Commonhold developments in practice

Xu, Lu (2015) Commonhold developments in practice. In: Modern studies in property law :. Hart Publishing, Oxford, pp. 331-350. ISBN 9781849466226

Abstract

This is a project funded by the British Academy. The main findings of the research are as follows: 1) There are only 141 commonhold units, from 16 operational commonhold schemes in England and Wales, as of 1st January 2014. A significant proportion of these were created within the first two years of the commencement of the commonhold regime, before any problem became public knowledge. The turning point for commonhold, evidenced by a sharp drop in interest, was 2006. No operational commonhold scheme was established since August 2009, further indicating that the institution would not recover spontaneously without significant intervention. 2) The main reasons for choosing commonhold were personal preferences and fortuitous encounters with the concept, often not made in the course of profession or business. No major developer or conveyancing firm ever adopted commonhold. Many commonhold schemes were set up to help deal with situations in family or with other personal relations, by people not otherwise involved in the property development or legal sector. On the other hand, a very small number of professional had a huge impact on the number of commonhold. This research identified three individuals, unrelated to each other, who established among them more than half of all existing commonhold units in England and Wales. 3) The statutory structure for the daily operation of commonhold runs reasonably well, with no notable difficulty or inconveniences. Most commonhold schemes, despite being small, comply with formalities such as annual return and account at the Companies House, even if the information returned was not always helpful or accurate. With the small number of commonhold in existence and studied, no sophisticated dispute resolution mechanism has been needed. Some of the criticism from commentators prior to the commencement of commonhold about the lack of power for commonhold schemes to force compliance was perhaps unjustified given that such special powers might have led to further alienation of an unpopular concept from ordinary property owners and managers. 4) There is a distinct lack of understanding of the commonhold concept throughout the professions connected with real property transactions and management. A number of conveyancers helped creating commonhold as a favour for a friend or a former colleague, often free of charge. As time went on and commonhold never really grew beyond the first couple of years, it seems that many conveyancers no longer understand the concept or at least are unable to convey their understanding to their clients. Several commonhold unit owners felt that their conveyancers did not properly advise them on the differences between commonhold and leasehold or freehold, or they would not have bought the properties in the first place. The sense of misunderstanding, confusion and ignorance is even worse amongst estate agents. Properties that have nothing to do with commonhold are being advertised as commonhold. While genuine commonhold properties are sometimes forced into being labelled as freehold, or even leasehold, when put on market. 5) The most formidable challenge facing existing commonhold is the availability of mortgage finance. More than half of Council of Mortgage Lenders members either refuse to lend outright on commonhold, or impose stringent conditions on commonhold lending, such as for existing mortgage only. There is no clear explanation as to why banks hesitate to lend on commonhold, especially when some of these institutions would lend on flying freehold while rejecting commonhold. The effect of a loan rejection by a high street lender severely impacts on the parties involved. And it often becomes contagious within a scheme and beyond so that others start to worry about the long-term value and saleability of their units. This factor seems to singlehandedly outweigh all theoretical advantages that commonhold may have on the mind of commonhold owners who are aware of it. 6) Several commonhold unit owners have been unhappy enough about the system to having gone to look for a way out. The long legislative process that led to commonhold perhaps did not envisage such a desire so quickly after the commencement of the new system, to the extent that all the statutory mechanisms for the winding-up of commonhold would not help owners who want the scheme to continue to function as ordinary leasehold. It is unclear as to how owners can get rid of commonhold structure, but not the flats and the parts of the buildings owned by the commonhold association. Nor is it clear what entity or structure could succeed the commonhold, other than another commonhold provided for in the statute. 7) It is clear from the study that commonhold has failed to take any root in England and Wales. It is not going to recover on its own without significant conjoined efforts from a number of key stakeholders including the government, property developers, conveyancers and financial institutions. It is time for policy makers to make a decision. Either to revive and reinvigorate commonhold with policies, words and actions, or to put a proper end to an unpopular concept which has not worked out well. Commonhold will not become even slightly more popular as things stand in practice.