Commonhold reform: With great power comes great responsibility

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 are not needed or are too expensive. But what does that power and control mean?

According to the HCLG Report 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 pre-legislative scrutiny of the draft Commonhold and Leasehold Reform Bill 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.

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.

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 indemnity 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.

Lucy Riley is a Legal Director at Nockolds and a member of ALEP (Association of Leasehold Enfranchisement Practitioners).