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It has long been a problem that it is more economical to build housing in blocks, than in separate dwellings. The problem is that the economies are best realized when parts of the blocks are shared between residents, particular stairs, lifts, utility areas, car parks, and gardens. Since these areas are shared, a means needs to be found to hold the residents to their obligations towards the shared areas. They will need maintenance, cleaning, and decoration, and someone has to pay for this.
Traditionally, the mechanism used to make these obligations mutually enforceable was by granting each resident a lease, rather than a freehold interest in the property. For potential residents, a lease is often undesirable, as its value diminishes over time. What was needed was a scheme by which mutual obligations could be enforced between freeholds, in respect of areas of the land which none of them owned absolutely. It is doubtful that the law of covenants could serve this purposes, even if it were reformed to the extent that positive covenants could be enforceable against successor in title, because the shared areas of the building are not in the ownership of anyone who is interest in enforcing.
The Government's response to this problem, after a long period of consulation, was a statutory scheme of `commonhold', embodied in the CommonholdAndLeaseholdReformAct2002. This article describes the provisions of the new Act but, as it has not yet been brought into force, it is difficult to predict exactly what effect it will have.
General principles
In the 2002 Act, the owner of a specified piece of commonhold land is called a `unitholder'. The unitholder will own the freehold to his unit, and be registered as the freehold owner in the usual way. The parts of the land that are shared, referred to in the Act as `common parts' will belong to a commonhold association, of which each unitholder will be a member. The use of the land, and the obligations of one unitholder to the others will be governed by the commonhold community statement.
Creating a commonhold
Any land that could be registered as freehold can be registered as commonhold. Under the commonhold scheme blocks of flats, where some flats do not stand on their own land (any building more than one storey high, in effect) can be a commonhold. This means that it is possible for upper-storey flats to be owned freehold, which has traditionally always been problematic. However, this ability to create a FlyingFreehold only goes so far -- the commonhold land itself must be at ground level. This is only logical; if the commonhold stood on top of some other freehold land, we would keep the same old problems of enforcing obligations between freeholders.
It will also be possible to convert existing land to commonhold, provided that it is unoccupied, or the consent has been obtained of any occupier under a lease of more than 21 years. Conceivably, since the LRA2002 makes leases of more than 7 years substantively registerable, this provision ought to be reduced to 7 years as well, but it has not been so far. It will also be necessary to seek the consent of anyone who has a registered charge over the land (a mortgagee, most likely).
To be registered as commonhold, there must be in existence a commonhold association and a commonhold community statement. The statements sets out the general duties of the association, and the obligations between the association and the unitholders.
Comonhold community statement
The community statement is likely to be of great interest to potential purchasers of units, as this creates obligations that are binding on them. More importantly, it creates obligations that are binding on their successors in title. There is very little guidance in the Act as to what the community statement must stipulate, but it is likely to impose certain restrictions on use of the unit (e.g., only as a dwelling), obligations as to the use of the common parts, and the payment of money to the commonhold association for the upkeep of the common parts. It appears that the binding nature of the community statement on successors in title takes effect without further formality (no requirement for the use of a deed, for example). There are two important restictions on the community statement. First, it may not restrict the ways in which a unitholder may dipose of his interest to another person. Clearly an individual may choose who he sells his land to, but it was felt undesirable to allow an entire community to stipulate who the members of that community should be. Second, the community statement may not stipulate that a unitholder forfeits his interest in any event, however detrimental to the community as a hold. Technically, such a power may be held by a landlord over his tenants in a leasehold; in commonhold, the commonhold association can take legal action against a unitholder who reneges on his obligations, but not to the extent of seeking forfeiture.
Comonhold association
The commonhold association will be a LimitedCompany, membership of which is limited to, and mandatory for, unitholders. The association will be responsible for the day-to-day maintenance of the common parts, and the overall development of the commonhold scheme. The association will be funded by contributions from the unitholders, as set out in the community statement. In a small commonhold, it will no doubt be possible for all the unitholders to be directors of the assocation, and exercise day-to-day managerial functions. In a larger development, it will no doubt be necessary for practical reasons to appoint directors to exercise these functions, which is allowed under the Act.
Under the 2002 Act, when a unit is sold to a new unitholder, he immediately becomes subject to any obligations set out in the community statement. At the same time, the previous unitholder is released from all his obligations. The Act specifically allows that the departing unitholder cannot be made, even with his consent, to remain liable on any obligation he may have sustained while in residence. So, the purchaser of a unithold will have to take some trouble to ensure that the vendor has complied with all his obligations.
The Act sets out how a commonhold association is wound up, and the commonhold brought to an end. If there is unanimous agreement from the unitholders this is straightforward -- they create an agreement expressing how the property is to be disposed of, and appoint a liquidator to deal with the administration. The liquidator will register the commonhold land as ordinary freehold, and it can then be disposed of as set out in the agreement. If there is not unanimous agreement, but there is 80% agreement, then the liquidator can apply to the court to create a termination agreement; without this the association cannot be wound up.
There is no provision in the Act to convert a commonhold back into an ordinary leasehold, where the unitholders become leaseholders of their units. The winding up provisions are designed for situations in which the whole commonhold is to be sold and the proceeds distributed. However, it would appear to be possible for the winding-up agreement to have the commonhold sold to a new landlord, subject to the grant of leases to the unitholders. It would be administratively awkward, but probably not impossible.
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