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Article: The
Commonhold
and Leasehold Reform Act 2002
The Act received Royal Assent on 1
May 2002. The legislation is expected to become law in
stages from July 2002.
The Act reforms the purchase of
freeholds by leaseholders and creates a new form of
tenure for flat owners, or unit-holders, known as
commonhold. Under the Act the organisation managing the
common parts of developments of flats would be set up as
a company.
Under commonhold, there is no
landlord and no individual would have rights in the
property which would be in any way superior to the
individual unit-holder's rights. In addition, the
owner's (previously the leaseholder's) interest in the
property would not expire over time as it does in
leasehold.
The main points of the Act:
- It provides a way of allowing
people who occupy units in a multi occupied building
to own their freeholds.
- It gives leaseholders the right
to take over management of a whole building without
having to prove landlord fault or pay compensation
on new contracts
- It makes it easier for
leaseholders to buy their freeholds and means that
more leaseholders will qualify for right to buy,
with simpler valuation rules;
- It provides range of measures
to prevent leasehold abuse.
The Government has issued some initial
guidance
on the commonhold and residential leasehold reform
provisions which should prove useful to intereted
parties.
Although this new Act is mainly concerned with
residential properties it also applies to commercial
properties. Under the new form of tenure known as
commonhold, individual flats and commercial properties
will be owned individually with the common areas to be
controlled collectively.
These are far reaching changes in
leasehold law.
Part 1 of the Act deals with
Commonhold:
- Separate occupancies in a
building in a commonhold development will be called
units and the owners will be known as unit
holders.
- The Commonhold Association will
be a private company owned by guarantee and will be
set-up to manage the common parts.
- Commonhold Associations will
now be registered at Companies House with a standard
set of memorandum and articles of associations.
- These associations will be
registered with HM Land Registry when they present
their memoranda and articles of association and
commonhold community statement containing rules of
the commonhold. Commonhold applying to residential
and commercial developments.
- These memoranda and articles of
association will govern the management of
commonholds. They set out voting rights of
individual unit holders and procedures for dealing
with disputes using ADR (alterative dispute
resolution methods) as opposed to county courts.
Part 2 of the Act deals with
Leasehold Reform It gives leaseholders new
rights and improves existing ones:
- It gives leaseholders of flats
the right to manage their building and sets out the
conditions for exercising this right and it provides
that eligible leaseholders must set-up a company to
be known as a Right to Manage Company (RTM).
- It amends provisions of the
1993 Act dealing with the right of leaseholders to
buy collectively the freehold by simplifying the
eligibility criteria.
- It abolishes the requirement
that two thirds of the leaseholders must participate
and also the low rent test.
- It amends the marriage
valuation principles contained the 1993 Act.
- It concerns new leases for
tenants of flats. Changes include the abolition of
the low rent test and divides marriage value between
landlord and leaseholder.
- It amends the provisions
contained in the Leasehold Reform Act 1967 dealing
with the rights of leaseholders of houses to buy
freehold or extend a lease.
It changes leasehold management
contained in the Landlord and Tenant Act 1985 by:
- Changing and extending the
definition of the service charge, the jurisdiction
of leasehold valuation tribunals, changes in
accounting of service charges, introduces the
concept of ‘administration charge’
- Bringing in the requirement
that service charges must be reasonable and allows
leaseholders the right to challenge their liability
to pay such charges at a leasehold
valuation tribunal.
- Amending the Landlord and
Tenant Act 1985 s20 by extending the landlord’s
responsibility for consulting leaseholders before
carrying out proposed works.
- Extending the right to apply to
a LVT for the appointment of a new manager under the
Landlord and Tenant Act 1987 Part 2.
- Extending and clarifying the
grounds on which an application may be made to vary
a lease under the Landlord and Tenant Act 1987 and
transfers jurisdiction for handling such
applications from the county courts to the leasehold
valuation tribunal.
- Bringing in the rule that all
demands for ground rent must be made by prescribed
notice and introduces additional restrictions on
forfeiture proceedings.
The Leasehold
Advisory Service (Tel: 020 7490 9580) can help in these
matters Note: never
rely totally on these standard answers. Before taking
action or not, always seek professional advice with the
full facts of the case and all documents to hand.
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