The Residential Freehold Association’s Mick Platt provides some thought provoking comments on the Leasehold/Commonhold debate

While the government has recognised that any proposals to abolish leasehold are unrealistic and unworkable, professional freeholders continue to play their part in providing long-term stewardship for the UK’s apartment buildings. Commonhold may offer a suitable form of tenure for smaller apartment buildings, however, the value and range of services that professional freeholders bring in larger and more complex buildings should not be underestimated.

Current and prospective leaseholders need to be aware of the responsibilities that would be expected of them under a commonhold system as they are not likely to be attractive to all residents. It is therefore crucial that choice of tenure remains in order to ensure that homeowners are not forced into a system of tenure against their will.

There is a clear need for the technical and professional expertise and decision-making, independent of leaseholders, who will likely have competing objectives and time horizons, which is offered by a professional freeholder in the leasehold system. A common scenario which arises in multi-occupancy buildings is a conflict between different owners within a building who may have differing priorities. In a commonhold system, this creates an inherent conflict of interest which can lead to fractious disputes between neighbours.

The Residential Freehold Association’s (RFA) members are frequently asked by homeowners to intervene in neighbour disputes, as an independent arbiter or to assist with enforcing leaseholder’s obligations for the benefit of all residents. Without this stewardship, there is a significant risk that residents will make key decisions based upon poor understanding of the complex legislative landscape.

In addition, professional freeholders have access to broad commercial, legal and building management expertise, and thanks to their scale, are able to procure services and assets which provide better value for homeowners.

In the absence of a professional freeholder, there are a number of legal responsibilities which, under a commonhold arrangement, a commonhold association (CA) would take responsibility for. The CA would need to ensure that all residents/unitholders comply with the terms of the commonhold community statement – the document which governs how the commonhold is to be managed and run – some of which carry criminal liabilities.

It is of course critical for any CA directors to have appropriate qualifications and training, so that they are fully equipped with the skills to deal with their legal responsibilities, including compliance with ever-changing statutory requirements such as those prescribed by the Companies Act 2006, alongside health and safety and other legislative requirements such as those contained in the Building Safety Act 2022, Health and Safety at Work etc. Act 1974, Fire Safety Act 2021 and Fire Safety (England) Regulations 2022. In order to implement a conversion to commonhold, training and financial renumeration of CA directors would be an additional cost which would have to be borne by residents in the absence of a professional freeholder.

CA directors need to be informed regarding the consequences of failing to comply with their statutory and fiduciary duties. Within this context, it is clear to see how a large apartment building poses significant challenges for the implementation of commonhold. In light of these points, it is clear why The Law Commission’s 2020 report into leasehold home ownership recognises that there is a “good legal reason” for leasehold in ensuring the “effective management” of large and complex buildings.

This is reflected in the government’s own recently published research, which shows the vast majority of respondents have a positive or neutral view of the current leasehold system. The government’s findings align with independent polling from JL Partners, which reveals only 18% of people would be comfortable assuming the legal and financial liabilities for managing their building, as they would under a commonhold system.

There is no justification for removing choice of tenure and the RFA welcomes the government’s recognition that commonhold should not be imposed on the sector, or any others, and that it is not a one size fits all solution.

The government must, as a priority, undertake a wide-reaching consultation to understand the impact of any leasehold reforms and also provide adequate information on the obligations that homeowners would have to comply with under a commonhold system, so that current and prospective leaseholders can make a fully informed decision before they purchase their home.

Mick Platt is a director of the Residential Freehold Association

E&J Estates Leaseholder Insurance Disclosures

Click here to view the new Leaseholder Insurance Disclosures