Law Commission’s Consultation Paper: Reinvigorating commonhold: the alternative to leasehold ownership

Where a freeholder or non-consenting leaseholder, who has let his or her flat to a non-qualifying tenant on a variable service charge, is required to take a commonhold unit on conversion under Option 2, we invite consultees’ views as to whether:
(1) a cap should be placed on the amount of commonhold costs which are recoverable from the former leaseholder or freeholder, to reflect the costs that are recoverable from the non-qualifying tenant;
(2) the non-qualifying tenant’s rights should be altered so that he or she no longer has the right to challenge service charge costs after they have been incurred, but instead has the same rights to challenge commonhold costs as other unit owners; or
(3) any other approach would fairly protect and balance the competing interests of the leaseholder or freeholder, and the non-qualifying tenant.

Consultation Question 7.

Under Option 2, we provisionally propose that:
(1) those wishing to convert (with less than unanimous consent) should be required to seek the prior authorisation of the First-tier Tribunal (Property Chamber) or Residential Property Tribunal in Wales (“the Tribunal”); and
(2) the Tribunal should be required to authorise a conversion to commonhold unless:
(a) the necessary consents have not been obtained;
(b) the terms of the CCS do not adequately protect the interests of nonconsenting leaseholders; and/or
(c) the applicants refuse to adopt the Tribunal’s proposed revisions to ensure the CCS sufficiently protects the interests of non-consenting leaseholders.
Do consultees agree?

Consultation Question 8.

We provisionally propose that on conversion to commonhold, tenancies granted for 21 years or less should continue automatically on conversion and that the consent of such tenants should not be required in order to convert to commonhold.
Do consultees agree?

We agree that on conversion to commonhold, tenancies granted for 21 years or less should continue automatically and the consent of such tenants should not be required to convert to commonhold, for the reasons given in Paragraph 151 of the consultation.

Consultation Question 9.

We invite consultees’ views as to whether it should be possible for charges to transfer automatically from the leasehold title to the commonhold unit title on conversion to commonhold, without requiring lenders’ consent.

FPRA consider that it should be possible for charges to transfer automatically from the leasehold title to commonhold unit title without requiring lenders’ consent.

Consultation Question 10.

We have set out two options for setting the threshold of leaseholder support which should be required to convert to commonhold. The first would be to require leaseholders (who are qualifying tenants under enfranchisement legislation) owning at least 50% of the flats in the building to consent, provided nonconsenting leaseholders are able to retain their leasehold interest on conversion to commonhold (Option 1). The second would be to require leaseholders (who are qualifying tenants under enfranchisement legislation) owning at least 80% of the flats in the building to consent, on the basis that non-consenting leaseholders are required to take a commonhold unit on conversion (Option 2).

We invite consultees’ views as to whether they prefer Option 1 or Option 2.

We invite consultees’ views as to any other options for setting the threshold of leaseholder support for conversion, other than Options 1 and 2, which strike an appropriate balance between the interests of those wishing to convert and nonconsenting leaseholders, and provide a mechanism for financing the freehold purchase.

FPRA consider that the Option 1 procedure is preferable to the Option 2 procedure on the grounds of simplicity, and the need to protect the position of non-consenting leaseholders. We are unable to suggest any alternative mechanisms.

Consultation Question 11.

We provisionally propose that, where the freeholder refuses to consent to conversion, the leaseholders will need to follow the collective enfranchisement process to purchase the freehold in order to convert to commonhold.
Do consultees agree?

FPRA think it likely that, where the freeholder refuses consent, leaseholders would be well advised to follow the now well established enfranchisement process so that, collectively, they will have complete control over the transfer into what will, for some time, be a new and untried ownership structure.

Consultation Question 12.

We provisionally propose that, to simplify the procedure for converting to commonhold, any consents given in support of the conversion should not automatically lapse after 12 months.
Do consultees agree?

We invite consultees’ views as to whether leaseholders should be able to withdraw their individual consent to conversion after the Claim Notice has been served, or whether leaseholders should be required to make a collective decision no longer to proceed with the conversion.

FPRA agree that any consents given should not automatically lapse after 12 months. We hesitate to express a view on the question of whether individual leaseholders should be able to withdraw their consent after Notice of Claim has been served. While such a withdrawal of consent might be inconvenient, and to the informed onlooker it might seem that the leaseholder will not be exposed to uncertain, open-ended liabilities, some leaseholders might be discouraged from giving a consent, for what will be an unfamiliar process if they feel it would be impossible to extricate themselves.

Consultation Question 13.

We provisionally propose that (in addition to the freeholder) it should be possible for leaseholders who are in the process of acquiring the freehold by collective enfranchisement, to apply to HM Land Registry to create a new commonhold.
Do consultees agree?

We provisionally propose that, where a lender has consented to a conversion to commonhold on the condition that it will be granted new security over the commonhold unit after conversion, a deed of substituted security provided to HM Land Registry will act as sufficient evidence that this condition has been fulfilled.
Do consultees agree?

Consultation Question 14.

Where the freehold of the building is owned by the leaseholders collectively through a freehold management company (a “FMC”), we provisionally propose that the common parts of the building should be transferred to a new commonhold association as part of the process of conversion to commonhold (rather than the FMC changing its articles to become a commonhold association, where this is possible).
Do consultees agree?

Consultation Question 15.

>We invite consultees’ views as to what advantages there are (if any) of the transitional period in the registration procedure for new commonhold developments.

Consultation Question 30.

We invite consultees’ views as to whether any requirements of company law (such as to make an annual confirmation statement, and to file accounts) should be relaxed for commonhold associations.

FPRA would welcome a relaxation of the filing requirements of company law, both for commonhold associations and for FMCs. However, we understand that these requirements are officially regarded as a price that must be paid for the benefit of limited liability. We therefore suggest that in the absence of a relaxation, Companies House procedures could be made more commonhold-friendly. When it has become apparent that that the filings have not taken place, the most likely reason will be that the director who normally dealt with this formality and whose flat may very well have been the registered office has moved away or died and the need to appoint a successor has been overlooked. It is suggested that reminders be sent to all the directors, at their home addresses before striking off or other sanctions are imposed.

Consultation Question 31.

We invite consultees’ views as to whether there are particular difficulties in applying CVAs to commonhold associations.

We invite consultees’ views as to whether the CVA procedure needs any adaptations to make it more relevant and effective in dealing with commonhold associations in financial difficulties.

Consultation Question 32.

We provisionally propose that it should not be possible for creditors directly to petition for a commonhold association to be wound-up, and a liquidator appointed. Instead, a petition could lead to the court appointing a commonhold administrator, who would carry out the necessary duties.
Do consultees agree?

We provisionally propose that a commonhold administrator should then be able to petition for the association to be wound-up only if the commonhold association is irretrievably insolvent.
Do consultees agree?

Consultation Question 33.

We provisionally propose that the law should be clarified to ensure that there is a presumption that, on the insolvency of a commonhold association, a successor association should usually be appointed.
Do consultees agree?

We invite consultees’ views as to whether there are circumstances in which it would not be appropriate for the court to appoint a successor association and, if so, what these circumstances are.

We provisionally propose that the court should have discretion as to whether to impose conditions for a successor association to be appointed.
Do consultees agree?

(1) what conditions might be imposed; and
(2) if the court’s discretion is to be structured, what factors the court should take into account.

Consultation Question 34.

We provisionally propose that, if a liquidator is appointed to wind up a commonhold association, he or she should not be able to demand further contributions from the unit owners to reduce the level of indebtedness of the association.
Do consultees agree?

We provisionally propose that, if a liquidator is appointed to wind up a commonhold association, he or she should not be able to demand further contributions from the unit owners to make up for the shortfall in contributions from members who are bankrupt or from whom it is impossible to recover their contributions.
Do consultees agree?

Consultation Question 35.

We provisionally propose that it should be possible for the CCS to impose restrictions on the short-term letting of units.
Do consultees agree?

We invite consultees’ views as to how to ensure that any restriction on short-term letting does not prevent units being rented in the private or social rented sector. In particular:
(1) in relation to the private rented sector, we invite views on whether any restriction imposed by a CCS should be confined to lettings made for less than six-months, or for any other specified period;
(2) in relation to the social rented sector, we invite views on whether any restriction imposed by a CCS should not be able to apply to particular landlords, such as registered providers of social housing and housing associations, or whether there are other ways of ensuring that such lettings cannot be prohibited in the CCS.

FPRA agrees that it should be possible for the CCS to impose restrictions on the short-term letting of units. Short-term lettings are more consistent with holiday letting or other business use rather than residential use of the unit (i.e. use as the home of the unit owner or the tenant). We believe that a restriction preventing lettings of less than six months would achieve this objective.

Consultation Question 36.

We provisionally propose that event fees should be prohibited within commonhold, except for any specific circumstances expressly permitted by statute.
Do consultees agree?

We invite consultees’ views as to whether an exception to the proposed prohibition on event fees should be made for specialist retirement properties within commonhold.

We invite consultees’ views as to whether there are any other circumstances (apart from specialist retirement properties) in which event fees should be permitted within commonhold.

FPRA suggest that any restriction on “event fees” should not prevent reasonable fees being charged to individual unit holders to meet the administrative the costs of the commonhold association in recording changes of ownership, lettings of units, or the making of alterations by the unit holder. It is suggested that it would be unfair for such costs to have to be met out of the service charges paid by all the unit holders, including those who are not transferring or altering their units.

Consultation Question 37.

We invite consultees’ views as to whether any further restrictions should be put in place to limit which local rules may be added to the CCS.

FPRA do not consider that any further restrictions should be put in place to limit which local rules may be added.

Consultation Question 38.

We provisionally propose that a higher threshold for amending the CCS should be introduced, which may apply to some or all local rules.
Do consultees agree?

(1) what voting threshold should be required to amend local rules;
(2) when there should be a right to apply to the Tribunal in relation to amendments of the CCS; and
(3) whether the threshold should be the same for amending all local rules, or whether rules should be differentiated. If consultees are of the view that rules should be differentiated, we invite views as to how the threshold for introducing a rule in an area on which the CCS is currently silent should be determined.

FPRA agree that a higher threshold for amending the CCS should be introduced., and that this would be achieved by requiring the amendment to be made by Special Resolution. The CCS may be regarded as analogous to the Articles of Association of a Company, the amendment of which requires a Special Resolution. We consider that there should be a right to apply to the Tribunal in relation to amendments of the CCS, and that the existence of such a right would obviate the need for complication of legislating for some rules to be “entrenched”.

Consultation Question 39.

We provisionally propose that the mandatory provisions of the CCS should be contained in the regulations, but not be reproduced in the CCS.
Do consultees agree?

If so, we invite consultees’ views as to whether the directors of the commonhold association should be under a duty to provide copies of the most up-to-date standard provisions contained in the regulations, along with a copy of the CCS, to any new purchasers, and should provide copies of the updated standard provisions to all unit owners as and when changes are made.

FPRA agree that, as matters stand, it is preferable that that the mandatory CCS should be contained in regulations rather than being reproduced in the CCS. However we doubt whether imposing a duty on the directors of commonhold associations, to provide up-to-date copies of standard provisions to unit owners is going to be useful or helpful. Certainly, it will do nothing to persuade members of commonhold associations to act as directors. No doubt, with the small number of commonhold schemes currently in place, the directors are well informed on the latest regulations. But, if Commonhold is to become widespread, there will be many associations, especially small ones, where the directors do not have professional or business experience. When the association is first formed the professional advisers will doubtless provide full documentation and advice on the regulations then in force, but it will be too much to expect lay directors to keep up to date with the latest mandatory CCS provisions contained in regulations which are unlikely to be particularly well publicised outside the professional and technical press.

Consultation Question 40.

Should our provisional proposals to introduce sections be implemented, we provisionally propose that it should be possible to add schedules to the CCS, where the rights and obligations applying to a specific section can be collated.
Do consultees agree?

Consultation Question 41.

We invite consultees’ views as to whether there are any new terms, other than those we have asked about in this Consultation Paper, which should be added to the prescribed terms of the CCS (that is, rules which should apply to every commonhold, rather than local rules which can optionally be adopted by individual commonholds).

FPRA are unable to suggest any new terms, other than those mentioned in the Consultation and listed in Appendix 6 in Appendix 6 of the Consultation which should be added to the prescribed terms of the CCS.

Consultation Question 42.

We provisionally propose that the procedure for the election of directors of a commonhold should be simplified, so that the prescribed articles of association provide that directors should be elected at a general meeting, and also may be coopted by the existing directors.
Do consultees agree?

FPRA agree that the prescribed articles should provide for directors to be elected at a general meeting, with provision for existing directors to coopt additional directors. However, it is suggested that such a coopted appointee should only hold office until the next following AGM at which the appointee may stand for election or choose to stand down.

Consultation Question 43.

We provisionally propose that, if a commonhold association cannot find members able and willing to serve as directors, and is also unwilling to appoint professional directors, any member of the association should be able to apply to a court or tribunal for professional directors to be appointed, who would then be paid by the association.
Do consultees agree?

We provisionally propose that, if members should be able to make such an application, then someone with a mortgage or other charge over a unit should also be able to do so.
Do consultees agree?

We provisionally propose that, if it should be possible for an application to appoint directors to be made, it should be heard by the First-tier Tribunal (Property Chamber) (in Wales, the Residential Property Tribunal).
Do consultees agree?

FPRA agree that, if a commonhold association cannot find members willing and able to serve as directors, and is also unwilling to appoint professional directors, any member of the association should be able to apply to a court or tribunal for professional directors to be appointed, who would then be paid by the association. We also agree that if members should be able to make such an application, then someone with a mortgage or other charge over a unit should also be able to do so. However, we suggest that the circumstances in which such applications have to be made will be unusual and possibly raise issues better dealt with by a Court. If the application is made to the Tribunal, it is suggested that there should be a procedure for the application to be transferred by the Tribunal to a court if this is appropriate.

Consultation Question 44.

We invite consultees’ views as to whether a problem is likely to arise whereby a single investor, or a group of investors, who own a majority of units, run a block in their own interests in order to “squeeze out” other owners.

If it is felt that problems are likely to arise, then we invite consultees’ views as to the following:
(1) whether the concept of “persistent failure to comply with the CCS in some material respect”, offers a satisfactory basis upon which a court or tribunal could intervene on an application by a unit owner;
(2) whether such applications should be made to the court or the Tribunal;
(3) whether, the court or Tribunal should have the power to appoint directors, and to make the supplementary orders set out in paragraph 9.48 above, should they be required;
(4) whether it would be necessary for the court or tribunal to exercise continuing supervision over the directors who were appointed; and
(5) whether other solutions could be used to address the difficulty.

FPRA hope that it is not “likely” that the problem of a single investor, or a group of investors, who own a majority of units, running a block in their own interests in order to “squeeze out” other owners, will arise, but it is certainly possible that it will arise at some time and legislation should allow for this. It is suggested that if the problem does arise the circumstances will be contentious, raising issues that will be better dealt with by the Court, rather than the Tribunal. It would certainly be necessary for the Court or Tribunal to have the power to appoint directors , and make supplementary orders as suggested, and in some cases might need to exercise a continuing supervision. It is suggested that this last is something which the Court will be better able to undertake than the Tribunal.

Consultation Question 45.

We seek consultees’ views on whether their experience with other leaseholdercontrolled companies (Freehold Management Companies, Residents’ Management Companies and right to manage companies) leads them to believe that provisions for proxy voting may be abused, and, if so, in what way or ways.

We further seek consultees’ views on whether any such abuses could be prevented or mitigated by:
(1) a restriction on the number of proxy votes that any individual might hold; or
(2) some other device (please specify).

FPRA are not aware, from experience with leaseholder-controlled companies and right to manage companies, of provisions for proxy voting being likely to lead to abuse, nor do we feel that there should be any limit on the number of proxies held by any individual leaseholder. The standard forms of proxy provide for the leaseholder to direct the proxy to vote in a particular way instead of granting a general proxy leaving him or her to decide how to vote.
It is suggested that, in considering whether there should be any restrictions on the use of proxies, it should be remembered that voting by proxy does allow the views of members not able to be present to be taken into account. This includes those whose flats are held as investments, as well as resident members who are unable to be present on the day of the meeting.

Consultation Question 46.

We provisionally propose that legislation should deem that the commonhold association has an insurable interest in the parts of the building which are owned by the unit owners.
Do consultees agree?

We provisionally propose that legislation should require the commonhold association to reinstate or rebuild (as appropriate) the whole of a horizontally divided building – including the parts owned by the unit owners – in order to satisfy the indemnity principle within insurance law.
Do consultees agree?

We invite consultees’ views as to whether any other legal difficulties would arise in arranging buildings insurance for commonholds which have not been addressed by these proposals.

FPRA agree that legislation should confirm that the commonhold association has an insurable interest in the parts of the building which are owned by the unit owners.
As regards the question in 17.78, we question whether legislation must categorically require the commonhold association to reinstate or rebuild (as appropriate) the whole of a horizontally divided building – including the parts owned by the unit owners – in order to satisfy the indemnity principle within insurance law. We do not have direct experience of the issues that might arise if a block of flats is totally destroyed. However, it is not difficult to envisage that there might be circumstances where very major repairs or rebuilding might not be appropriate. For example, suppose the block were located in a place where it was known that it was likely to be acquired for demolition so that the site could be used for some infrastructure project, or the block was old fashioned, and any rebuilding would sensibly be very different, perhaps containing many more flats. The sensible answer might be for the existing commonhold association to be wound up, with the insurance proceeds and sale proceeds resulting from disposal the now vacant freehold, being distributed by the association to its members. Long leases of flats usually allow for the possibility of rebuilding or repair not being able to be carried out, and the legislation should also allow for this.

Consultation Question 47.

We provisionally propose that the CCS should be amended so as to require that either a copy of the buildings policy and schedule, or sufficient details of it, should be supplied to all unit owners on or before they acquire a unit, and whenever the terms of the policy change.
Do consultees agree?

We provisionally propose that the commonhold association should confirm to unit owners and their mortgage lenders that the insurance is in existence on an annual basis, and when reasonably required at other times.
Do consultees agree?

Consultation Question 48.

We invite consultees’ views as to whether public liability insurance (that is, insurance against liability as an occupier and also as a property owner) is likely to be generally available for commonhold associations.

If it is generally available, we provisionally propose that details of minimum cover, permissible exclusions and excesses, and so on, should be prescribed in regulations to be made by the Secretary of State.
Do consultees agree?

FPRA understand that public liability insurance is available for leaseholder -owned freehold and management companies, whose position is analogous to that of a commonhold association. If the insurance market is unable to accommodate commonhold associations in the same way the reinvigoration of commonhold would be likely to be stopped before it starts. We question whether any regulation is required, beyond that which already applies to leaseholder -owned companies.

Consultation Question 49.

We provisionally propose that the commonhold community statement should contain an express power for the commonhold association to take out directors’ and officers’ insurance.
Do consultees agree?

FPRA strongly agree the commonhold community statement should contain an express power for the commonhold association to take out directors’ and officers’ insurance and consider that without such insurance being in force it is likely to be difficult to persuade members to act as directors.

Consultation Question 50.

We provisionally propose that the provisions in the prescribed commonhold community statement requiring the repair of the common parts should be extended to require also “renewals”; that is, the replacement of “like with like” if something should be beyond economic repair.
Do consultees agree?

We provisionally propose that the installation of adequate thermal insulation should be deemed to be a repair.
Do consultees agree?

We provisionally propose that if a CCS contained such a “cap”, then it could be removed only with the unanimous consent of the unit owners, or with the support of 80% of the available votes, and the approval of the Tribunal.
Do consultees agree?

We provisionally propose that any application by a unit owner to challenge proposed expenditure should be made before it was incurred, and expenditure should not be open to challenge later.
Do consultees agree?

FPRA agree that any application by a unit owner to challenge proposed expenditure should be made before it was incurred, and expenditure should not be open to challenge later. We are less certain about the suggestion, that the CCS should impose an index-linked “cap” on the improvement or enhanced service costs. Experience suggests that, especially in times of economic stringency, there will be pressure on directors to spend too little, especially on repairs, rather than too much. Moreover, there is the problem that such provisions are difficult to draft in a simple and concise way. There is also the problem of selecting a suitable index. Notoriously, property values and building costs do not move in step with the Retail Price Index, which is normally used in such provisions because it is at least well established and well publicised. Economists and statisticians can construct specialised indices, but is this route appropriate for the directors and members of commonhold associations? Rather than have a cap, which must be strictly obeyed, or removed completely by a complex procedure, it is suggested if there is a cap that the association be empowered to exceed the cap limit in a particular year, by ordinary resolution.

Consultation Question 58.

We provisionally propose that it should be compulsory for a commonhold association to have some form of reserve fund.
Do consultees agree?

We provisionally propose that the scheme for the financing of the commonhold should continue to distinguish between contributions for shared (current) expenditure, and contributions to the reserve fund or funds.
Do consultees agree?

We provisionally propose that no minimum annual contribution towards the reserve fund should be specified.
Do consultees agree?

We invite consultees who do not agree to suggest how a requirement for minimum contributions might operate.

We provisionally propose that if the commonhold association has an automatic statutory charge over commonhold units for the payment of commonhold contributions, this charge should take priority over all other charges (such as a mortgage over the property).
Do consultees agree?

FPRA agree that a commonhold association should have an automatic statutory charge over commonhold units for the payment of commonhold costs and this charge should take priority over all other charges (such as a mortgage over the property).

Consultation Question 86.

We provisionally propose that, before taking action to enforce a charge over a commonhold unit, the commonhold association should be required to follow a preaction protocol. We envisage that the protocol will require the association to provide prescribed information to the defaulting unit owner and make reasonable attempts to agree a repayment plan.
Do consultees agree?

We invite consultees’ views as to what steps the association should be required to take as part of this protocol.

We provisionally propose that where the commonhold association wishes to enforce a charge over a commonhold unit by selling the unit, it should always be necessary for the association to apply to court for an order for sale.
Do consultees agree?

We provisionally propose that the court should only be able to order the sale of a unit where the amount owing to the commonhold association exceeds a certain amount.
Do consultees agree?

We invite consultees’ views as to what this amount should be and on what factors the court should take into account when deciding whether to order the sale of a unit.

We provisionally propose that where the sale of a unit is ordered, the court should appoint a receiver to sell the unit and distribute the proceeds of sale.
Do consultees agree?

We provisionally propose that where a receiver is appointed to sell a commonhold unit, the receiver should distribute the proceeds of sale in the following way.
(1) The receiver should be paid his or her costs of arranging the sale of the property.
(2) The commonhold association should be repaid any outstanding amounts of commonhold contributions, plus any interest and costs awarded by the court.
(3) Any other party who has an interest secured against the unit, such as a mortgage lender, should be repaid.
(4) Any remaining amount should then be returned to the defaulting unit owner.

Do consultees agree?

We provisionally propose that any tenancies granted out of a unit should continue to exist following an order for sale.
Do consultees agree?

Consultation Question 87.

We provisionally propose that voluntary termination of a commonhold should be possible with either:
(1) unanimous support; or
(2) the support of 80% of the available votes plus the approval of the court.
Do consultees agree?

We provisionally propose that on an application for voluntary termination the court should have discretion to decide whether to allow the voluntary termination to take place, as well as the terms on which it may do so.
Do consultees agree?

If the court has discretion as to whether to allow voluntary termination, We invite consultees’ views as to the following issues:
(1) whether it would be useful to include factors to guide the court’s discretion;
(2) whether the factors mentioned in paragraph 15.52 should be taken into account;
(3) whether the court should be directed to consider the amount of support there is for voluntary termination over and above the 80% required; and
(4) whether others should also be included.

We invite consultees’ views as to whether increasing the role of the court would sufficiently address the issue of the final terms of the termination statement not being acceptable to those who supported the termination resolution.

We provisionally propose that an application for voluntary termination should be heard by the court (rather than by the First-tier Tribunal (Property Chamber), or in Wales the Residential Property Tribunal Wales).
Do consultees agree?

Consultation Question 88.

We provisionally propose that where a commonhold is divided into sections, any vote on voluntary termination would need to be taken in sections, and whether it was unanimous or received at least 80% support would have to be determined by section.
Do consultees agree?

Where a commonhold is not divided into sections, we provisionally propose that it should be possible for part of the commonhold to be reconstituted following voluntary termination.
Do consultees agree?

We provisionally propose that reconstitution should require 100% support of the unit owners in the part to be reconstituted, or at least 80% support and an application to the court.
Do consultees agree?

Consultation Question 89.

We provisionally propose that if any statute provides that a landlord should be entitled to recover possession of a property if he or she can prove an intention to demolish or reconstruct the building, such a requirement should also be satisfied if it can be proved that the commonhold association has that intention.
Do consultees agree?

We invite consultees’ views as to what further provision, if any, should be made to address the position of tenants on voluntary termination of the commonhold.

FPRA understand that the purpose of commonhold is, as far as possible to give the owner of a flat what will effectively be a freehold. It is possible that a freehold house may be sold on terms that the original owner may re-acquire it for redevelopment, but this is unusual and would be likely to make the house difficult to sell thereafter. We suggest that to give a commonhold association the right to take possession of units demolish or reconstruct the building is inconsistent with the unit owner’s rights as a freeholder. We do not think it appropriate for a commonhold association to have this right.

Consultation Question 90.

We provisionally propose that it should be clarified that mortgage lenders and other secured lenders will retain their secured interest in the commonhold units until the commonhold in its entirety is sold.
Do consultees agree?

We provisionally propose that mortgage lenders and other secured lenders should automatically have legal standing to make applications to the court during the termination process with a view to protecting their interests.
Do consultees agree?

We provisionally propose that it should be made clear that, if a unit is subject to negative equity, any shortfall should be met personally by the owner of the unit, and should not be covered by other unit owners.
Do consultees agree?

We invite consultees’ views as to any other ways in which the interests of mortgage lenders and other secured lenders may require protection on the voluntary termination of a commonhold.

Consultation Question 91.

We provisionally propose that the CCS should not be required to specify the share of the proceeds of termination that each unit owner is to receive on termination.
Do consultees agree?

We provisionally propose that it should be possible for the unit owners to specify the share of the proceeds of termination that each unit owner is to receive on termination (or some method of ascertaining it) in the CCS.
Do consultees agree?

We provisionally propose that the power to decide an application to disapply a provision in the CCS which determines the distribution of proceeds of sale on termination should lie with the Tribunal.
Do consultees agree?

We invite consultees’ views as to whether:
(1) guidance should be provided to the court or Tribunal as to how it should exercise its discretion; and
(2) if guidance should be provided, what factors the court or Tribunal should take into account.

We invite consultees’ views as to whether:
(1) the existing rules of the Insolvency Court would be adequate to deal with valuation issues which arise on the voluntary termination of a commonhold, or need to be supplemented by Commonhold Insolvency Rules;
(2) all issues involving the valuation of commonhold units on termination should be referred to the Tribunal (and, if so, whether that would cause any unnecessary delays);
(3) if valuation issues are referred to the Tribunal, the Tribunal should be able to appoint a single valuer.

We provisionally propose that, if a commonhold is substantially destroyed, but remains solvent, for the purposes of the termination statement, the units should be valued on the basis of the best estimate that can be made of their pre-damage value.
Do consultees agree?

We invite consultees’ views as to any other issues that might occur in the valuation of units if all or some of them have been partly or entirely destroyed. We also invite any suggested solutions.

Consultation Question 92.

We provisionally propose that if the process of voluntary termination should begin, but it should subsequently turn out that the commonhold is in fact insolvent, the same protections should be given to the assets of the individual unit owners as would have applied if the process had begun as an involuntary insolvency.
Do consultees agree?

whether any particular proposals are likely to result in a large number of new applications being made.

Consultation Question 102.

We invite the views of consultees as to how any other aspects of our provisional proposals for reform of commonhold will affect the position of future owners of commonhold units, either positively or negatively.

Consultation Question 103.

We ask consultees to provide us with any information that they may have of:
(1) examples of planning agreements which are practicable under leasehold but which would not appear to be feasible under our reinvigorated model of commonhold; and
(2) services within leasehold developments which are being provided at the residents’ expense, but which, if the development had been set up on a commonhold basis, would have been provided, if at all, at public expense.

Consultation Question 104.

We ask consultees to provide us with any evidence they have of management difficulties which may arise where a leaseholder-controlled company is the landlord of (or responsible for the management of) commercial units; and whether this has affected their rental or capital value.

Consultation Question 105.

Which of the following statements best reflects your views on the provisional proposals in this Consultation Paper?
(1) If these proposals are adopted, then developers will be willing to use commonhold for a substantial number of developments.
(2) Even if these proposals are adopted, developers will not be willing to use commonhold unless Government introduces financial incentives for them to do so, either directly by offering financial incentives for the developers, or indirectly, by offering incentives for purchasers of commonhold units.
(3) Even if these proposals are adopted, and financial incentives are given, developers will not use commonhold for developments unless they are prohibited from selling flats on a leasehold basis and they are thus forced to use commonhold.

Consultation Question 106.

(1) what issues prevent the uptake of commonhold; and
(2) what could or should be done to promote the adoption of commonhold.

We invite consultees’ views as to the extent to which the suggestions for the invigoration of commonhold set out in paragraph 16.47 above, and any other suggestions that they may make, are likely to result in commonhold being used instead of leasehold.

FPRA consider that the main issue preventing the uptake of commonhold has been the practical impossibility of converting existing leaseholder-owned properties to commonhold by reason of the requirement to obtain the agreement of every single leaseholder. What is most likely to result in commonhold being used instead of leasehold is its widespread adoption so that it becomes the usual way in which flats are owned. This may seem an unhelpful circular argument, but the point is that developers, who face significant financial risks are likely to be reluctant to adopt commonhold until they have seen that it works so that they can reassure their customers that they will not be venturing into uncharted legal waters when buying a commonhold flat. Leaseholder owned blocks of flats, already being run successfully under the leasehold system, will be the best pioneers to lead the way into the new system.

Consultation Question 107.

We invite consultees’ views as to whether a reformed commonhold regime should treat particular issues differently in England and in Wales. Consultees are welcome to share their views as to this point here, or in response to questions which we ask throughout the Consultation Paper about particular issues.