Commonhold; the answer to the woes of leasehold ownership?
As the requirements of lenders in terms of what constituted an acceptable leasehold title are becoming stricter and stricter, more and more leases which were absolutely compliant only a few years ago are now finding themselves falling foul of the lenders' benchmark. Add into this issues with service charges, ground rents, lease terms, management to name but a few and you have to ask "surely there is a better way?"
Recently a file concerning an artist's village comprising a mixture of residential and live/work studio units crossed my desk. The leases were granted back in the 1950's and since then statute has evolved and the minimum expectations of lenders have developed following case law. As a result, the perfectly acceptable lease of the 1950's is now utterly unmortgagable.
These properties don't change hands very often; the bespoke nature and location of the properties meant that residents often remained throughout their lives and the studios only went to market on death or divorce. The estate is managed on an ad-hoc basis by a company owned and controlled by the artisan leaseholders. In short, we were faced with trying to fit a 1950's peg into a 2019 hole and getting nowhere because, primarily, of needing to vary so many leases across the estate.
The Law Commission have recently published the Consultation Paper “Reinvigorating Commonhold: the alternative to leasehold ownership” in response to an increasing call from the public to address some of the short comings in leasehold ownership.
On the face of it, could the reinvigorated Commonhold system offer solutions to these situations? Leasehold ownership as it stands is prefaced on the basis of a Landlord vs Tenant situation; it is adversarial in its set up.
However, this starts to run into tricky waters where the tenants and landlord are one and the same, just wearing different hats. Commonhold would entail a fundamental cultural shift from this adversarial stance to a collaborative approach of "unit owners with shared common areas". There would be a single Commonhold Community Statement to which all unit owners subscribe; no longer would the cohabiting "rules" be found in separate documents (the Lease) for each tenant. One central document; easier to correct and evolve as law changes.
Commonhold would also address more clearly multi-purpose developments with commercial and non-commercial units by having different "Sections" in the Commonhold Community Statement.
No longer would the owner's property be a wasting asset as the term diminishes. Leasehold Enfranchisement (extending a short lease term) would be all but removed.
Sounds good does it? In theory, perhaps. But how revolutionary is it? Haven't we heard all of the rhetoric before? Commonhold does, after all, already exist; since it first became available in 2004 fewer than 20 Commonhold titles in England and Wales have been created. The idea sounded great, but what resulted, well… you only have to look at the title of the recent Consultation Paper.
In my view the biggest challenge will be the cultural shift that is required; not only on the part of the buyers and solicitors, but primarily on the part of lenders. Until and unless the Council of Mortgage Lenders wholeheartedly embrace and promote a shift to Commonhold, Leasehold will remain with us, warts and all.