continue to be wary of the uncertainty. On this note, it will be interesting to see what financial incentives are used to attract commonhold buyers, since one is yet to be raised. Yet, as limited progress has been made since 2002, it may take a while (as far as late 2021) for commonhold to be drafted in legislation, let alone for the system to be advantageous in practice, on the basis of viability and legality.

Report written by Evangeline Taylor

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