Legal Estates: Creating Commonhold

How can a Commonhold Scheme be Created

A commonhold scheme may be created at the time of a new development, when for example a block of flats is being built, or an existing building is being remodelled and converted to a new use. However, commonhold can also be introduced in respect of an existing block of flats (or any other property with independent units), which is currently operated on a leasehold basis but in which everyone concerned agrees to convert to commonhold. 

New development with no existing unit holders

  • A developer will presumably decide at an early stage that he intends to market the property as commonhold and will set up the scheme before selling off any of the units. To do this he will need to incorporate the commonhold association and prepare the commonhold community statement. He will then apply for registration of the land as commonhold, supporting his application with the documents needed for incorporation (i.e. memorandum and article of association), and the commonhold community statement (‘CCS’).

  • Following the registration of the development site as commonhold land, there will be a transitional period, during which the development is carried out. At this stage, the commonhold scheme is not yet functioning, and it is still possible for the developer to change his mind and seek cancellation of the registration.

  • The scheme becomes operative with the sale of the first unit. The purchaser is entitled to be registered as proprietor of the freehold estate in the unit he has bought and automatically becomes a member of the commonhold association; the commonhold association will be registered as proprietor of the freehold estate in the common parts (this will be done by the registrar automatically without the need for any application by the association); and the rights and duties created by the CCS come into operation. The developer continues as registered proprietor of the freehold estate in the remaining units until each is sold.

Conversion of property with existing unit holders

  • Section 9 of the Act applies to the registration procedure already described to property in which there are already existing unit holders, thus enabling property in which the units are already owned by long leaseholders to be converted to commonhold. The application for registration will be made by the freeholder in accordance with the procedure outlined above, but in this case must be accompanied by a list of the commonhold units and the proposed initial unit holders. Where the property is already fully occupied, as for example, where an established block of leasehold flats is being converted to commonhold, the ‘proposed initial holders’ will be the current long leaseholders. However, in the case of a new development in which some units have been sold but others remain unsold, the developer, or his nominees, would be named as the initial unit holder or any unsold units.

  • Where property with existing unit holders is registered as commonhold land, the scheme will come into operation immediately. The registrar will, without requiring separate applications, register the various unit holders as proprietors of the freehold estates in their respective units and the commonhold association as freehold owner of the common parts.

  • Although the desirability of converting properties with long leasehold units into commonhold was a driving force behind the introduction of the new system, it appears unlikely that such conversions will be straightforward or even frequent occurrences. The difficulty arises from the requirement for consents set out in s. 3 of the Act. Under that section, an application for registration as commonhold land can be made only with consent of a number of people who may have interests in the property. These include the freehold owner and owners of leases granted for more than 21years. This means that a block of flats cannot convert to commonhold without the agreement of the freeholder and of all long leaseholders.

  • In the course of the Bill’s passage through parliament repeated efforts were made to amend this provision, so as to enable conversions to be made with the consent of a smaller proportion of leaseholders (80% being suggested as a suitable figure).

  • In the view of the Government however, this would lead to an undesirable mix of commonhold and leasehold units in the same property (because the unwilling leaseholders could not be compelled to convert their interests into commonhold and so would continue as leaseholders, with the commonhold association as their landlord), and it was therefore essential to insist on the requirement that all should consent. Opponents of this requirement consider that it rules out all possibility of conversion of existing properties, and that commonhold will be used only for new developments.