The Law Commission's proposals to make commonhold an attractive alternative form of property ownership may not be enough to reinvigorate it, the Law Society has warned.
Commonhold allows a person to own a freehold flat, and be a member of the company which owns and manages the shared areas and structure of the building. However, it has struggled to gain traction - fewer than 20 commonhold developments have been built in England and Wales since it was introduced in 2002. The system has been criticised for not being flexible enough to cater for larger, more complex developments. Mortgage lenders are reluctant to lend cash against commonhold properties because of legal issues.
The government asked the commission to come up with reforms to reinvigorate commonhold as a workable alternative to leasehold for existing and new homes.
Chancery Lane backed the concept of commonhold when it was first mooted two decades ago. Responding to the commission's consultation, which closed on Sunday, the Society says it has 'serious concerns' about the impact of 'immediate radical changes' until a reinvigorated commmonhold system is shown to be a viable alternative and has earned market approval.
The Society says 'too little attention' has been paid to evaluating private company freehold co-ownership schemes which have been seen as relatively viable models for limited scale residential developments. Co-ownership is based on the co-owners cooperating, the Society adds, 'but in terms of human behaviour, that is inherently difficult to achieve'.
The commission told a stakeholder engagement event last month that mortgage lenders are reluctant to lend to commonhold buyers because they are concerned about the association potentially becoming insolvent.
Chancery Lane suggests a 'broader' insolvency approach, placing commonhold associations on a similar footing to local authorities and charter bodies, which cannot be wound up without an act of parliament. 'That could mean than an unpaid creditor cannot wind up the association but can still sue and obtain a charging order over the association’s assets... A more radical approach than slavishly following existing company law is needed to solve this problem,' the Society says.