This document is the post-consultation report for the consultation paper, Commonhold: Proposals for Commonhold Regulations.
It will cover:-
the background to the report
a summary of responses to the report
a detailed response to specific questions raised in the report
the next steps following this consultation.
Further copies of this report can be obtained by contacting Judith Evers at the address given below:
Judith Evers
Department for Constitutional Affairs
Civil Law Development Division
Room 3N2
Southside
105 Victoria Street
London
SW1E 6QT
Telephone: 0207 210 1227
E-mail: Judith Evers
The consultation paper "Commonhold: Proposals for Commonhold Regulations" was published on 7 October 2002. It invited comments by 6 January 2003 on the provisional policy proposals to inform the drafting of the regulations to accompany Part 1 of the Commonhold and Leasehold Reform Act 2002.
The paper contained 179 questions and was divided into four parts. Part 1 of the paper, the Introduction, contained a general overview and questions on the impact of the implementation of commonhold referring to the Partial Regulatory Impact Assessment set out at Annex F of the paper.
Part II, Setting up a Commonhold, contained questions relating to the creation and naming of a commonhold association; the form and content of its governing documents; and issues surrounding the registration of a commonhold at the Land Registry.
Part III, Running a Commonhold, sought views on many aspects of the day to day management of a commonhold including: the arrangements for meetings; voting; the role of the directors; the transfer and letting of a commonhold unit; the regulation of behaviour within a commonhold; the calculation and collection of the commonhold assessment; enforcement and compensation; use, repair, maintenance and insurance; and dispute resolution.
Part IV, Running a Commonhold: Variations and Termination, addressed issues relating to alterations in the size of a commonhold unit; adding land to the common parts; amending the governing documents; part-units; the transitional period and development rights; and the termination of a commonhold.
The questions were largely drawn by reference to the contents of the draft commonhold documents annexed to the consultation paper [Endnote 1]. The content of these documents, which had been provided to peers and members of Parliament during the passage of the Commonhold and Leasehold Reform Bill, was in effect, the provisional proposals against which views were sought. However, a significant number of questions invited general comments on specific issues, where different approaches might be considered.
We sent out around 460 copies of the consultation paper prior to and during the consultation period. These were sent to individuals, members of the legal profession, housing managers, property industry professionals, developers, lenders, academics, consumer bodies, housing organisations, residents' associations, professional bodies and representative bodies.
A list of the respondents other than those who wished their response to remain confidential is at Annex A. We have abbreviated the names of some of the respondents for ease of reference throughout the paper, these abbreviations can also be found at Annex A.
44 responses were received to the consultation paper. Of these, 3 were from academics, 19 were from legal professionals (including professional bodies), 4 were from respondents involved in housing management, 4 were from other government bodies, 4 were from property industry professionals, 4 were from lenders, 3 were from other professional bodies and 3 were from respondents who did not fit into any of these categories (The Campaign for the Abolition of Residential Leasehold, The Joseph Rowntree Foundation and S. J. Melinek, an individual property owner). We are very grateful for all of the responses that we received.
Responses have been analysed for: evidence of the impact of the proposals; levels of support for the proposals; issues that need to be taken into account in refining the proposals; and any possible new approaches to the issues raised.
It should be noted that not all respondents answered every question, most chose to answer on topics related to their particular area of expertise.
Respondents were supportive of commonhold and broadly supportive of our proposals for regulations, but made many points of detail. We are taking these into account in the refinement of our proposals.
In the consultation paper we indicated that we would like to strike the best possible balance between the advantages for commonhold as a whole of uniformity and the needs of individual commonholds for flexibility to meet their own particular requirements. Our current thinking in the light of the responses received and discussions with interested parties is that there should be a strong core of standard provisions but that beyond these individual commonholds should have a wide degree of flexibility. This approach supports our belief that commonholders should, as far as possible, be able to enjoy the freedoms of freeholders generally, rather than the numerous constraints traditionally associated with leases.
The second general theme reinforced by the response to the consultation is that the commonhold documents should, if at all possible, be in plain and English and operable, in the main, without expert assistance. We want to achieve this objective but are conscious of the need to ensure that the documents are legally clear and effective. We will be testing our draft documents widely over the coming months to try to ensure that the 'model' governing documents will be well written, self-contained and operable by the interested layman. This process will no doubt require several drafts to be produced before we can be satisfied we have achieved our aims. We will be making the drafts available as they emerge. If you would like to receive a copy of these drafts please contact Judith Evers on 0207 210 1227 or by email Judith Evers. We would welcome your comments.
In the main therefore we are proposing to develop rather than radically change the provisional proposals, and in particular the draft commonhold documents. Obviously, in dealing with documents as lengthy as the memorandum and articles of association of the commonhold association and the commonhold community statement there are a huge number of matters of detail to be considered. Most of these will be touched upon in the course of this response. Nonetheless, it may be helpful to mention some of the more significant proposals by reference to the main documents to be produced.
Memorandum of Association: our current intention is that the 'model' document will be in short form without a secondary objects and powers clause. Individual commonholds will be able to add such a clause if they wish. We classify such clauses as optional.
Articles of Association: our current intention is that the 'model' articles will, in general terms, continue to follow the content of Table F. Key details include making one unit, one vote a default provision [Endnote 2] with the commonhold able to create alternatives; requiring two general meetings a year but permitting associations to specify only one if they wish; and removing articles relating to alternate directors and directors' committees.
Commonhold Community Statement: our current intention is that the 'model' document will create the following mandatory roles:
the incoming unit-holder will be liable for the debts to the commonhold association of the outgoing unit-holder;
the approval of a general meeting will not be required for the commonhold assessment;
the unit-holders and the commonhold association will be under a duty not to act wholly unreasonably towards each other;
Regulations: in addition to prescribing the commonhold documents, regulations will provide that:
consent to the creation of a commonhold will be required from unregistered lessees of terms of more than 21 years and their chargees;
leases of residential commonhold units will be permitted up to a term of 21 years;
there will be a compulsory dispute resolution procedure and litigation between unit-holders will be conducted via the commonhold association ;
commonhold associations will have to belong to an approved ombudsman scheme.
Our intention is that regulations prescribing the model governing documents will be made towards the end of the year. This will allow sufficient time for prospective users and advisers to familiarise themselves with the detail before commonhold is brought into force in spring 2004.
The responses to the questions are presented in numerical order, and the analysis has been divided into four sections in the same manner as the consultation paper. The questions are then split within each section according to their subject matter. A short conclusion follows each group of questions.
We asked 5 questions on the partial regulatory impact assessment contained in the consultation paper (questions 1-5). It contained an assessment of the costs and benefits of the commonhold regulations, a competition assessment and a rural assessment.
The main issues of concern raised by respondents were the extent to which commonhold would be adopted and whether our assessment of the costs and benefits of commonhold was accurate.
Q.1 How widely do you think commonhold will be adopted?
26 respondents (59.1%) answered this question (13 legal professionals, 3 academics, 4 property industry professionals, 2 housing managers, 2 lenders, 1 professional body, and 1 other Government body). Most respondents adopted a cautious approach noting that much would depend on the details of the schemes and how commonhold is promoted as a concept. Several said that the consent requirements would severely limit the number of conversions from leasehold to commonhold. Some considered that commonhold may be more attractive for relatively uniform residential developments than for diverse mixed use developments.
Q.2 Do you agree with the assessment of the benefits of the commonhold regulations?
19 respondents (43.2%) answered this question. 12 (63.2%) agreed (6 legal professionals, 1 academic, 2 housing managers, 1 lender and 2 property industry professionals). 3 (15.8%) did not (2 legal professionals and 1 professional body). 4 other respondents (21.1%) did not answer the question but commented generally on the benefits of the commonhold regulations. Of those in support, several respondents added a caveat or commented further on the issue.
Graham Paddock considered that standardised documentation would lead to a higher quality and a better understood product being delivered.
LEASE thought that the assessment should put greater emphasis on the benefits of uniformity of the documentation.
PSL agreed with the assessment provided the concerns they expressed throughout their response were met.
The Housing Corporation commented that the assessment did not consider the position of shared ownership occupiers and landlords.
Clifford Chance agreed with the comments on standardisation of documents but were less convinced that the replacement of a wasting asset is such an advantage given that many leases are now granted for 199 or 999 years.
Of those against, one respondent thought that there were no benefits to the commonhold regulations. In addition:
Richard Frost noted the absence of forfeiture and said that commonhold obligations would be more flexible and more easily enforceable than their leasehold equivalents. He also commented on several perceived disbenefits relating to security for lenders; protection of minorities; the absence of a statutory lien for unpaid debts to the commonhold association and the termination provisions.
ICSA commented that standardised documentation would not automatically lead to lower legal fees and considered that it was unrealistic to view commonhold as attractive simply because all the rights and obligations were set out clearly and because there was less variation in the documentation.
Of those that commented generally, one respondent considered that standardised documentation would be an advantage because it would provide an easily recognisable structure and would discourage individual variations and excesses.
Q.3 Do you agree with the assessment of the cost of the commonhold regulations?
16 respondents (36.4%) answered this question. 9 (56.3%) agreed (5 legal professionals, 2 housing managers, 1 lender and 1 property industry professional). 5 (31.3%) did not (3 legal professionals, 1 academic and 1 property industry professional). 2 respondents (12.5%) did not answer the question but commented generally on the issue. Of those in support, a few added a caveat or further refined their answer:
Graham Paddock thought that more disputes would arise in a commonhold context than in a comparable leasehold development.
The Housing Corporation commented that the assessment did not consider the position of a shared ownership occupiers and landlords.
Of those against, Gerald Sherriff considered that the cost of establishing a small commonhold would be out of proportion to the benefits. In addition:
Professor Clarke commented that the hidden costs should not be ignored.
HBF did not entirely agree with the assessment and offered a worked example estimating the cost of registering a commonhold development and producing a commonhold scheme. They concluded that it would initially be more expensive to produce a commonhold scheme than to produce an equivalent leasehold one because lawyers would be less familiar with commonhold.
Of those that commented generally, one respondent thought that it was too early to give an indication of the costs of the commonhold regulations.
Q.4 Do you agree that commonhold regulations are unlikely to have a significant competition impact?
14 respondents (31.8%) answered this question. All 14 (100%) agreed (7 legal professionals, 1 academic, 2 housing managers, 1 lender, 1 professional body and 2 property industry professionals). Few of the respondents commented further on the issue.
Q.5 Do you agree with this Partial Regulatory Impact Assessment? If not, why?
14 respondents (31.8%) answered this question. 11 (78.6%) agreed (5 legal professionals, 1 lender, 1 academic, 2 housing managers and 2 property industry professionals). 3 (21.4%) did not (all legal professionals). Of those in support, 3 stated that they were broadly in agreement with the assessment and 6 added a caveat stating that they agreed with the assessment subject to their comments made in response to these questions.
Of those against, 2 disagreed with our assessment of the costs of commonhold regulations. The Swansea and District Law Society considered that the costs would be greater and the nature more complex. In addition, Trowers & Hamlins thought that cost of collecting and securing payment of the commonhold assessment would be higher than with leasehold land. Furthermore, they had reservations regarding the efficacy of an ombudsman scheme since there is no requirement on unit-holders to abide by its determinations.
Conclusion
There was a wide range of views in response to the questions in this section (questions 1-5). The first question asked about the extent of the take up of commonhold. The answers were inconclusive but we think it reasonable that respondents should have been cautious about the likely extent of commonhold before details of the scheme are available. The remaining questions looked at the impact of the take up. Although in general terms, respondents did not disagree with the assessment, they drew attention to several aspects that should be further examined, particularly in relation to costs. The response also confirmed that it is difficult to quantify precisely the impact of commonhold as it is a new way of owning property and the details have not yet been settled. However, although we have received little hard economic information as to the costs or savings that might be made as a result of the introduction of commonhold as an alternative to long leasehold ownership, we will be using the information received to develop our assessment of the potential impact of commonhold. We intend to carry out further work on the basis of the information supplied by respondents and we will produce a full Regulatory Impact Assessment to accompany the regulations.
This section of the consultation paper covered questions 6-41. These questions addressed issues relating to the naming of a commonhold association, the form and content of the governing documents, the consents required to establish a commonhold, the registration of a commonhold at the Land Registry, joint unit-holders, and derivative interest holders.
Naming of a Commonhold Association
We asked three questions on the naming of a commonhold association (Questions 6-8). Regulations under the Act may prescribe that the name by which a commonhold association is registered under the Companies Act 1985 must satisfy specified requirements over and above those set out in general company law. Regulations may also provide that the name by which a company other than a commonhold association is registered may not include a specified word or expression.
Q.6 Do you agree that the company name of a commonhold association must end with 'Commonhold Association Limited' or 'Cymdeithas Cydradd-Ddaliad'?
21 respondents (47.7%) answered this question. 19 (90.5%) agreed (12 legal professionals, 2 academics, 2 lenders, 1 housing manager, 1 property industry professional and 1 representative of a professional body). 2 (9.5%) did not agree (1 legal professional and 1 professional body). The main reasons given in support of the proposal were clarity and identification purposes.
Of those against, Trowers & Hamlins agreed with the inclusion of these terms in the name of a commonhold association but not necessarily as the penultimate words.
Q.7 Do you agree that 'commonhold' and its Welsh equivalent 'Cydradd-Ddaliad' should be included on the index of restricted words?
20 respondents (45.5%) answered this question. 18 (90%) agreed (11 legal professionals, 1 academic, 2 lenders, 2 housing managers, 1 property industry professional and 1 professional body). 2 (10%) did not agree (both legal professionals). Those in support did not comment further.
Both those against favoured restricting the use of 'commonhold association'. The Law Society commented that companies established to provide services to commonholds may wish to include the word 'commonhold' in their names.
Q.8 Should any other controls be imposed in relation to the name of a commonhold association?
19 respondents (43.2%) answered this question. 9 (47.4%) considered other controls necessary (6 legal professionals, 1 housing manager, 1 lender and 1 property industry professional). 10 (52.6%) did not (7 legal professionals, 2 academics, 1 housing manager). Suggestions for further controls included:
The restriction of similar words (Gerald Sherriff).
The restriction of the words 'strata' and 'condominium' (ARHM).
The inclusion of the name and/or location of the property (6 respondents).
Conclusion
A majority of the respondents answering the questions in this section (questions 6-8) were in favour of our policy proposals regarding the naming of the commonhold association. Despite the views of some respondents, we are not convinced that further restrictions are necessary and are currently considering only one alteration to our proposals, that is to restrict the use of 'commonhold association', rather than simply 'commonhold'. This would allow companies providing services to commonholds to use the word in their company name if desired.
The Governing Documents
We asked 12 questions on the form and content of the Memorandum and Articles of Association of a Commonhold Association, and the Commonhold Community Statement [Endnote 3](questions 9-20). These questions were answered fully by a number of respondents. The memorandum and articles form the constitution of the commonhold association and the commonhold community statement sets out the management framework and the rules of the commonhold, including the rights and duties of the unit-holders and of the commonhold association.
The main concerns raised by respondents in response to these questions were the extent to which the governing documents should be capable of variation and how to present any departures from the prescribed provisions.
Q.9 In relation to the draft memorandum, articles and commonhold community
statement at Annexes C, D
and E respectively, please indicate:
(a) any provisions that should be omitted;
(b) any provisions that should be added;
(c) whether any provisions included should be mandatory, default or optional?
17 respondents (38.6%) answered this question (3 academics, 10 legal professionals, 2 lenders, 1 housing manager and 1 property industry professional). Some respondents went through one or more of the governing documents indicating whether they thought each clause should be mandatory, default or optional and whether any clauses should be omitted. A table showing these responses in full can be found at Annex B. Others made more general comments on the status of the clauses in each document. A few respondents suggested additional clauses to the documents.
With regard to the memorandum, broadly the respondents that answered in detail thought that the majority of its content should be mandatory.
With regard to the articles, there was a greater diversity of views but still strong support for many provisions to be mandatory.
With regard to the commonhold community statement, a majority of the respondents that answered in detail thought that all the provisions contained in Parts I-III (factual information and developers rights) should be mandatory. Respondents' views differed over Part IV (rules) of the statement, but there was still relatively good support for a number of mandatory provisions.
Q.10 Do you consider that any departure from a prescribed provision in the memorandum, articles or commonhold community statement should be made apparent on the face of the relevant document? If so, how?
17 (38.6%) respondents answered this question. 16 (94.1%) agreed (10 legal professionals, 2 housing managers, 1 academic, 1 lender and 2 property industry professionals). 1 (5.9%) did not agree (a legal professional) but did not state why. The most common justifications given by those in favour being transparency and clarity, and that it would assist both buyers and advisers. Suggestions to identify departures included:
Highlighting them using bold or italic type (7 respondents).
Striking through any prescribed provisions that were not applicable and underlining any non-prescribed provisions that had been added (2 respondents).
Including a statement indicating that a provision was not prescribed following the relevant clause (2 respondents).
Including a supplementary statement to indicate any prescribed provisions that did not apply, and listing any additional provisions (3 respondents).
Conclusion
We have noted the support for mandatory provisions and are proposing to prescribe the core of the governing documents. Although we have not yet settled upon the method or methods by which additions to, or departures from, mandatory or default provisions will be distinguished, we are intending to propose that they will be readily identifiable.
Q.11 Is it necessary to identify the particular commonhold in the object clause (see Annex C Paragraph 3)?
18 respondents (40.9%) answered this question. 17 (94.4%) respondents considered it necessary to identify the particular commonhold (12 legal professionals, 1 academic, 2 housing managers, 1 lender, and 1 property industry professional). 1 respondent (5.6%) did not but did not justify their view. The most common reasons given for supporting this proposal were clarity, that it would avoid confusion, and that it would be useful for cross-referencing purposes.
Conclusion
We are intending to propose that the object clause will contain a brief reference to the commonhold.
Q.12 Do you have any other comments on the content of the specimen draft memorandum and articles of association at Annexes C and D?
17 respondents (38.6%) answered this question (8 legal professionals, 3 academics, 1 lender, 2 housing managers, 2 professional bodies and 1 property industry professional). Some respondents also referred to the commonhold community statement when answering this question; their comments are also included below.
7 respondents offered detailed comments on individual clauses of the governing documents. Many of these respondents repeated their comments in response to later questions that focused on specific clauses of the documents.
Of those that commented generally, two main themes emerged:
User-friendliness
4 respondents commented that the governing documents should be written in clearer, simpler language so that unit-holders would not have to employ a solicitor to interpret them.
2 respondents suggested that the documents should not contain cross references to the Act or other documents, rather they should state the reference in full. Otherwise, unit-holders' rights and obligations would be set out in several documents.
2 respondents lamented the use of the traditional lengthy format of the memorandum and articles of association. PLT commented that this renders the documents less user-friendly and that the excessive formality may be inappropriate for smaller commonholds.
Gerald Sherriff suggested an alternative layout for the commonhold community statement to make non-standard provisions stand out. He proposed that it should be split into three parts, with Part I containing the provisions that apply to all commonholds, Part II any optional rules that have been adopted and Part III any new rules specific to the commonhold in question.
Flexibility
Other comments/concerns:
PSL suggested that the documentation should contain compulsory objective standards and requirements applicable to all commonholds in relation to important matters, including requirements for reasonableness where appropriate, to avoid lawyers inserting their own additional provisions similar to those currently contained in leases.
They also suggested that it should be possible to have separate rules within a commonhold to cater for different parts of the development.
Halifax were content with the documents since their concept and much of their content were very similar to those used in current company law.
Conclusion
We will be working to try to create documents that are user friendly and flexible. We currently intend that we will make available in guidance specimen clauses that may be applied by individual commonholds to matters other than those covered by mandatory and default provisions.
Q.13 Should any more information about the nature of the document and its contents be made available for consumers and others at the beginning of the commonhold community statement [Endnote 4]? If so, what information should be provided?
21 respondents (47.7%) answered this question. 11 (52.4%) respondents supported the inclusion of further information at the beginning of the commonhold community statement (6 legal professionals, 2 academics, 1 lender, 1 housing manager and 1 property industry professional). 10 respondents (47.6%) did not (7 legal professionals, 1 academic, 1 lender and 1 housing manager).
Suggestions put forward by those in favour included:
A description of the rights and obligations of a unit-holder (Professor Rosenberry).
LEASE, The Housing Corporation and Professor Clarke thought that explanatory notes accompanying the commonhold community statement would be useful to consumers.
A warning advising consumers that interpretation of the document may be difficult and may require professional advice (Trowers & Hamlins).
2 respondents mentioned the need to use consumer friendly language.
Arguments put forward by those against included:
The Law Society suggested that the existing information on the nature of the document should be abbreviated and simplified.
Gerald Sherriff felt that including more information would mean that consumers are likely to read less of it.
PSL thought that no further explanation of the nature of the document is necessary but suggested making the content of the document more user-friendly by explaining the meaning of terms taken from the Act rather than referring consumers to the Act itself.
Graham Paddock and PLT considered that the only additional information necessary would be details of any departures from the prescribed provisions.
Conclusion
We have noted the views expressed and will be revising the draft. We are, however, conscious that the commonhold community statement itself should not become over burdened with guidance. Such guidance is, we think, better placed in documents constructed for that purpose.
Q.14 Do you agree that a brief postal address is adequate in Part 1 of the commonhold community statement [Endnote 5]?
19 respondents (43.2%) answered this question. 13 (68.4%) agreed (8 legal professionals, 1 academic, 2 housing managers, 1 lender and 1 property industry professional). 6 (31.6%) did not agree (4 legal professionals, 1 academic, 1 lender). Few respondents in favour elaborated on their answer. However, 2 commented that a description should be used if there was no postal address available for the commonhold at the time of registration, and 2 commented that it would useful to include a cross-reference to a plan of the commonhold.
Most of the respondents against thought that additional information should be contained in Part 1 of the commonhold community statement, suggestions included:
two addresses, the address of the commonhold and the address to which legal notices must be sent;
a full description of the land;
title numbers; and
a full postal address including the postcode.
Q.15 Do you think that details of any change of name should be listed in Part 1 of the commonhold community statement [Endnote 6]?
19 respondents (43.2%) answered this question. 15 (78.9%) thought that details of any change of name should be listed (2 academics, 9 legal professionals, 2 housing managers, 1 lender and 1 property industry professional). 4 (21.1%) did not (all legal professionals). Few respondents in favour gave reasons for their opinion, those that did mentioned the avoidance of doubt, and that the information would be useful in understanding past transactions.
Only two of those against elaborated on their answers. Gerald Sherriff commented that name changes would be rare, and PLT thought that this information should be included at the end of the commonhold community statement along with details of any other amendments made to the document.
Q.16 Do you think that it is necessary to include details of the applicant for registration in Part 1 of the commonhold community statement?
19 respondents (43.2%) answered this question. 12 (63.2%) thought that it was necessary to include details of the applicant for registration (1 academic, 8 legal professionals, 2 housing managers and 1 lender). 4 (21.1%) respondents (all legal professionals) did not. The main reasons given for supporting this proposal were transparency, to provide a full record of the history of a commonhold development from its inception, and that it would enable unit-holders to contact the developer if the need arose.
Of those against, 2 thought that this information would be irrelevant once the commonhold is established, and 1 thought that the information could be misleading if there were a successor to the developer.
3 (15.8%) respondents (1 academic, 1 legal professional, and 1 property industry professional) thought that it would only be necessary to include details of the applicant for registration if the developer was retaining development rights. HBF remarked that this information could be obtained from the Land Registry.
Q.17 Should the word 'commercial' be changed to non-residential to follow the scheme in the Act or are references to sub-categories of non-residential use helpful? [Endnote 7]
22 respondents (50%) answered this question. 15 (68.2%) considered that the word 'commercial' should be changed to non-residential. Two main reasons were given for supporting this option:
5 respondents (1 academic, 3 legal professionals and 1 housing manager) felt that non-residential would be a better description than commercial, because it is a broad description that can encompass a range of uses of units.
5 respondents (1 academic and 4 legal professionals) thought that it was best to use non-residential following the scheme used in the Act, to avoid any confusion or ambiguity.
Of the 15, 5 were in favour of the use of sub-categories of non-residential use and 2 were against the use of sub-categories.
6 respondents (27.3%) thought that the word 'commercial' should not be replaced by non-residential.
3 respondents (2 lenders and 1 property industry professional) thought that 'commercial' would be a more widely recognised term than non-residential.
LEASE felt that the term non-residential was too broad to be of any value.
Of the 6, 2 were in favour of the use of sub-categories of use.
1 respondent (4.5%) did not specify which term they would prefer to be used but stated that they thought sub-categories of use would be helpful.
Q.18 Do you agree with these requirements relating to the plan of the commonhold unit to be included with the commonhold community statement? [Endnote 8] If not, why?
18 respondents (40.9%) answered this question. 11 (61.1%) agreed (2 academics, 5 legal professionals, 2 lenders, and 2 housing managers). 7 (38.9%) did not agree (6 legal professionals and 1 property industry professional). Of those in support, Peter F Smith commented that the detailed nature of the plans would prove useful to consumers.
Reasons given for opposing the requirements included:
a lack of clarity over how pipes and wires would be dealt with;
the identification of the floor level of a unit should be required to comply with current Land Registry practice;
the regulations should go further and prescribe how plans will deal with the boundaries of units so as to establish a uniformity of responsibility in this regard across all commonhold developments (Graham Paddock);
the requirements are not appropriate for a commonhold established by conversion under Section 9 of the Act as applicants may not want to incur the expense of an accurate survey and new plans (PSL); and
the use of a colour reference to identify common parts should be replaced by current Land Registry practice.
Conclusion
We agree with respondents that the description of the commonhold land and the commonhold association must be sufficiently clear. We are considering how to achieve this without unnecessarily duplicating information on the land register and the companies register. We are also liasing closely with the Land Registry concerning the requirements for plans.
Q.19 Do you think that a Commonhold Association should be able to add such material as it thinks fit to the commonhold community statement (see Part V) [Endnote 9]?
18 respondents (40.9%) answered this question. 15 (83.3%) agreed (9 legal professionals, 1 lender, 2 academics, 2 housing managers and 1 property industry professional). 3 (16.7%) did not agree (all legal professionals).
Many of those in favour thought that this discretionary power to add provisions specific to the commonhold was necessary to accommodate the unique features of each individual commonhold. However, several respondents attached a caveat or further refined their answer.
Graham Paddock thought that whilst the commonhold association could add material to the commonhold community statement, it must make clear what material has been added and where it deviates from the standard form.
The Housing Corporation thought that a commonhold association should be able to add such material as it thinks fit to the commonhold community statement, and that the fundamental clauses of the commonhold community statement could be protected from amendment by making them mandatory.
4 respondents felt that the power of commonhold associations to add material to the commonhold community statement should be limited to ensure that it does not extend, limit, vary, or override the core prescribed requirements.
Of those against:
The Law Society felt that there should be no unrestricted facility for adding provisions to the commonhold community statement on the grounds that the benefits of this would be outweighed by the drawbacks it would entail, such as the possibility that restrictions would be added that would be unenforceable or that would contravene the Act. Furthermore, the opportunity to add non-standard material to a commonhold community statement would increase the burden of checking compliance with the Act, adding to the cost of satisfying the formalities.
LEASE thought that the commonhold community statement should be limited to Parts I-IV to avoid the addition of provisions that might contradict or amend the prescribed requirements.
Conclusion
As we have stated we are considering allowing commonhold associations a large degree of flexibility to accommodate their particular circumstances. Nonetheless, we are equally conscious of the need to ensure that the parameters of the flexibility are clear. We anticipate that this will be achieved through the explanatory material included in the commonhold community statement and separate guidance.
Q.20 We would be grateful for views on the following points relating
to Part VI of the commonhold community statement [Endnote
10]:
(a) whether it is necessary to have two signatories?
17 respondents (38.6%) answered this question. 16 (94.1%) agreed (12 legal professionals, 1 academic, 2 lenders and 1 housing manager). 1 (5.9%) did not agree; he was of the opinion that the commonhold community statement should not need to be signed at all. Several respondents in favour considered that the requirement of two signatories would help to guard against fraud and 2 respondents thought this requirement to be sensible, as it is consistent with the requirements of company law.
Q.20 (b) whether only certain categories of person should be able to sign?
13 respondents (29.5%) answered this question. 12 (92.3%) agreed (9 legal
professionals, 1 academic, 1 lender and 1 housing manager). 1 (7.7) did
not agree, but did not justify their position. Several respondents in favour
specified the categories of person who should be able to sign the document.
Suggestions included:
directors of the commonhold association;
the secretary of the commonhold association;
the developer; and
solicitors acting on behalf of the directors of the commonhold association.
Q.20 (c) whether it is useful to keep a record on the face of the document in the form suggested of the occasions on which the commonhold community statement has been amended?
16 respondents (36.4%) answered this question. All 16 (100%) agreed (10 legal professionals, 1 property industry professional, 1 academic, 2 housing managers, 1 professional body and 1 lender). However, few of them gave reasons for their agreement.
PLT added that it would also be helpful to include either a brief description of the amendment or alternatively details of the clauses that have been amended.
1 respondent thought that keeping a record on the face of the document of the occasions on which it has been amended should be a mandatory requirement.
The BPF pointed out that keeping a record on the face of the document of the occasions on which it has been amended would "avoid lawyers having to engage in unnecessary detective work when transfers take place".
Q.20 (d) whether an alternative form of Part VI should be prescribed for use on amendment of the statement?
11 respondents (25%) answered this question. 5 (45.5%) agreed (4 legal professionals and 1 housing manager). 6 (54.5%) did not agree (4 legal professionals, 1 academic and 1 lender). Some of those in support suggested material to be included in the statement such as a reference to the amendment made, and the date and version number of the statement that it replaces.
Of those against, one respondent commented that whilst considering the prescription of an alternative form of Part VI of the commonhold community statement unnecessary, the existing format must include enough space to provide sufficient details of the amendments made.
Conclusion
We have noted the comments regarding Part VI. We are considering them in the context of the extent to which the model commonhold community statement should be designed by reference to the initial application or subsequent use. We are also conscious that recording every amendment in the life of a commonhold may make, over the years, a very long list. It may also be relevant to consider how much information will be available from the Land Registry and Companies House.
Prescribed Consents
We asked 11 questions on the consents that should be prescribed under Section 3 (1) (d) of the Act and related issues (questions 21-31). Section 3 of the Act sets out the categories of person whose consent is required to make an application for registration of a freehold estate in commonhold land. Section 3 (1) (d) allows regulations to prescribe other classes of person whose consent would also be required to make such an application.
The main concern of respondents in response to these questions was which classes of person should be prescribed under Section 3 (1) (d).
Q.21 Do you think that consent should be required from any of the following?
(a) an unregistered lessee under a lease granted for a term of more than
twenty-one years
18 respondents (40.9%) answered this question. 15 (83.3%) agreed (11 legal
professionals, 1 academic, 2 lenders and 1 property industry professional).
3 (16.7%) did not agree (1 property industry professional, 1 legal professional,
and 1 other), however, they did not justify their views. The main justification
expressed by those in favour was that such a lease was a significant interest.
In addition:
Q.21 (b) the proprietor of a rentcharge
16 respondents (36.4%) answered this question. 4 (25%) agreed (3 legal professionals and 1 lender) and 12 (75%) did not agree (8 legal professionals, 1 academic, 2 property industry professionals and 1 other). Of those in support, Gerald Sherriff commented that "the rentcharge owner will probably want the Commonhold Association to accept responsibility for payment of the rentcharge: if the rentcharge arrangements are such that a deed of covenant is to be entered into by a transferee the scheme would be defeated unless the Commonhold Association has to execute such a deed, as there is no transfer, simply a change of type of freehold".
Of those against, comments included:
LEASE considered that a rentcharge would become an anachronism if the title were to transfer to commonhold.
Professor Clarke commented that "the rentcharge owner is really only concerned with payment until bought out under the Rentcharges Act 1977 and should not have the power to prevent the commonhold being developed."
Q.21 (c) a purchaser under a contract or option
15 respondents (34.1%) answered this question. 13 (86.7%) agreed (9 legal professionals, 1 academic, 1 lender and 2 property industry professionals). 2 (13.3%) did not agree (both legal professionals), however they did not elaborate on their responses.
A few of the respondents in favour included a caveat:
LEASE thought that consent should be required from a purchaser under a contract but not from the holder of an option for purchase.
Professor Clarke commented that consent should be required from a purchaser under a contract or option provided that the contract or option is registered.
Q.21 (d) the manager of an estate management scheme registered as a local land charge or a rentcharge?
15 respondents (34.1%) answered this question. 7 (46.7%) agreed (6 legal professionals and 1 lender), but did not elaborate on their answer. 8 (53.3%) did not agree (4 legal professionals, 1 academic, 2 property industry professionals, and 1 other). Of those against:
LEASE commented that the transfer of title would not materially affect the scheme or interfere with its operation.
Professor Clarke noted that the scheme would remain in force and bind the commonhold.
Q.21 (e) Are there any further categories of interest whom you would wish to see prescribed as falling within the category of a required consent?
13 respondents (29.5%) answered this question. 7 (53.8%) respondents suggested further categories of interest to be prescribed (6 legal professionals and 1 lender). Suggestions included:
Interests over part of a unit which would be extinguished upon the creation of a commonhold (The Law Society, PLT, PSL).
Those interests that would be adversely affected by the registration of a commonhold (The Law Society).
Lessees under leases of 21 years or less and their mortgagees (PSL and Halifax).
Beneficiaries under trusts of land where consent would not overreach the interests of the beneficiaries (Trowers & Hamlins).
Proprietors or mortgagees of leasehold estates (Trowers &Hamlins).
Q.22 Do you consider that it would be appropriate to require the consent of those persons whose interests are protected on the register and/or protected by occupation? If yes, please indicate if you think that consent should only be sought in relation to all categories or only specific categories. If the latter, please specify.
16 respondents (36.4%) answered this question. 4 (25%) (1 academic, 2 lenders and 1 legal professional) agreed that it would be appropriate to require the consent of all those persons whose interests are protected on the register. Several respondents elaborated on their response:
Halifax commented that requiring the consent of persons whose interests are protected on the register and/or protected by occupation would ensure that commonhold is dealt with in the same way as other forms of land tenure.
Yorkshire Building Society thought that requiring the consent of persons whose interests are protected on the register and/or protected by occupation would be the only satisfactory way of dealing with the issue of prescribed consents.
4 respondents (25%) (1 academics, 2 legal professionals and 1 property industry professional) agreed that it would be appropriate to require the consent of specific categories of persons whose interests are protected on the register and/or by occupation. 8 did not agree (6 legal professionals, 1 property industry professional and 1 other: 50%). Of those in favour comments included:
Consent should be sought if the interest is not transferred to the new title (Cambridgeshire and District Law Society).
Chargee's consent should be required (Clifford Chance).
Of those against:
LEASE responded that "the provisions of the better title of commonhold renders any consent irrelevant, the existing title is replaced by better title with no detriment to the protected interests".
Another respondent adopted a different approach, considering that only the consent of major interests should be sought as minor interests will not be adversely affected by the creation of a commonhold.
Trowers & Hamlins thought that consent should be sought only from persons whose interest would be affected by the creation of a commonhold.
Conclusion
Having considered respondents' comments on other categories of consent to be prescribed under section 3 (1)(d), we are currently considering requiring consent from the following additional categories of person: the unregistered proprietor of any legal leasehold estate in the whole or part of the land granted for a term of more than 21 years; the unregistered proprietor of any charge over the whole or part of the land; and a person entitled to the benefit of any interest that is the subject of an entry in the register of title to the land or under the Land Charges Act 1972 which will be extinguished by virtue of section 21(5) [Endnote 11]. We hope that this approach strikes a suitable balance between requiring the consent of the owners of significant interests that would be affected by the creation of a commonhold, and requiring consent from the owners of those interests that it will be reasonably possible for the applicant to identify.
Q.23 Do you think that the details [Endnote 12] shown in the provision of the draft form for the section 3 consent are sufficient? If not, what further information would you wish to see included?
14 respondents (31.8%) answered this question. 8 (57.1%) agreed (6 legal professionals and 2 lenders). 6 (42.9%) did not agree (3 legal professionals, 1 academic, 1 lender and 1 property industry professional). A few of the respondents in favour further refined their answer:
The form should make clear that the description of the land should be detailed, referring to a plan if necessary (The Law Society).
The form should distinguish between an individual, a company and a lender (Yorkshire Building Society).
Whilst those against generally approved the material set out in the draft form, several felt that additional information was necessary:
The form should explicitly refer to a registered proprietor of a charge and not simply to a registered proprietor (Gerald Sherriff).
The form should be accompanied by a plan (Swansea and District Law Society).
An additional warning to lessees that their lease would be extinguished on the activation of a commonhold (Professor Clarke).
Q.24 What form do you think the 'health warning' on the section 3 consent form [Endnote 13] should take?
14 respondents (31.8%) answered this question. They were generally content with the wording of the draft health warning, however several respondents suggested additions that could be made.
5 of the respondents (4 legal professionals and 1 lender) thought that the warning on the draft form was sufficient.
5 respondents thought that the existing warning should be expanded to explain the nature of commonhold and the consequences of giving consent (2 legal professionals, an academic, a lender and a property industry professional).
Trowers & Hamlins thought that the warning should specify sources of legal advice.
The Swansea and District Law Society considered that the current warning was too simple and that people will ignore it.
PLT suggested that in addition the warning should state that once consent is given, it cannot be revoked.
Q.25 Do you think that the form of consent should be accompanied by prescribed notes explaining the process? If so, what notes are necessary?
15 respondents (34.1%) answered this question. 11 (73.3%%) agreed (6 legal
professionals, 1 academic, 3 lenders and 1 property industry professional).
4 (26.7%) did not agree (all legal professionals), 3 of these commenting
that the health warning on the form should be sufficient.
Many of those in favour elaborated on the suggested content of the notes:
The notes should focus on an explanation of the process of registration, the nature of commonhold, and the effect of giving consent (7 respondents).
The notes should give details of the compensation provisions and point out that by giving consent, the statutory compensation provisions for extinguishment do not apply (Professor Clarke).
The notes should refer to the period of irrevocability (The Law Society).
Conclusion
We have noted the suggestions of respondents and are intending to develop the form of consent in the light of them.
Q.26 Do you think that the giving of consent should bind successors in title?
18 respondents (40.9%) answered this question. All 18 (100%) agreed (11 legal professionals, 3 lenders, 2 property industry professionals, 1 academic and 1 other).
7 respondents thought that if consent did not bind successors in title, problems in the process of registration would arise in the future. For example a range of parties would be able to challenge the arrangements and it would be difficult to know if all the necessary consents had been obtained to submit an application to the Land Registry.
However, 5 respondents thought that consent should only bind successors in title if it is registered at the Land Registry so that the purchaser is aware that consent has been given.
Q.27 Do you think that the consent should have an 'expiry date' if no application is submitted?
19 respondents (43.2%) answered this question. 15 (78.9%) agreed (9 legal professionals, 1 academic, 3 lenders and 2 property industry professionals). 4 (21.1%) did not agree (1 academic, 2 legal professionals and 1 other). Of those in favour, The Law Society commented that consent should be irrevocable for a period.
Q.28 Is three months an appropriate period of time to specify?
16 respondents (36.4%) answered this question. 7 (43.8%) agreed (5 legal professionals, 1 academic, and 1 property industry professional). However, 3 of these respondents (The Law Society, PLT and Professor Clarke) thought that it should be possible to extend this period, for example, if the developer first needed to seek planning permission.
9 respondents did not agree and suggested alternative to give adequate time for the collection of the necessary consents:
12 months (2 legal professionals and 1 property industry professional: 18.8%)
6 months (3 legal professionals and 2 lenders: 31.3%).
The perpetuity period of up to a life or lives (80 years), (1 respondent 6.3%).
Conclusion
Respondents fully endorsed the suggestion that consents should bind successors in title but doubted whether 3 months was sufficiently long. In the light of this we are considering a period of 12 months.
Q.29 Should the giving of consent authorise the Land Registry to remove any relevant entry on the register (other than in the case of a charge)?
14 respondents (31.8%) answered this question. 12 (85.7%) agreed (7 legal professionals, 1 academic, 3 lenders and 1 property industry professional). 2 (14.3%) did not agree (both legal professionals) Many of those in favour added a caveat or further refined their answer.
The Law Society suggested that if registration extinguished an interest, and this is explained in the explanatory notes accompanying the form, then the consent should also authorise the Land Registry to make consequential entries, including removing protection previously given.
PSL questioned whether it would be possible to provide for a consent to be given conditional upon the interest being re-registered against the commonhold title where this was appropriate.
Yorkshire Building Society thought that the giving of consent should authorise the Land Registry to remove any relevant entry on the register (other than in the case of a charge), but that the prescribed notes accompanying the consent form should make this clear.
Of those against, Trowers & Hamlins commented that "there is no reason why conversion to Commonhold should affect a whole range of interests".
Conclusion
We are liasing with the Land Registry to identify the information that it requires to remove entries that will become spent as a result of the registration of land as commonhold land.
Q.30 Do you agree that a court may dispense with the requirement for consent where a person cannot be traced?
19 respondents (43.2%) answered this question. 18 (94.7%) agreed (10 legal professionals, 2 academics, 3 lenders, 2 property industry professionals and 1 other). 1 (5.3%) did not agree, (a legal professional). Several of the respondents in favour attached a caveat to their answer or commented further on the issue.
3 respondents added that although a court may dispense with the requirement for consent where a person cannot be traced, it should not be allowed to dispense with the requirement for consent on the grounds that it is being unreasonably withheld.
4 respondents considered that stringent requirements should be laid down with regard to the steps to be taken to trace an individual before the court can dispense with the requirement for consent.
1 respondent thought that the court should also be able to dispense with the requirement for consent if the person required to consent is incapacitated, or if, in the case of a company, the company has been dissolved and is unable to consent.
The Law Society did not agree that a court may dispense with the requirement for consent where a person cannot be traced since this is not an instance where the developer is exercising a statutory right which might otherwise be frustrated. They concluded that "it is difficult to justify putting a developer in a more advantageous position if the person entitled to give - and withhold - consent cannot be traced."
Q.31 Do you have any other proposals for regulations under section 3(2)?
Only 4 respondents (9.1%) had other proposals:
Gerald Sherriff proposed that if the type of proposed use of a commonhold changes e.g. from commercial to residential, then consents should be sought again.
He also proposed that a court could be able to give consent if no response is received to a notice within a given period.
Graham Paddock suggested that a court should be able to dispense with consent where it finds that such consent is being unreasonably withheld.
Halifax proposed that if no regulations are to be prescribed under section 3 (2) (d) and (e), then regulations should specify this for the avoidance of doubt.
Conclusion
Mindful of the powerful objections raised by The Law Society, we are currently proposing to make regulations to permit the court to dispense with a consent where all reasonable efforts to obtain the consent have been exhausted.
Registration of a Commonhold
The next group of questions (questions 32-39) concerned a variety of matters relating to the registration of a commonhold at the Land Registry. Although these questions were answered by many respondents, most of them did not attract lengthy responses. An application to register a commonhold at the Land Registry must be accompanied by specific documents required by the registrar. Upon receipt the registrar will register the freehold estate in land as a freehold estate in commonhold land and he will record on the land register the necessary details of the commonhold association and the registered freeholder of each commonhold unit.
Respondents mainly agreed with our proposals in response to these questions, however the treatment of an application to register a multiple site commonhold prompted some concerns.
Q.32 Would it be useful to prescribe a form for the directors' certificate of compliance [Endnote 14]?
18 respondents (40.9%) answered this question. 15 (83.3%) agreed (9 legal professionals, 2 lenders, 2 housing managers, 1 academic, and 1 property industry professional). 3 (16.7%) did not agree (all legal professionals). A few respondents in favour commented further on the issue.
Q.33 Do you think that the list of relevant enactments for contingent estates [Endnote 15] should be amended by regulations?
13 respondents (29.5%) answered this question. 4 (30.8%) agreed (3 legal professionals and 1 lender). 9 (69.2%) did not agree (7 legal professionals, 1 academic and 1 housing manager). Of those in favour LEASE commented that "provision should be made for amendment as necessitated by changes to primary legislation".
Some respondents against added a caveat or further refined their answer:
Gerald Sherriff thought that there should be a power to add new exclusions as they arise.
Another respondent commented that whilst they saw no need to amend the list of relevant enactments for contingent estates at present, the implementation of commonhold may reveal areas in which regulation would be beneficial.
Q.34 Do you agree with the proposed prescribed details required for the commonhold association [Endnote 16]?
18 respondents (40.9%) answered this question. 16 (88.9%) agreed (9 legal professionals, 2 academics, 2 housing managers, 2 lenders and 1 property industry professional). 2 (11.1%) did not agree (both legal professionals). Few respondents elaborated on their answer. Of those in favour:
Halifax thought that the prescribed details were sufficient because they contain enough information to allow anyone who needs to contact a commonhold association to do so.
Clifford Chance commented that whilst the prescribed details are sufficient, it would be useful if non-UK addresses were acceptable.
Of those against, one respondent commented that our proposals conflicted with those of the Land Registry to allow a maximum of 3 addresses for service.
Q.35 Do you agree with the proposed prescribed details for the registered freeholder of the commonhold unit [Endnote 17]?
19 respondents (43.2%) answered this question. 18 (94.7%) agreed (10 legal professionals, 2 academics, 2 housing managers, 2 lenders, 1 property industry professional and 1 professional body). 1 (5.3%) did not agree (a legal professional) but did not state why. Whilst few respondents in favour elaborated on their answer, comments included:
Gerald Sherriff considered that where the freeholder is a company, it should provide the company registration number.
Another respondent suggested that the address for service should include a post-code.
Conclusion
In view of the comments received, we are intending to prescribe a form of directors' certificate. In relation to the prescribed details, we are considering how best these should be presented taking account of the information that will be held on the land register and the undesirability of requiring the commonhold community statement to be amended on every occasion that a unit is transferred.
Q.36 Do you agree that regulations should require any application for the registration of a multiple site commonhold to be preceded by an amalgamation of the titles affected? If not, what would you propose?
18 respondents (40.9%) answered this question. 12 (66.7%) agreed (7 legal professionals, 2 housing managers, 1 academic, 1 lender and 1 property industry professional). 6 (33.3%) did not agree (all legal professionals). Several respondents in favour justified their opinion.
Graham Paddock agreed with the proposal because it would prevent the titles being dealt with separately.
Two respondents commented that the application to amalgamate the freehold titles could be lodged at the same time as the application to register the commonhold.
Halifax and the Housing Corporation commented that if the titles remained separate, it may cause practical problems.
Trowers & Hamlins suggested that amalgamation should be conditional upon registration as commonhold, and that amalgamation and registration should be capable of being dealt with simultaneously.
Many of those against also justified their view:
Gerald Sherriff considered consolidation before registration to be a duplication of work, unless one of the titles was unregistered.
PSL preferred to have the option of making a joint application for amalgamation and conversion to commonhold.
Another respondent commented that the Land Registry's current policy on amalgamation of title acquired in separate parts is to resist or refuse amalgamation. They also thought that amalgamating the titles may create practical problems e.g. if the various titles were subject to mortgages to different lenders.
Conclusion
We will be working with the Land Registry to identify the best solution to the issue of multiple site commonholds where the land is owned by more than one proprietor. We anticipate however that these are likely to be the exception and that in most cases the land will be brought together into a single owner by the promoter of the commonhold.
Q.37 Do you think the details included in the section 9 statement [Endnote 18] are appropriate?
Comments from those against included:
The Law Society did not agree with the use of a separate prescribed form and thought that the information could be included in form CM1.
Trowers & Hamlins did not think that the form should be phrased as a request.
Q.38 Would you wish to see any other details included?
14 respondents (31.8%) answered this question. 7 (50%) wished to see other details included (5 legal professionals, 1 housing manager, and 1 lender). 7 (50%) did not (4 legal professionals, 1 housing manager, 1 academic and 1 property industry professional). Several of the respondents in favour suggested additional details to be included:
3 respondents suggested including details of any mortgagees on the statement.
PLT thought that it should be made clear on the face of the form that the effect of registration would be to extinguish any lease over all or part of the land.
Q.39 Do you agree that this form could be combined with Form CM1 [Endnote 19]?
13 respondents (29.5%) answered this question. 11 (84.6%) agreed (8 legal professionals, 2 housing managers and 1 lender). 2 (15.4%) did not agree (1 legal professional and 1 lender). Few respondents in favour gave reasons for their answer, comments included:
The Law Society did not consider a separate prescribed form necessary.
PLT commented that whilst the two forms could be combined, it should be made clear on the face of the document that the Section 9 part of the form is only relevant upon conversion to commonhold from an existing freehold or leasehold development.
Of those against, Halifax thought that prescribed forms should be separate for the sake of clarity.
Conclusion
We are not currently considering any fundamental changes to our approach in relation to the section 9 statement. We will be working with the Land Registry to see if a combined form would be practical and appropriate.
Joint Unit-Holders and Tenants, Licensees and Other Owners of Derivative Interests
We asked one question on joint unit-holders (question 40) and one on the treatment of tenants licensees and other derivative interest owners (question 41). Respondents raised varied concerns in response to these questions, but no general theme emerged.
Q.40 Are there any specific issues relating to joint unit-holders that you wish to draw to our attention?
9 respondents (20.5%) raised specific issues (6 legal professionals, 1 lender and 2 professional bodies). These included:
Gerald Sherriff thought that regulations should make it clear that the liability of one of two or more joint unit-holders ceases upon him ceasing to be a unit-holder save for existing breaches. Furthermore, he thought that there should be a power for one joint unit-holder to be able to cease to be such.
PSL suggested the use of an optional standard form agreement between joint unit-holders governing their relationship.
One respondent suggested that the first named joint unit-holder should hold the voting rights and that votes cast should be binding on all other unit-holders.
R3 thought that it would be helpful if any notices relating to the operation of the commonhold could, upon request, be supplied to all joint unit-holders.
Q.41 Are there any specific issues relating to the treatment of tenants, licensees and other derivative interest owners that you wish to draw to our attention?
11 respondents (25%) answered this question (7 legal professionals, 1 academic, 1 housing manager, 1 lender, and 1 professional body). Respondents commented on a variety of matters relating to the treatment of interest holders. Specific issues raised included:
Making a tenant or a lessee of a unit jointly and severally liable with the unit-holder unless the unit-holder notifies the commonhold association otherwise (Gerald Sherriff).
Subject to establishing that there is a statutory authority to do so, to extend negative obligations to licensees and statutory tenants (The Law Society).
Permitting tenants to represent unit-holders at meetings of the commonhold association (Graham Paddock).
Requiring tenants not to put their landlords in breach of their own commonhold obligations (Trowers & Hamlins).
Conclusion
We have taken these comments into account. We return to the issue of joint unit-holders when considering the register of members, voting, transfer of a unit and the extent of the direct involvement of tenants and licensees in the affairs of the commonhold association in the context of running a commonhold.
This section includes questions 42-158, which address issues relating to the day-to-day running of a commonhold. Specific topics covered include the register of members, meetings of the commonhold association, voting, directors of a commonhold association, notices, the transfer of a commonhold unit, letting a commonhold unit, use, repair and maintenance, the commonhold assessment, behaviour in a commonhold and dispute resolution.
Register of Members
We asked 4 questions on the register of members (questions 42-45). A person is entitled to be registered as a member of the commonhold association if he or she becomes a unit-holder. The commonhold association is required to establish and maintain a register of members by the provisions of the Companies Act 1985.
The main issue of concern to respondents highlighted by these questions was whether or not the form of the register of members should be prescribed.
Q.42 Do you consider that the form of the register of members should be prescribed? If so, what form should it take?
17 respondents (38.6%) answered this question. 10 (58.8%) agreed (7 legal professionals, 2 academics and 1 lender). 7 (41.2%) did not agree (5 legal professionals and 2 housing managers). Of those in agreement, few respondents elaborated on their answer however, comments included:
PLT and Gerald Sherriff thought that the register should include the name of the unit-holder, the address of the unit, and the address for service.
Professor Clarke and The Law Society thought that a commonhold association should keep both a hard copy of the register and an electronic copy.
The Law Society thought that whilst the form of the register should not be prescribed, it should be required to show the names of members and their units.
Reasons given for opposing this included:
2 respondents thought that current company law requirements governing the register of members were sufficient. However, 1 added that where differential voting rights have been allocated to units, the voting rights should also be included on the register.
The Housing Corporation commented that the principles of the register should be prescribed but not the form since many registers will be kept electronically and detailed prescription may present practical difficulties.
Q.43 Do you agree with the proposals for the time periods within which entries must be made on the commonhold association's register of members [Endnote 20]?
16 respondents (36.4%) answered this question. 9 (56.3%) agreed (5 legal professionals, 2 housing managers, 1 academic, and 1 lender). 7 (43.7%) (all legal professionals) did not agree. A few respondents in favour further refined their answer:
Of those against, several respondents justified their response:
The Law Society commented that upon the death of a member of the commonhold association the directors might not receive notification of who is entitled to replace the deceased member within the 21 day time period. They considered that 21 days from the directors being notified or becoming aware that a person was entitled to be registered as a member of the association would be more appropriate.
LEASE thought that the time period should be reduced to 14 days and considered 21 days too long a period in dealing with ownership and transfer of property.
Another respondent also favoured a 14 day time period since membership rights derive from the date of registration.
Graham Paddock thought that unit-holders should automatically be made members of the commonhold association.
Q.44 Are there any other matters relating to the register of members that should be prescribed in regulations?
6 respondents (13.6%) answered this question (4 legal professionals, 1 academic and 1 housing manager). A few respondents suggested other matters to be prescribed including:
LEASE commented that it is unclear how a member shall resign from the commonhold association.
Professor Clarke suggested that regulations could require the developer to resign once his interest in a unit ceases.
The Housing Corporation commented that there should be provision for future changes to the registration of members as owners' circumstances change.
Q.45 Should the period of time within which a nomination from joint unit-holders for one unit-holder to be entered on the commonhold association's register of members be 21 days from the date of the transfer of the unit?
15 respondents (34.1%) answered this question. 12 (80%) agreed (9 legal professionals, 1 housing manager, 1 academic and 1 lender). 3 (20%) did not agree (all legal professionals). Comments from those in support included:
Gerald Sherriff and The Law Society commented that whilst a nomination should be made within 21 days, the unit-holders should have the right to change the unit-holder entered on the commonhold association's register at a later date.
Professor Clarke and Halifax agreed with the 21 day time limit because it corresponds to the proposed time limit for the registration of new members.
Of those against:
Graham Paddock thought that all joint unit-holders should be members of the commonhold association, whilst only one member should exercise the voting rights for the unit.
LEASE again thought that 14 days would be a more appropriate time period for the nomination of joint unit-holders.
Conclusion
A majority of the respondents that answered the questions in this section (questions 42-45) were in favour of our proposals. Taking into account the views of respondents we are not yet convinced that the form of the register of members needs to be prescribed. We are giving further thought to the notification of a new member but do not as yet consider that regulations on other topics are required.
Meetings of the Commonhold Association
We asked 5 questions on meetings of the commonhold association relating to the running of a commonhold association (questions 46-50). The provisions relating to meetings of the commonhold association are contained in articles 7-30 of the draft articles of association [Endnote 21].
The main issue raised in response to these questions was the balance between respondents who wanted commonhold regulations to reflect company law as closely as possible and those who did not think all aspects of company law were appropriate for commonhold associations. There was also some debate as to whether the proposed requirements would prove burdensome for small associations.
Q.46 Do you agree with the current draft proposals of the articles of association for general meetings of a commonhold association [Endnote 22]?
17 respondents (38.6%) answered this question. 9 (52.9%) agreed (5 legal professionals, 1 academic, 2 housing managers and 1 lender). 8 (47.1%) (7 legal professionals and 1 academic) did not agree. Few respondents in favour elaborated on their answer, however Graham Paddock commented that the proposals did not cater for small developments and whilst Halifax agreed with the proposals in principle, they did not think that in practice people would attend two meetings.
Two main objections to the proposals emerged:
3 respondents considered that it was unnecessary to require commonhold associations to hold two meetings a year and that this would prove too onerous for small associations. LEASE commented that "requiring the provision of an interim review of the business and affairs of the association may be relevant to a commercial company but not to the management of a residential building".
2 respondents felt that it was unreasonable that one unit-holder could require an extraordinary meeting. Both suggested that this provision be altered to allow a specified percentage of unit-holders to request a meeting.
Q.47 Do you agree with the proposals for the location of meetings of the commonhold association in the draft articles of association [Endnote 23]?
17 respondents (38.6%) answered this question. 15 (88.2%) agreed (10 legal professionals, 2 academics, 2 housing managers and 1 lender). 2 (11.8%) did not agree (both legal professionals). Few respondents in support elaborated on their answer, however one respondent was concerned that the interpretation of "nearby" could give rise to dispute.
Of those against, The Law Society considered that "In the case of non-residential commonholds, there is no need to specify that the meetings shall be on or near the commonhold".
Q.48 Do you agree with the proposals for the notice to be given of a general meeting of the association in the draft articles of association [Endnote 24]?
14 respondents (31.2%) answered this question. 11 (78.6%) agreed (7 legal professionals, 1 academic, 2 housing managers and 1 lender). 3 (21.4%) did not agree (2 legal professionals and 1 academic). Several of those in favour added a caveat or further refined their answer:
Gerald Sherriff thought that the 95% requirement for reduction of the notice period was too high.
2 respondents did not agree with the requirement for an explanation of the motivation of every resolution. One commented that "At the least, subject always to the overriding provisions of s.376, the requirement should only be optional and/or selective of the types of resolutions to which it relates".
Of those against, The Law Society commented that "the rules for notice of the AGM should apply to the second compulsory meeting".
Q.49 Do you agree with the proposals for the proceedings at general meetings in the draft articles of association [Endnote 25]?
15 respondents (34.1%) answered this question. 9 (60%) agreed (5 legal professionals, 1 academic, 2 housing managers and 1 lender). 6 (40%) did not agree (5 legal professionals and 1 academic). Few respondents in support elaborated on their answer.
Graham Paddock thought that as long as no one's rights are prejudiced, a large degree of flexibility must be allowed as many unit-holders will not be familiar with company law or corporate practice.
Halifax thought that the number of adjournments should be limited to avoid the provision being abused.
The main objection put forward by respondents who disagreed was that the provisions were too restrictive and overly complex. Specific concerns raised included:
3 respondents thought that it should be possible to raise issues at a meeting that were not included on the agenda. The Cambridgeshire and District Law Society commented that not allowing this would "prevent ordinary company members raising their concerns".
2 respondents felt that the chairman was accorded too much power in the context of meetings. Professor Rosenberry commented that "the chairman is likely just to be another owner and should have the same voting and decision rights as other board members".
Q.50 Do you agree with the provisions relating to the chairman in the draft articles of association [Endnote 26]?
16 respondents (36.4%) answered this question. 15 (93.8%) agreed (10 legal professionals, 2 academics, 2 housing managers and 1 lender). 1 did not agree (6.2%). Graham Paddock commented that "there are often times in the operation of such organisations when the executives and members become so highly emotional and polarised in respect of a particular matter that none of them are able to properly perform the role of chairman".
Conclusion
With the exception of the requirement for a second general meeting, a majority of respondents that answered the questions in this section (questions 46-50) approved our policy proposals. We are not planning to alter fundamentally our approach in this area. In respect of the general meeting, our current thinking is that a second general meeting may well be a useful means of obtaining involvement by the members as a whole. Nonetheless, drawing on experience relating to leasehold management companies we acknowledge that attendance is not always easy to generate. Accordingly, our current approach is to specify two meetings as a default provision only.
Voting and Quorum
We asked 14 questions on voting and quorum (questions 51-64). These issues are central to the running and management of a commonhold, and many respondents chose to answer them, a number of them doing so at length. The proposals for voting are contained in the articles 31-41 of the draft articles of association [Endnote 27].
With regard to voting, the main issue raised was the need to achieve a fair and democratic result upon a vote, whilst using a relatively simple system of voting. The issue of proxy voting again drew calls for simplicity. Finally, with regard to quorum, the main issues raised were the need to vary the quorum requirements for different sizes of commonholds, and the desire to ensure sufficient participation whilst avoiding paralysis in the decision making process.
Q.51 Should other types of resolution be permitted [Endnote 28]?
14 respondents (31.8%) answered this question. 3 (21.4%) agreed (all legal professionals). 11 (78.6%) did not agree (8 legal professionals, 1 academic, 1 lender and 1 housing manager). Of those in favour, both the Law Society and PLT thought that the articles of association should also expressly refer to the winding-up resolution.
Comments from those against included:
2 respondents who thought that there should be alternative ways of taking unanimous and special resolutions without holding a meeting.
LEASE suggested that specific resolutions should be prescribed for certain issues.
Q.52 Do you agree with the proposals for voting in the draft articles of association (see articles 23-30)?
17 respondents (38.6%) answered this question. 8 (47.1%) agreed (6 legal professionals, 1 academic and 1 lender). 9 (52.9%) did not agree (6 legal professionals, 1 academic, 1 housing manager and 1 property industry professional). Those in favour did not generally elaborate on their answers.
Several of those against gave justifications for their view:
Professor Rosenberry considered that polls were inappropriate in a residential commonhold and suggested that they may be subject to abuse by an owner wishing to obstruct proceedings.
Graham Paddock did not think that the chairman should have a casting vote at a general meeting.
ARHM suggested an alternative approach; voting by ballot outside of general meetings to increase participation.
3 respondents commented that there should be provision for secret ballots.
Q.53 Do you agree with the current provision in the draft commonhold community statement [Endnote 29] for one unit, one vote? If not, what provision should be made for voting rights in a commonhold?
23 respondents (52.3%) answered this question. 10 (43.5%) agreed (including 4 legal professionals, 1 academic, 1 lender, 2 housing managers and 1 other Government body). 13 (56.5%) did not agree (8 legal professionals, 2 academics, 1 lender and 2 property industry professionals). Those in favour generally justified their answer:
The Law Society agreed with the principle of one unit, one vote because they felt there was no other satisfactory and fair alternative.
CARL felt that any other provision would prove costly.
Peter F Smith and Graham Paddock considered one unit, one vote to be an attractive option due to its simplicity.
Many of those against also justified their answer or suggested alternative provisions for voting rights.
4 respondents commented that whilst one unit, one vote could be a default provision, different commonhold developments would require different voting structures to achieve a fair allocation of votes, and that the provisions should therefore include alternative structures.
5 respondents considered that voting rights could or should be linked to the percentage of the commonhold assessment paid by each unit.
2 respondents commented that the current provision of one unit, one vote would result in only residential commonholds being built where all the units were comparable in size and value.
5 respondents thought that the provision of one unit, one vote would prove a disincentive to mixed-use commonholds.
Q.53 In particular:
(a) should units be allocated different voting percentages according to
their size (either area or volume)?
16 respondents (36.4%) answered this question. 6 (37.5%) agreed (4 legal professionals, 1 academic and 1 lender). 10 (62.5%) did not agree (including 8 legal professionals and 1 housing manager). Several respondents in support added caveats or further refined their answer:
Graham Paddock commented that this option is used in South Africa and can work, but that it sometimes leads to anomalies and inequities.
PLT considered this to be a potentially attractive proposal, and commented that a change to the size of a unit would be easier to accommodate than a change in its value.
Professor Clarke thought that this proposal would be appropriate in some commonholds.
Another respondent commented that if this option were provided for by regulations, the means for measuring the areas should be agreed in advance and suggested referring to the Code of Measuring Practice.
The main reason given for not approving this proposal was that respondents favoured another method of allocating voting rights in a commonhold.
Q.53 (b) should units be allocated different voting percentages according to their value (and if so, how are changes in value to be accommodated?)?
15 respondents (34.1%) answered this question. 1 (6.7%) agreed (an academic). However, for this respondent value would be represented by the value of the percentage of the contribution to the commonhold assessment. 14 (93.3%) did not agree (including 10 legal professionals, 2 lenders and 1 housing manager). Several respondents elaborated on their response:
4 thought that this proposal would be impractical due to the need to accommodate changes in value.
3 thought that this proposal would prove costly to maintain and that it would give rise to disputes over the valuation of units.
Q.53 (c) should a large unit be deemed to be made up of smaller units to provide equal weight to the vote of a small unit and the vote of a larger unit?
13 respondents (29.5%) answered this question. 4 (30.8%) agreed (1 legal professional, 1 academic, 1 lender and 1 property industry professional: 30.8%). 9 (69.2%) did not agree (8 legal professionals and 1 housing manager). Several respondents in favour gave reasons for their answer.
Professor Clarke thought that this proposal may be suitable in some developments and commented that if it were not permitted, a developer may artificially create units just so as to give voting strength.
Halifax considered that whilst this proposal could be a viable option, it may give rise to disputes over how a unit is to be divided.
Reasons given for opposing this proposal included:
Q.53 (d) should class voting be provided for in the commonhold community statement?
19 respondents (43.2%) answered this question. 15 (78.9%) agreed (9 legal professionals, 2 academics, 1 lender, 1 housing manager and 2 property industry professionals). 4 (21.1%) did not agree (all legal professionals). The main reason given for supporting this proposal was that it would prove useful in mixed-use developments. Several respondents commented further:
Whilst Gerald Sherriff supported class voting, he thought that each class of unit-holder should be able to make representations to the others about matters affecting the enjoyment of the commonhold.
Richard Frost commented that class voting would allow each class of unit-holder to deal with its own concerns without having to obtain the support or overcome the apathy of unit-holders in other classes.
Another respondent considered that class voting could provide an alternative approach to protecting the interests of smaller units.
Of those against, 2 respondents opposed class voting because they considered that it would be difficult to adequately prescribe all of the issues that directly affected each class of unit-holder.
Q.53 (e) should the voting rights of multiple unit-holders be limited?
14 respondents (31.8%) answered this question. 6 (42.9%) agreed (3 legal professionals, 1 academic, 1 lender and 1 other Government body). 8 (57.1%) did not agree (7 legal professionals and 1 housing manager). The main reason given for limiting the voting rights of multiple unit-holders was to prevent any abuse of such rights.
Of those against, 2 respondents commented that it was unclear why a multiple unit-holder should have less voting rights than if each unit were owned by separate members of the commonhold association.
Conclusion
In relation to the types of resolution to be permitted we do not propose to make any changes at present. In light of the wide range of views expressed by respondents we are now considering adopting a less prescriptive approach, using one member, one vote as a default provision but allowing commonhold associations the discretion to create their own system of voting to reflect the circumstances of the individual commonhold. We anticipate that this would lead to some commonholds adopting alternative voting structures of the kinds detailed in the consultation paper. Others may use the distribution of units between properties as another way of achieving the required balance in voting rights.
Q.54 Do you agree with the proposed provisions for the qualification to vote in the draft articles of association [Endnote 30]?
15 respondents (34.1%) answered this question. 11 (73.3%) agreed (7 legal professionals, 1 academic, 1 lender, 1 housing manager and 1 property industry professional). 4 (26.7%) did not agree (3 legal professionals and 1 academic). A few those in support added a caveat or commented further:
2 respondents considered that provision should be made to prevent unit-holders in arrears to the commonhold association from exercising their voting rights whilst the arrears remain outstanding.
Graham Paddock suggested that authority for a proxy or representative should be capable of lodgement up to the commencement of the meeting when the chairman should establish who is present or represented, rather than being required to be lodged 48 hours before the start of the meeting.
Of those against, Trowers & Hamlins considered that the qualifications to vote had not been satisfactorily addressed. They thought that the rights of mortgagees had not been dealt with appropriately and that the articles should also specify individuals such as court appointed receivers, administrators, and trustees in bankruptcy.
Q.55 Do you think that the number of proxies a member may appoint on one occasion should be limited? If so, to what?
18 respondents (40.9%) answered this question. 12 (66.7%) thought that the number of proxies a member may appoint on one occasion should be limited to 1 (including 9 legal professionals, 1 academic and 1 lender). Several respondents gave reasons for their answer.
3 (16.7%) respondents (2 legal professionals and 1 academic) thought that the number of proxies a member may appoint on one occasion should be limited but did not suggest a limit. 2 of the respondents expressed concern that there would be scope for abuse if the number of proxies a member may appoint on one occasion was not limited.
3 (16.7%) respondents (all legal professionals) did not think that the number of proxies a member may appoint on one occasion should be limited. However they did not justify their responses.
Q.56 Do you agree with the provisions for proxies from the draft articles of association [Endnote 31]? If not, why?
16 respondents (36.4%) answered this question. 10 (62.5%) agreed (8 legal professionals, 1 academic and 1 lender). 6 (37.5%) did not agree (3 legal professionals, 2 academics and 1 housing manager). Most of those in support did not comment further. However, LEASE thought that there should also be provision restricting who can hold a proxy, and suggested that the chairman of the commonhold association and a managing agent should not be allowed to do so.
Reasons for opposing the provisions included:
Peter F Smith considered that the articles should provide for who can hold a proxy.
ARHM suggested that a member should be able to appoint 1 proxy, for a maximum period of 1 year.
Richard Frost thought that the community nature of commonholds would be strengthened if only other members could be appointed as proxies.
Trowers & Hamlins considered it unnecessary to prescribe a form for proxies.
Conclusion
There was broad, if not overwhelming, support for the approach proposed. We currently intend to continue with this. We also propose to permit standing proxies so as to encourage participation even when the member cannot actually attend and to reduce the risk of inquorate meetings disrupting necessary business.
Q.57 Do you agree that the commonhold association should not be allowed to exercise the voting rights attached to any unit it may own?
18 respondents (40.9%) answered this question. 15 (83.3%) agreed (9 legal professionals, 2 academics, 2 lenders, 1 housing manager and 1 property industry professional). 1 (5.6%) did not agree (a legal professional) but did not justify their position. A few respondents in favour commented further on the issue, 1 lender thought that where a mortgagee is in possession of a unit owned by the commonhold association, they should be able to exercise the vote.
The Law Society and PLT commented that it was unnecessary to include a provision restricting the commonhold association's right to vote. This is because only a member of the commonhold association can vote and Schedule 3, paragraph 9 of the Act states that a commonhold association cannot be a member of itself.
Q.58 Do you agree with the inclusion of an article to the effect that a member's vote once cast is irrevocable?
17 respondents (38.6%) answered this question. 13 (76.5%) agreed (9 legal professionals, 1 academic, 1 lender, 1 housing manager and 1 property industry professional). 4 (23.5%) did not agree (3 legal professionals and 1 academic). Whilst respondents in favour did not generally comment further on the issue, 2 respondents thought that not including such an article would create chaos at meetings of the commonhold association.
Of those against, 3 respondents thought that such an article did not need to be included because the art