Commonhold Mark II - what it might look like...

My notes from ARMA 2017 Conference Experts Panel on Commonhold Mark II

Why was Commonhold Mk I not adopted?

• No premium - unlike leasehold
• Costs of set up higher to start with
• Risks of new untested tenure
• Didn’t work where there was an ultimate freeholder
• Worked poorly with multiple service charge schedules
• Limits leasing to under 7 years - big issue for HAs and shared ownership models
• Mortgage support very slow in arriving
• Difficulties during development period - particularly with handover on large developments
• Developers naturally conservative

What could Mk II look like

• Completely new piece of legislation
• Will deal with multiple service charge schedules
• Will allow for shared ownership models (ie longer leases)
• Will be a big opportunity for exceptional managing agents
• Just as B2R (PRS) will be disruptive to the managing agent's model, Commonhold will be to.
• New radical approaches to customer service. Completely responsive and proactive rather than passive and reactive - hiding behind legislation.
• This will require customer measurement at every interaction…
• Devaluation of the existing leasehold market must be avoided at all costs

But

• Potential for the creation of a two tier market is a concern… 5 million existing leaseholders potentially prejudiced
• Therefore if leasehold to be abolished - there must be a generous sunset clause  - say 20 years
• OR some compulsion to switch rather than voluntary as the per existing system
• It will not be a panacea for existing management issues - many of those exist worldwide

• It will be outside all currently relied on statute - ie no test of reasonableness, no S20, no limit on contracts etc.
• Issue with lack of engagement from unit holders…
• Doesn’t work for shared ownership leases - big issue for HAs
• No checks and balances for individual unit holders around costs, value for money and efficiencies
• It will still have its fair share of bullies, crooks and swindlers
• Will we be tackling unfair practises in Commonhold? - yes, within 20 years.
• Lacks security in the event the Commonhold is wound up

Opportunities

• But it will give owners real control
• It will add another tenure type that many owners will find attractive as an ownership solution
• It will give managers the opportunity to be creative with customer engagement, procurement and big data.
• It will simplify the onerous and complex statutory framework in which leasehold operates

Some Advantages of Leasehold

• There are some…
• Established framework woiking within defined legislation and principles of transparency, reasonableness and compliance
• Third party landlord to kick
• Landlords are a safety net when all else fails
• Legal framework, developing case law and access to FtT
• Expertise available and
• Generally, management is in the hands of experts
• Increasingly institutionally owned - e.g. pensioners of the UK
• Reputationally driven nowadays
• Funding/income for small developers
• Rights to extend lease and RTM already enshrined
• Most new ones have RMCs
• Works where there are complex ownership issues, mixed tenures, mixed uses etc.
• Abolishing it completely would be problematic with the current system of land ownership
• Easy to fix aggressive ground rent clauses.
• Developers have already stopped the unreasonable practise of building leasehold houses (where were the lawyers?)

Despite everything you hear, standards continue to rise in leasehold management and have risen significantly in recent years. Especially around compliance - which is particularly important given recent events.