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Last Updated: Monday, 3 October 2005, 15:33 GMT 16:33 UK
Commonhold property ownership explained
MONEY TALK
By Paul Neville
Partner at Forsters, a property law firm

Paul Neville
Paul Neville of Forsters, a property law firm

Commonhold, a new way of owning property in England and Wales, has become law. The change allows leaseholders to dispense with their landlord and obtain a share of the freehold. But the system is not without its pitfalls, as a London-based property lawyer explains.

Last year a new type of property ownership, Commonhold, came into existence.

This was quite a momentous event since it was the first new type of ownership in English law to be created since 1925.

Commonhold is a new kind of freehold ownership.

Commonhold bears certain resemblances to Strata Title, a type of home ownership which has been in use in Australia for 50 years, and to a number of other property-owning systems throughout the world, such as Condominiums in the US.

In fact, until now the English system was the odd one out. The introduction of commonhold brought us into line with most other countries.

Taking control

The system was devised to get rid of the leasehold system which is the most common form of ownership for properties such as blocks of flats.

However, conversion to commonhold is not compulsory so both systems will exist side by side for years to come.

The advantage of commonhold is that it gets rid of the concept of the declining asset - sellers and purchasers of commonhold properties will no longer have to worry about how many years are left on the lease.

Commonhold also gets rid of outside landlords, who only own the freehold for the money they can make out of it from the tenants.

FURTHER INFORMATION:
Leasehold Advisory Service: Provides free advice on the law affecting residential long leasehold property and commonhold and factsheets (see website link on right)
The Land Registry has a guide to commonhold (see website link on right)

Under the commonhold system, all flat owners will automatically be members of a company - the Commonhold Association - that owns the freehold and thus the block.

This means that it should be easier to run the building for the benefit of the flat owners.

However, blocks of flats will still need to be managed.

And as a form of community ownership, commonhold brings with it various tensions.

To alleviate any possible problems, members will have to sign up to a "Commonhold Community Statement".

This statement will set out all the rules and regulations you normally find in a lease, for example rules about subletting, pets, noise and use of gardens.

But it will be up to the commonhold members to enforce these rules, which could lead to potential conflicts.

A panacea?

In practice, the people most likely to be affected by Commonhold are those purchasing in new developments.

While it will be possible for existing leaseholders to convert their ownership to Commonhold, it will probably prove costly and complex unless you live in a very small block.

An additional hurdle for existing leaseholders is that they must gain agreement from the freeholder if they wish to convert from leasehold to commonhold.

In short, while the system should make flat-owning more equitable for home owners, the problems associated with community ownership are not going to disappear overnight.

While commonhold has the potential to protect the long-term investment of the property owner it won't get rid of neighbours from hell.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.


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