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April - May 2005

Business Forum

Commonhold - a radical change in property ownership

by B K Vyas

Property ownership in England and Wales since the eleventh century has remained in two categories generally known as leasehold and freehold; but since last year the law has created a new type of ownership in the property known as commonhold.

This new type of ownership is effectively a freehold ownership of such type of leasehold property which was hitherto not possible to convert into the freehold property, for example a flat in a multi-occupational building.

However by virtue of the Commonhold and Leasehold Reform Act 2002, the things have changed and the dream of becoming an owner of the freehold has become a reality. Sometimes one may wonder what good it is for some one to become owner of the freehold property particularly if one has a long lease ?

The answer is that the estate in the freehold ownership does not decrease in value unlike the leasehold. As the time passes the leasehold term of, say, 50 years will, after 10 years, become a residue of the term which will have only 40 years to run thus deteriorating in its value.

Under the new law, all types of property within a building in multiple occupation flat or a house shop or light industrial unit including land, save for agricultural land, will be potentially capable of being held as a commonhold. For example, a building with residential flats and shop and or office can now be held by the flat and shop owners as a Commonhold; thus each flat and shopowner will become the owner of the commonhold, that is to say, such ownership in the unit which he owns will not diminish by effluxion of time. The unitholder of the property will own the unit as if it is a freehold.

The fundamental object of this new form of ownership is that it will allow flats and other units within a commonhold development to be owned on the same permanent and unlimited basis as the freeholders have enjoyed. The owner of the unit will be called the unitholder.

The unitholder will be a member with other unitholders of an association called the commonhold association. Obviously it will become necessary to form or create such an association as its function will be communally to manage the common parts of the building or the developments.
There are special rules to be followed by such associations and special requirements for commonhold ownership to be registered at the land registry.

Although the commonhold ownership is a new concept it is in a way an extension of the freehold ownership but the most important change is that the commonhold ownership will have permanent interest in the commonhold development that is not a “Wasting Asset” in the way the lease for a fixed term of length is perceived.

In short the value of the interest is not subject to decay. Also the corporate bodies who are otherwise not able to satisfy the residence test are capable of enfranchisement now.
So under the new law there are now more opportunities than ever before to enhance and, so to speak, upgrade the ownership in the property .

Mr B K Vyas is a senior solicitor and a consultant partner in Singhania & Co.
in their London offices tel 020 7233 5511 • e mail:

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