The draft Commonhold and Leasehold Reform Bill pledges to put more power into the hands of leaseholders. But Leasehold Enfranchisement specialist and ALEP member Lucy Riley suggests that may not always result in positive outcomes. She sets out the issues with the government’s bill and the potential impact on buying into commonhold properties.
There has been a huge amount in the press about the ‘feudal’ system of leasehold and how the government’s revitalised commonhold will fix all of the problems associated with long leasehold ownership. But will those buying into or converting to commonhold find that the old adage “be careful what you wish for” applies to them?
The perception is that commonhold will mean transferring power and control over the building and maintenance costs in the hands of flat owners (who will be called ‘unit holders’ under the new regime) and no external third party landlord spending the unit holders’ money on works that the unit holders feel that are not needed or are too expensive. But what does that power and control mean?
Misaligned views
According to the HCLG pre-legislative scrutiny of the draft Commonhold and Leasehold Reform Bill it is intended that unit holders will have rights to vote on decisions affecting the building such as changes to the Commonhold Community Statement (CCS) which governs the management of the commonhold; to appoint a managing agent; and to approve the commonhold’s annual budget to maintain the common parts (which unit holders will pay as ‘commonhold contributions’)
However, the detail of these rights is not contained in the Commonhold and Leasehold Reform Bill (CLRB) and will be implemented via regulations.
The HCLG report promotes the view that the interests of the unit holders and the commonhold association (the body that has responsibility for running the building in accordance with the CCS) will always be aligned. In my view, this is not the case.
Conflicting interests
The mere fact that someone lives in a commonhold building doesn’t mean that they have access to unlimited funds to pay for repairs and maintenance to the building and that they will act in a magnanimous way when it comes to repairs which they believe do not directly benefit them or are too expensive.
Nor are all unit holders likely to be happy to agree to allow another unit holder to keep a dog or knock down a structural wall. It is of course obvious that there will be times when the interests of the individual unit holders and the commonhold association do not align.
With this in mind, the CLRB provides for a new dispute resolution process and for a commonhold association to apply to the court for an order requiring the sale of a commonhold unit or leasehold interest in a commonhold unit, due to default in payment of commonhold contributions by the unit holder.
Cost of action
Unfortunately, according to the guide to the bill the dispute resolution provisions will also be implemented via regulations.
And what of the cost of taking enforcement action against unit holders who refuse to pay or breach the terms of the commonhold community statement or of defending a complaint against the commonhold association?
The guide to the bill confirms that the CLRB will introduce a provision where, if a unit holder, tenant, or the commonhold association is found to have broken the rules, the tribunal can order them to pay other owners for any costs caused by their actions. The commonhold association may also require an indemnify from a unit-holder or a tenant of a commonhold unit in respect of costs arising from the breach of a legal obligation (whether statutory or not) but again, the devil will be in the detail.
As the above demonstrates, whilst commonhold presents an opportunity for greater control, this control comes with financial and legal responsibilities and a risk that ensuring that the building is well managed and maintained will result in unit holders having to pay the costs of enforcement upfront in the hope that they will eventually be able to recover the costs from the offending unit holders.
About the author
Lucy Riley is legal director at Nockolds, where she heads the Leasehold Enfranchisement team, and a member of ALEP (Association of Leasehold Enfranchisement Practitioners). Lucy is an expert in the field of leasehold enfranchisement, advising landlords and tenants on freehold purchases and lease extensions. She also advises on retirement living leases, commercial property transactions, mixed use buildings and issues relating to the Building Safety Act 2022 in relation to residential and mixed-use buildings. Lucy is a Liveryman of the City of London and sits on the Court and Charities Committee of the City of London Solicitors’ Company.
