With the stamp duty holiday being extended and mortgage guarantee scheme being announced, we discuss other developments which are underway behind the scenes in the property industry.
Considering the affordability checks in attaining mortgages, purchasing houses has become increasingly difficult for those who are unable to meet the annual salary requirements. A first step on the ladder has subsequently resulted in many turning to flats. The common areas of flats require proper upkeep and repairs such as to stairwells, lifts and corridors and this is what is done through the commonly known service charges paid by the holders of leases.
Leasehold has become the long accepted residential tenure for ownership of flats to facilitate a longstanding formal relationship between the freeholder and leaseholder. Despite its popularity, there are fundamental flaws primarily concerning transparency and fairness for consumers, coupled with the diminishing value of leases as an asset. At the end of the contractual term, ownership will revert back to the freehold owner, subject to a statutory right to lease extension in prescribed circumstances.
What is Commonhold?
The tenure holds many advancements in property law which enthusiasts would be more familiar with, but is more unknown to most despite having been in force since 2004.
Commonhold was designed to facilitate freehold ownership of interdependent properties; that is, individual units such as flats in an apartment building, homes in a retirement village, and workshops or offices in an industrial estate. Essentially, if a flat in a block is allowed to deteriorate, it can have an adverse effect on those above and below it, and therefore rules are put in place for the maintenance of the common areas.
The rules enforce expenses to be paid by the unit-holders as a percentage of the running costs. This essentially results in a collective ownership of units in a building where each unit holder owns the freehold of their home.
The limitations of leasehold, particularly the diminishing value of leases as an asset, are avoided in the form of this relatively new form of ownership. It is synonymous with types of ownership in other jurisdictions such as the condominium or strata title which has been widely implemented in various countries including the USA, Australia, Singapore and New Zealand.
With all the benefits of this tenure, it is very surprising that very few properties have actually adopted this commonhold and is not very heard of.
There are restrictions in ways properties can convert to commonhold in legislation which may be a contributing factor of its lack of adoption.
It has been announced in the Government’s Leasehold Reform proposals for the establishment of a Commonhold Council, which will consist of a mixture of leasehold groups, government and industry to prepare a widespread uptake of commonhold. The objective is to roll out commonhold and eventually replace leasehold as the default tenure.
The proposals will be encouraged amongst many of those involved within the property industry who want that security in ownership particularly for multi-unit residential dwellings, but will arguably require widescale marketing as the concept of commonhold and its benefits remains ambiguous to many.
With all the present developments in the property market, it may just be the perfect time for commonhold to prosper.