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An alternative to leasehold?

An alternative to leasehold?

Most landlords who have more than one property have at least one leasehold property in their portfolio (and many who only have 1 just have a leasehold flat)..

What all of these landlords have in common, if you chat about it over coffee, is a real dislike of leasehold as a means of ownership and a desire to decrease the number of leaseholds in their portfolio.

Why? Service charges are always a bone of contention, the cost of insurance (including the kick back for the agent who thus looks for the best kick back rather than the best insurance), the lack of control or input, the peppercorn rent, the decreasing value of their property as the length of lease shortens, the high cost of extending the lease...

And for people who own a flat in a converted house, it is often not worth the managing agents while to bother with maintenance and the like so many smaller properties fall into disrepair.

And as a leaseholder, trying to work out who to talk to, to resolve issues, can be a real nightmare.

So why do we put up with it when there has been a perfectly good alternative ever since 2003?

For many years, leaseholders in a building have had the right to take over management of a block and thus appoint their own agent or define better how the block would be maintained or managed, but the rules are such that you need 60% of leaseholders to agree to do this and this does not solve issues with reducing property values, lease extension costs or similar.

The alternative which has been available for the past 15 years is 'Commonhold' - basically, instead of a freeholder owning the building and being responsible for its main fabric and leaseholders effectively renting a part of it for a fixed period, with commonhold the freehold is effectively shared between the individual owners.

According to Wikipedia: 

"Commonhold is a system of property ownership in England and Wales. It involves the indefinite freehold tenure of part of a multi-occupancy building (typically a flat) with shared ownership of and responsibility for common areas and services. It has features of the strata title and the condominium systems, which exist in Australia and the United States respectively. It was introduced by the Commonhold and Leasehold Reform Act 2002 as an alternative to leasehold, and was the first new type of legal estate to be introduced in English law since 1925.[1]

An important difference between commonholds and leaseholds is that commonholds don't depreciate in value in the same way that leaseholds do towards the end of their lease terms.[2]

In the years since the 2002 Act became law, only a handful of commonholds have been registered, whilst hundreds of thousands of long leases have been granted during the same period. As of 3 June 2009, there were 12 commonhold residential developments comprising 97 units in England and one commonhold residential development comprising 30 units in Wales.[3]"

So why hasn't it caught on?

Well - developers make a lot of money selling the freehold when they build a shared development and there are many companies which exist solely to buy and manage such freeholds - so those at the start of the process, prefer leasehold to commonhold as they believe they make more money. Plus, most people don't realise it is an option.

So what can you do?

When buying new build, challenge any leasehold presentation and ask for a commonhold price. With existing properties all leaseholders can choose to convert to commonhold, but everyone does need to agree - but that should not be hard if it means the vaue of your property starts going up instead of down, and with 3 or 4 leaseholders in a converted house it ought to be very appealing. Mortgages for commonhold are not that widespread, but why would they be when so few exist?

So if you are a leaseholder - next time something about the leasehold arrangement irks you, why not consider what would be involved to change it to a commonhold?

Written & oral information and advice from the Portsmouth & District Private Landlord's Association is given in good faith, but no responsibility whatsoever is accepted by the Association or it's officers for the accuracy of it's information & advice nor shall the Association be held responsible for the consequences of reliance upon such information.

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