Commercial premises - CommonholdA way of owning property introduced in 2004 means developers and lenders can now set up and finance 'commonhold' schemes in new developments, retail and business parks. Businesses looking for premises in such developments will have to get to grips with a whole new set of rights and obligations

Commonhold schemes, which apply to registered land only, are intended for commercial and residential multi-occupancy properties with extensive common facilities and structures, such as roads and car parks, shared walls, stairways, lifts, roofs, and utilities.

From leasehold to freehold with collective responsibilities

Before 2004, units in a multi-occupancy development had traditionally been sold on leasehold. Under commonhold, sales are on a freehold basis, but owners have mandatory responsibilities and rights for the management and maintenance of common parts. Unit owners become a member of the commonhold association, which is formed as a limited company.

The main advantages of commonhold over leasehold are:

  • The value of commonhold does not automatically diminish over time as a leasehold interest does.
  • There are stronger safeguards for efficient management of common facilities.
  • Disputes among the unit owners must go through a dispute resolution process.
  • Much of the documentation for commonhold is standardised (although each association can adopt its own 'Local Rules').

Freehold owners of existing multi-occupancy developments can apply to convert these to commonhold, but will need the consent of mortgage lenders and lessees. If the land is not registered, it will have to be registered first.

Duty of care

Leasehold owners may relish the thought of becoming freehold owners, or the prospect of getting that pothole in the access road repaired at long last. But they will have to get used to voting procedures and canvassing the majority view among association members to get issues they want adopted.

Some associations may limit the alterations that can be made to common parts. Letting of residential units by unit owners is limited to seven-year leases, during which time the owner must continue to meet his responsibilities towards the commonhold association. So buying a property to let, and forgetting your responsibilities, is no longer an option under commonhold.

If you want to set up, or convert to, commonhold, take legal advice.

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