Mortgage Lenders Fearful Of Commonhold Property
Following the Law Commission’s ‘Commonhold: A Call for Evidence’ request, the report has found that mortgage lenders are anxious about lending money to commonhold properties amidst fears over increased insolvency risks.
The nightmare that leasehold properties are creating has been a long-term priority for Parliament. In a bid to hand the power back to leaseholders, the idea of increasing commonhold property was explored.
In reality, the concept of housing/apartment blocks owned and managed by the flat owners has failed to take off, with few blocks (150) in commonhold ownership.
One of the major concerns for lenders regards placing the business and administration responsibilities in the hands of home owners that may lack the relevant skills to successfully ensure the money is in place to maintain common spaces in the building block.
The report has suggested that commonhold associations will struggle to acquire public liability insurance. It also echoed the sentiments of the 2002 Leasehold and Commonhold Act which stated that ‘reserve’ or ‘sinking’ funds were put in place.
The Chartered Institute of Legal Executives have emphasised the importance of promoting and creating a sustainable framework that will give rise to another form of home ownership, reducing the leasehold monopoly on apartment blocks.
In response to the Law Commissions Consultation on Commonhold property, CILEX representatives commented: “Our members have indicated that whilst commonhold may be suitable for new-build developments, in the context of existing properties efforts should be concentrated on reforming the leasehold sector first and foremost.
“Members were conscious that leasehold tenure is already well established, and that an increased uptake of commonhold shall require an adjustment period rendering it a longer-term option for remedying the injustices in home ownership.
“In considering these reforms, the government may wish to be mindful of the importance in leasehold reform to help those in need of a present-day shorter-term solution, as CILEx is conscious that existing leaseholders should not be expected to convert their tenure to commonhold in order to have their rights and interests protected.
“The Law Commission rightly focus on reducing the risk of insolvency within a CA in order to overcome this problem and make commonhold more workable.”
Phillip Sherwood, CILEX President, said: “Commonhold was a good idea at the time it was introduced and still has much to offer consumers and the property market. However, with so many unresolved issues around leasehold at the moment, that is where the focus needs to be for now.
“The very limited take-up to date shows how hard it is to introduce a third element into what has hitherto been a clear binary choice for would-be home owners, so a lot of effort needs to go into ‘selling’ the concept of commonhold before the government can expect to see people become comfortable with it.”
Nick Roberts, a lawyer working on the consultation, said: “Our priority must be to prevent commonhold associations becoming insolvent in the first place. The first obvious thing to do is require commonhold associations to take out public liability insurance, which is not a requirement under the 2002 act.”
How important is the promotion of commonhold property as an alternative framework for leasehold apartments?