UK: Commonhold: Freeholds for Sale!

Last Updated: 20 May 2002
Article by Barry Brice

The UK property market is regarded as one of the most mature and sophisticated in the world. However, in one respect we have lagged well behind other countries, that being the ability to transfer the freehold of a unit within a property where the unit is dependent upon the maintenance of other parts of the property. A good example of this is a flat within a block where each flat owner will need the structure of the building and its common parts to be maintained.

The problem is not limited to blocks of flats. It applies to all properties where there is a dependence on the maintenance of other property; for example, retail units in a shopping arcade or retail park, units on an office park, and floors within office blocks

The reason there has been a difficulty in selling freeholds in such situations is that under English land law the obligation to perform positive covenants entered into upon the transfer of a freehold does not pass automatically to subsequent owners when the freehold is sold on. A positive covenant is simply an obligation to do something, such as in the case of a flat owner an obligation to contribute to a service charge incurred for the maintenance of the structure of the block and the common parts.

Conversely, if a leasehold interest is created the obligation to perform positive covenants will pass as the leasehold interest is sold on. This is why flats are sold by way of the grant of long-term leases rather than freehold.

The Commonhold and Leasehold Reform Act came into being upon 1 May 2002 and introduced the concept of commonhold to overcome the problem. In a commonhold development it will be possible for units to be sold freehold and for positive obligations to be enforced by and against owners of inter-dependent properties and also their successors in title.

In the case of a new development, it can be set up by the developer as commonhold at the outset. An existing development can be converted to a commonhold development with the consent of all those holding an interest.

The new legislation is lengthy and detailed. In essence, however, the legal structure of a commonhold development will be relatively simple. Each separate property in a commonhold development will be called a "unit" and each owner will be called a "unit-holder". A commonhold association will be created. This is a private company limited by guarantee whose membership will be restricted to all the unit-holders within the development. Commonhold associations will have standard sets of memoranda and articles of association that will be prescribed by the Lord Chancellor from time to time.

All the unit-holders in a development will have two interests in the property of the commonhold; a freehold interest in the units they own and membership of the commonhold association which will own the communal parts.

A commonhold development must be registered at HM Land Registry, which will require a copy of the memorandum and articles of the commonhold association and a commonhold community statement to be presented. The statement will contain the rules of the particular commonhold. There will obviously be a need for flexibility in these rules to allow for the nature of the particular property. What this will mean is that when freeholds in a commonhold development are transferred the new owner will automatically be bound by the obligations set out in the rules. However, the new Act does stipulate certain matters which must be covered by a commonhold community statement, including requiring the commonhold association to establish and maintain funds to finance the repair and maintenance of the common parts.

The new Act appears to be well drafted and to cover comprehensively relevant legal issues likely to arise in practice. This is not really surprising since the draftsmen of the legislation have had a long time to do their work. The Act essentially follows proposals which were published as long ago as 1987. Also, we have been able to follow the example of other jurisdictions such as states in Australia, the USA and Hong Kong, where the equivalent of commonhold has been in place as a concept for many years. A kind of commonhold was introduced in New South Wales as long ago as 1961.

Perhaps the big question is the extent to which the property industry will adopt the new available structure. One can see that it will be popular in the case of blocks of flats, but what about commercial properties? Richard Lambert of the British Property Federation has expressed the view that given the potential demand and investment value, it is unlikely that commonhold will ever be used for prime commercial property, but is likely to appeal to niche markets. In the USA, commercial commonhold appeals particularly to smaller medium sized professional practices and partnerships (lawyers, surveyors, doctors etc). Many of the office buildings around the United Nations Headquarters in New York are commonholds, enabling national delegations to the UN to locate close to their central focus. Similarly, in Hong Kong there are a large number of commonhold office blocks located just outside the central business district.

In some situations commonhold could maximise a developer's return. Currently, in the case of office developments for example, developers will tend to retain ownership of the entire block rather than sell off floors on long leaseholds. The new Act makes the sale of an office block floor by floor a more attractive option and potentially a more profitable one.

What is certain is the new Act introduces a degree of choice and flexibility which we did not have previously. We have caught up with other parts of the world, and not before time.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.