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COMMONHOLD IS ANYTHING BUT COMMON

COMMONHOLD IS ANYTHING BUT COMMON

POSTED: 26/02/2018

By Tom Lumsden, Partner 

 

According to an article on the BBC website http://www.bbc.co.uk/news/business-43141221
‘commonhold’, a way of buying flats or houses introduced 14 years ago, has failed to take off, according to the Law Commission.

 
One of the main reasons there are so few commonholds is that developers can usually make more money by selling flats on long leases than as commonhold units. The reason is that they might sell flats on say a 999 year lease with a ground rent of say £150 per annum which then rises every 25 years or so. These ground rent increases might be linked to the RPI . Once the developer has sold the last flat in a new development, he can then sell the freehold to an investor – as the freehold will give a guaranteed return because of the ground rents that have been reserved. There is no such provision with commonholds.

 
Also, there are some uncertainties about a lender’s position where a commonhold is terminated – for example, insolvency - and this might explain why so few lenders are happy to accept commonholds as security for mortgage purposes.

 
The commonhold legislation needs complete reform for it to work properly. One suggestion to encourage commonhold is that flats
sold as commonhold could be given a favourable SDLT treatment compared with leasehold flats for an initial period at least.

 
If reforms are implemented properly, conveyancing for commonhold flats could be considerably easier.


If you would like advice about any type of lease, please contact Tom Lumsden on 01892 515022 or tal@cooperburnett.com

 

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