A share of a freehold is exactly as it is described. The freehold is shared between multiple people. Nonetheless, the topic is certainly fairly complicated and there are a range of ways that a shared freehold can be set up.
So, if you are in the market for a new property, or considering purchasing a property with a shared freehold, While shared freehold arrangements can be a smart financial decision, they also come with their own set of challenges and complexities.
Understanding the different types of shared freehold and how charges and fees are calculated is crucial to making an informed decision. Fortunately, our article provides valuable information on these topics and more.
By the end, you’ll understand how to get a share of the freehold and the benefits of doing so, including greater control over maintenance and cost savings. Keep reading to learn how owning a portion of the freehold can be advantageous for you.
What does commonhold ownership mean?
It is useful to think of commonhold ownership as a type of freehold ownership rather than a separate type of ownership altogether. A commonhold should fall into the category of being a type of freehold much like a flying freehold.
These types of freeholds are all governed under the same area of the law (The law and property act 1925) so they should be put into the same category rather than being thought of as something entirely different.
What a commonhold is essentially a freehold that doesn’t expire. This means the freeholder will remain the freeholder for an indefinite amount of time and there are no leaseholders in the property.
However, you may wonder if you own the freehold for an indefinite amount of time, how is this any different to owning a house that is bought normally? The answer is because there are still shared areas of the property and this is what forms the commonhold.
To make this make sense in a real life example, imagine there is a block of flats and all of the flats are owned by different people. They all own the flats that are in the building as part of a freehold agreement rather than a leasehold agreement.
However, there are still shared areas of the flat that all the freeholders have to contribute towards as part of the commonhold association they are under. This is known as the commonhold.
On top of this, but without this being mandatory or necessarily common, the freeholders of the flat are all able to have their own individual leaseholder if they want to but this is besides the point and doesn’t affect the agreement of the commonhold.
Also, it is possible to be part of a commonhold association even if you aren’t a freeholder but every member of the commonhold is bonded under the same agreement known as a commonhold community statement.
What is the difference between a leasehold and commonhold?
To make things simple, a leasehold is the agreement between a leasehold and a freeholder and the leaseholder will be able to own the property that the freeholder owns the land that the property is built on for an agreed upon period of time.
On the other hand, a commonhold is an agreement between individual freeholders where multiple freeholders come together to form a commonhold and there is an agreement between them to take care of the shared areas of the building.
As a result, if you are in a commonhold agreement, you will have a significant amount of more control over the property as there are a series of differences when it comes to leaseholds vs freeholds and as a commonhold owner you are by default a freeholder too.
As a leaseholder, you are subject to things like service charges and section 146 notices which is where a freeholder or block manager asks for more money through service charges and on top of this a leaseholder isn’t always able to make changes to their property.
So, if you are planning a cool renovation of your home and you are a leaseholder you may have to think twice about whether you are actually allowed whereas a commonholder (who is a freeholder anyway) will never run into this problem.
How is a commonhold different from a freehold?
Someone who is involved with a commonhold and is most likely a freeholder as well. This is because the commonhold contains members of a shared building who are all freeholders but need to form an association to take care of the areas that are shared.
So, the commonhold refers to the shared areas of a building owned by a group of freeholders and the freehold are the individual units in the building that can be leased individually to leaseholders.
What are the common parts of a commonhold?
In a commonhold, the whole purpose of one is that there is an agreement for all the freeholders to collectively take care of all the areas in the property. But what are these common areas?
Well, they are not just the obvious places like the corridors in between flats but they also refer to the more technical areas of a building such as the roof, the areas within the loft that is used for storage and also places like stairwells and stairs.
Most of the time, a commonhold unit which is essentially a freehold unit has boundaries that are the internal walls of the flat. So, if there was damage to an internal wall of a flat, this would be the responsibility of the freeholder to repair individually.
On the other hand, if there was an external wall that was damaged, they would refer to the commonhold association to assist them with costs and the commonhold association may even take money out of the reserve fund they have in place for emergencies.
In some commonhold agreements, it may be the case that certain members and parties of an association are responsible for certain common areas but this will have to be agreed based on the individual and can vary a lot between agreements.
All in all, any area that is not directly and exclusively owned by a member of the commonhold is then a common area and even places like outdoor gardens, gyms and perhaps the pavement outside a development (if it is a private road) will all be part of the agreement.
Are there any advantages of commonhold ownership?
There are certainly a series of benefits that come along with commonhold ownership including the fact that the lease of a commonhold will never expire. For instance, as opposed to a freehold agreement where the freeholder owns the land for a set period of time.
No expiry date
In a commonhold agreement, there is no expiry date of the commonhold so even if the freeholders change, there will be no change to the commonhold. This means the shared areas of the property will always be able to be managed by the leaseholders.
Decisions are made as a collective
In addition, commonhold agreements are good because decisions are made as a collective and there is no overruling opinion such as in the case of a freehold and leasehold relationship where whatever the freehold says goes most of the time due to the fact that they own the land.
Freeholders are held accountable
Furthermore, because the commonhold association groups all of the freeholders together and holds them all accountable for the repairs within a building if they are needed, it is very unlikely that the building will fall into a state of disrepair.
This is extremely useful for leaseholders as they will then be able to live more freely within the property without having to face additional service charges and their service charges may also be reduced as a result.
Are commonhold owners protected by leasehold legislation?
No, the commonhold laws (like adverse possession laws) are a lot newer than any laws that are there for those in a leaseholds. As a result, a lot of the rights that are available for leaseholders are not available for those in a commonhold.
For instance, the financial transaction tax that is involved in a property is able to be applied to the leaseholder but it is not able to be applied to a commonhold in the same way.
Hence, it is the job of those in a commonhold agreement to plan carefully and understand they are at an extreme disadvantage when it comes to the law and it is therefore more important than ever to come up with the right covenants in the commonhold agreement that protect them.
If someone in a commonhold is not sure about how to set up their agreement correctly then they should attempt to speak to a solicitor who will be able to advise them on writing a contract and may even be able to write a contract on their behalf.
Is it possible to convert a leasehold into a commonhold?
One of the reasons why you may not have heard of a commonhold is because they are very rare and they are rare because it is hard and troublesome to convert a leasehold into a commonhold. So, it is certainly difficult to convert a leasehold into a commonhold but it can be done.
In addition, common colds are not accepted by those who are invested in freeholds like lenders and developers as it is far easier to lend a mortgage to a leaseholder rather than a freeholder as part of a commonhold.
Have commonholds failed?
It could be argued that the legislation of the Commonhold and Leasehold Reform Act which was introduced in 2002 has failed because the development of commonholds has been very slow and continues to be slow.
In 2009, seven years after the act was introduced, there were just 12 common holds developments in the UK. On top of this, as of 2020, which is another eleven years later, just 8 more commonhold agreements were built, bringing the total to 20.
These are shocking numbers and they are due to the fact that 75% of flats in the UK are owned by banks or investors who are sceptical about forming a commonhold association where they would have to collaborate to make decisions.
Most of the benefits are for leaseholders because commonholds typically have lower service charges and don’t have the unexpected charges of a normal leasehold to freehold agreements due to the commonhold taking care of these rules.
What is a commonhold association?
A commonhold association is what is formed to organise the commonhold. This is a group of people who are all bonded in a contract that contains all of the freeholders of a property as well as any other secondary parties such as solicitors and contractors.
Under the Commonhold Leasehold Reform Act of 2002 which you can read more about here, a commonhold association is formed whenever there is a commonhold.
What is a Commonhold Community Statement?
The commonhold community statement goes over some basic requirements that are expected of all people included in the commonhold. It identifies what areas of the building are being shared and are known as “common parts”.
This is referred to in a plan of the building where all of the areas that are owned by freeholders are pointed out and then the areas where there is a common area that all freeholders are expected to take care of as part of the commonhold are also highlighted.
In addition to this, the commonhold community statement also should include what percentage each freeholder owes towards the reserve fund of the building. For example, if there is a freeholder who owns more land than the rest they will pay more.
A reserve fund is similar to an emergency fund and is where the freeholders all pool their money to cover an event that may happen in the future to do with the building’s maintenance like if the roof broke or there needs to be an update to a common area.
This saves the commonhold association from charging all freeholders a large amount at once which may not be affordable.
Finally, a commonhold agreement should include the number of votes that each freeholder has. If one freeholder is contributing towards the development a lot, whenever there is a decision to be made they may have more votes than the rest as an example.
In conclusion
Commonhold agreements are between individual freeholders who come together to form a commonhold and take care of shared areas of a building.
The commonhold is different from a leasehold in that commonhold owners have more control over the property and do not have to deal with service charges and section 146 notices.
However, they still aren’t very popular as there are only a couple dozen developments in the UK as of yet, despite the commonhold legislation being introduced in 2002.
0 Comments