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For the common good?

This article is more than 18 years old
The new-look commonhold ownership has been spurned by tenants, developers and mortgage companies alike: only one association has been set up so far. Samantha Downes reports

When a new form of property ownership, called commonhold, came into force last September, the government trumpeted it as a replacement for Britain's feudal leasehold system. It would spell the end of disputes with elusive landlords and prevent them from taking the property back when the lease expired.

But commonhold has flopped. Property developers and mortgage companies have spurned the new arrangements, and to date, only one known commonhold association has been set up - a small block of flats in Bournemouth.

Getting landlords and tenants to agree to switch to commonhold has proved a major stumbling block, while householders who have a share of freehold arrangement have nothing to gain from shifting to commonhold.

Critics also blame the government for failing to publicise commonhold and say that most leaseholders are still unaware of the benefits it offers.

Under commonhold, there are no landlords and tenants, just flat owners who share units in the ownership of their building. Unlike a lease, commonhold gives flat buyers indefinite ownership. They have the right to make repairs and improvements to the property without having to refer them to either a managing company or the landlord.

Caroline Havers, managing partner of solicitors Salans in Bromley, Kent, says that commonhold liberates tenants from landlords who have no real interest in maintaining the building.

"Leasehold causes real problems for the owners of many flats in UK properties because the flat owners have no real ability to force the freeholder to make repairs," she says.

Commonhold already exists in the US and Australia, where it is the most popular form of flat ownership. Indeed, leasehold is practically unheard of anywhere else in the world, and overseas buyers are often confused by it and deterred from buying by leasehold.

Ms Havers adds that if commonhold is adopted across the UK it could speed up flat buying because solicitors would not have to deal with the title or lease issues that can drag out the conveyancing process.

Tenants in a block of flats can choose to convert their leasehold to a commonhold property by forming a company known as a commonhold association.

A commonhold association is a limited company registered at Companies House. It can only be formed if all tenants and the freeholders agree. It also requires the permission of mortgage lenders.

Therein lies the biggest obstacle to commonhold - finding 100% agreement between landlords and tenants.

Ms Havers says: "Because of the difficulty in obtaining agreement between landlord and tenants, the only way commonhold is likely to become mainstream is through new developers. It really is a tenure of the future."

But developers have been reluctant to build flats and sell them on a commonhold basis.

Peter Haler, chief executive of the Leasehold Advisory Service, believes commonhold has failed because the majority of developers are not aware of the new rules. "All the advantages appear to be for the punter, so developers are not interested. I suppose they might end up developing them if they found there would be more money in them," he says.

This could be the case; after all, someone buying a new-build apartment is likely to value a commonhold more highly than a leasehold.

Mr Hales says a couple more commonhold companies are being set up, but there is unlikely to be a rush. "We are very disappointed that the government has not done any drum bashing on this. They could have done much more to educate people on it. Our hands are tied because we can only give advice."

When Jobs & Money contacted some of the major property developers, it found little enthusiasm. For example, Furlong Homes said it has no plans to build any commonhold properties. For more advice, call the Leasehold Advisory Service on 020-790 9580 or visit landreg.gov.uk for factsheets.

First off the blocks

Bill Perkins, a financial adviser from Westbourne, Dorset, is believed to be the first developer to set up a property under the new commonhold system introduced last September.

He bought and converted a local property, creating four flats, two of which will be owned by his children, including Louise, 25.

"I had the idea of converting a property back in 1998. When I heard about the commonhold rules I thought it sounded like the right way forward, especially as there would be no lease to worry about."

Mr Perkins contacted Poole-based solicitors Jacobs and Reeves, who helped him and his children set up a commonhold association.

One early problem was the lack of lenders willing to offer a loan on commonhold, almost scuppering his plans.

Mr Perkins says that, to his knowledge, only Cheltenham & Gloucester and Bradford & Bingley's specialist mortgage arm Mortgage Express were prepared to offer an acceptable mortgage on a commonhold basis.

"Some other lenders were prepared to offer a mortgage but only if no more than two units were members of the commonhold," Mr Perkins says.

"It is still a niche form of ownership and I think lenders are still a bit wary of it."

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