This paper sets out for consultation provisional policy proposals to inform the drafting of the regulations to be made to implement Part I of the Commonhold and Leasehold Reform Act 2002. When made the regulations will govern the formation, running and termination of commonhold communities. The consultation is aimed at people interested in the introduction of this new form of land ownership in England and Wales. This consultation is being conducted in line with the Code of Practice on Written Consultation issued by the Cabinet Office. It falls within the scope of the Code. The Code criteria set out at the end of this paper have been followed.
An initial impact assessment indicates that property owners, property developers and their respective lenders and advisers are likely to be particularly affected. The proposals are likely to lead to savings for businesses. A Partial Regulatory Impact Assessment is attached. Copies of the consultation paper are being sent to:
Please send your response by 6 January 2003 to:
Emma Jordan
Commonhold Regulations
Lord Chancellor's Department
Land Law Branch
SS 3N5, Southside
105 Victoria Street
London SW1E 6QT
Telephone: 020-7210 1987
Fax: 020-7210 1988
Email: commonhold consultation
Representative groups are asked to give a summary of the people and organisations they represent when they respond.
The Department may wish to publish responses to this consultation document in due course. Please ensure your response is marked clearly if you wish your response or name to be kept confidential. Confidential responses will be included in any statistical summary of numbers of comments received and views expressed.
Printed copies of this consultation paper can be obtained from the above address, or:
Tel: 020-7210 1987
Fax: 020-7210 1988
E-mail: commonhold consultation
Commonhold is a new form of land ownership in England and Wales, created by Part 1 of the Commonhold and Leasehold Reform Act 2002. It will combine freehold ownership of a unit in a larger development with membership of a commonhold association that owns and is responsible for the management and upkeep of the common parts of the development. Commonhold will be an alternative to long leasehold ownership of flats and other interdependent properties.
The Act provides the general legal framework for the creation, running and termination of commonhold communities. The detail is to be set out in secondary legislation. The purpose of this consultation is to canvass views on proposals for the matters to be included in the regulations to be made under the Act with particular reference to:
the creation of a commonhold;
the constitution of the commonhold association; and
the rights and duties of the unit-holders and the commonhold association.
Our initial impact assessment of the proposals indicates that commonhold will offer advantages over long leasehold ownership:
the standardisation of documentation should assure quality, make the legal documentation more accessible and reduce the cost of advice;
the ownership of a lease, which is a wasting asset, will be replaced by ownership of a freehold, which is not;
the community will manage its own affairs without reference to a third party landlord; and
alternative dispute resolution procedures will be established to reduce recourse to the courts.
These advantages can be replicated in the best long leasehold developments but commonhold will offer a largely uniform product wherever it is found.
We welcome views both on our proposals and on our estimate of their impact.
1. Commonhold is a new form of ownership of freehold land. It combines individual ownership of a single property, known as a unit, within a larger development with membership of the commonhold association that owns and manages the common parts of the development. Commonhold is of course new, but the problems of running a multi-occupied development are not. We expect that there are many lessons to be learned from experience with long leasehold developments, particularly those in which the freehold is owned by the tenants, either directly or through a company.
2. Nor, looking to other jurisdictions, is the concept of a system such as commonhold novel. Condominium and community ownership in the United States of America; the law of tenement in Scotland; strata titles in Australia; unit titles in New Zealand and similar arrangements in Europe and South Africa, all provide partial analogies. We welcome observations from those with experience in other jurisdictions.
3. In this part of the paper we explain the scope and aim of the consultation, the background to the paper and its structure.
4. This paper seeks views on the policy proposals relating to the matters to be included in the commonhold regulations to be made by the Lord Chancellor under Part 1 of the Commonhold and Leasehold Reform Act 2002. A table summarising the relevant powers is set out at Annex A. The paper does not include detailed consideration of the issues arising on the termination of a commonhold; the interaction of compulsory purchase legislation and commonhold or any necessary rules of court. These will be considered separately in due course. Nor does it extend to the subject matter of the land registration commonhold rules. These are already the subject of a separate consultation paper published by the Land Registry on 2 September 2002.[Endnote 1]
5. The purpose of the consultation is to inform the drafting of the regulations to be made under Part 1 of the Act. The regulations will specify the terms and conditions applicable to all commonholds. We anticipate that some of these will be optional. We hope that the responses to the consultation will help us establish not only what ought to be included in the standard documentation, but also what variations ought to be permitted.
6. Commonhold has been developed over a period of years, beginning with the 1987 report of a working group chaired by Trevor Aldridge[Endnote 2] and culminating in the 2002 Act. It is expected that it will be most commonly used for residential flats, but it is equally applicable to houses and to mixed-use and commercial developments.
7. At present there are two forms of land tenure in England and Wales: freehold and leasehold. Commonhold will be a species of freehold ownership. It will provide a framework in which freehold ownership of a part of a multi-occupied development will be combined with the ability to enforce positive covenants[Endnote 3] against other owners. Previously, this has only been satisfactorily achievable in relation to interdependent properties by adopting a leasehold structure. By removing the legal barrier that the burden of a positive covenant does not bind a successor in title of the original covenantor, commonhold will obviate the need to create a lease and, therefore, to have a landlord.
8. Commonholds will have to be created expressly by registration at the Land Registry. The essential preconditions for the creation of a commonhold are that a commonhold association has been created and that the applicant for registration of the commonhold is the registered proprietor[Endnote 4] of the freehold land to comprise the commonhold.
9. The application to the Land Registry for registration of the land as a freehold estate in commonhold land will have to be accompanied by three principal documents:
10. The form and content of all three will be prescribed in regulations. Together, these documents form the constitution of the commonhold, defining the mutual rights and duties of the unit-owners and the commonhold association. Inevitably, the quality of freehold ownership of a unit cannot be as unrestricted in an inter-dependent development as in an independent property. Setting the appropriate balance between the rights of the individual on the one hand and the rights of the community on the other is one of the main objectives of regulations. All three documents are discussed in detail in this paper.
11. Once operative, a commonhold will continue as such unless and until terminated in accordance with the 2002 Act. If the experience of other jurisdictions is a guide, termination is likely to be a rare occurrence.
12. A Partial Regulatory Impact Assessment is set out at Annex F. This assessment attempts to estimate the impact of the proposed regulations. There are a great many variables at present and only very limited information about the costs and benefits that adopting the different options might entail. In general terms, however, we anticipate that commonhold will provide some savings for businesses and will, at worst, be no more onerous than long leasehold ownership. Clearly, there are costs in running a commonhold but, in all but the smallest developments, these should not be disproportionate to the benefit of ownership outside the leasehold system. In particular, we think that there will be benefits for business and consumers in greater standardisation of documentation and anticipate that owners and lenders will prefer the security of freehold ownership in commonhold land to a wasting asset such as a lease. Much will, however, depend on the detail of the regulations to be drafted in the light of the responses to this consultation. We would also be grateful if consultees could, when considering our proposals, state in their comments whether there are any regulatory costs that could either be avoided or, if unavoidable, minimised. It would be particularly helpful if costed examples could be given. In the Partial Regulatory Impact Assessment we ask the following questions:
| Q1. How widely do you think commonhold will be adopted? Q2. Do you agree with the assessment of the benefits of the commonhold regulations? Q3. Do you agree with the assessment of the cost of the commonhold regulations? Q4. Do you agree that commonhold regulations are unlikely to have a significant competition impact? Q5. Do you agree with this Partial Regulatory Impact Assessment? If not, why? |
13. In Part II we describe our proposals for the setting up of a commonhold and consider the relevant regulation making powers. In Part III we consider the powers to make regulations in relation to matters relevant to the running of a commonhold, when the common parts, units and governing documents remain unchanged. In Part IV we consider variations on the running of a commonhold, including amending the governing documents and altering the size of the common parts or the individual units. We also consider the regulations to be made in relation to the ending of a commonhold. Part V contains a summary of all the questions asked in Parts I to IV. In Parts II to IV we have included relevant extracts from the draft memorandum and articles of association of the commonhold association and the draft commonhold community statement prepared when the Act was being considered in Parliament. The annexes contain a table of the regulatory powers in the Act; Part 1 of the Act and the associated schedules; complete versions of the draft memorandum and articles of association and the draft commonhold community statement, and the Partial Regulatory Impact Assessment.
14. In this paper references to 'the Act' are to Part 1 of the Commonhold and Leasehold Reform Act 2002 and references to sections and schedules are to sections and schedules of the Act, unless otherwise stated. References to Table C are to Table C of the Companies (Tables A to F) Regulations 1985 as amended.[Endnote 5]
15. Part 1 of the Act is to be brought into force on a date to be fixed. This cannot be before the Land Registration Act 2002 comes into force on 13 October 2003.[Endnote 6] An announcement on the commencement of the Act will be made in due course.
16. In this part we explain our proposals for the regulations that will prescribe the procedure to be followed to establish a commonhold: first, by reference to a new development and, secondly, by reference to an established development.
17. As the commonhold association must be incorporated before any application can be made to the Land Registry, we will consider each of the key stages in the following order:
18. We also consider the position of joint unit-holders, tenants, licensees, grantees and other occupiers of a commonhold unit in relation to the commonhold and its governing documents.
19. An application must be made to the Registrar of Companies to incorporate the commonhold association as a company limited by guarantee. In accordance with our policy that where possible the general law should apply to commonhold land, no special commonhold procedure applies.
20. 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[Endnote 7] over and above those set out in general company law.[Endnote 8] We propose that the company name of the commonhold association be required at all times to have the suffix 'Commonhold Association Limited' or the Welsh equivalent, 'Cymdeithas Cydradd-Ddaliad'.
21. 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.[Endnote 9] We propose that the word 'commonhold' and its Welsh equivalent 'Cydradd-Ddaliad' be restricted so that no company, other than a commonhold association, may include it in its name. The word 'association' is already a restricted word.[Endnote 10]
| Q6. Do you agree that the company name of the commonhold association must end with 'Commonhold Association Limited' or 'Cymdeithas Cydradd-Ddaliad'? Q7. Do you agree that 'commonhold' and its Welsh equivalent 'Cydradd-Ddaliad' should be included on the index of restricted words? Q8. Should any other controls be imposed in relation to the name of a commonhold association? |
22. The application to the Land Registry for registration of the land as a freehold estate in commonhold land must be accompanied by:
23. We will consider each of these documents in turn. The application itself must of course be in a form prescribed by land registration rules.[Endnote 12]
24. On receipt of the memorandum and articles of association and a declaration of compliance, confirming that all the legal requirements for incorporation have been met, the Registrar of Companies will issue a certificate of incorporation to the commonhold association giving it a unique number.[Endnote 13] From the date of incorporation the commonhold association will be a registered company.
25. If the commonhold association chooses to change its name this will be entered on the register in place of the former name and the Registrar of Companies will issue an altered certificate of incorporation. The change of name has effect from the date on which the altered certificate is issued.[Endnote 14]
26. The certificate of incorporation and any altered certificate of incorporation must accompany the application to the Land Registry. [Endnote 15]
27. These two documents form the constitution of the commonhold association. The memorandum describes the essential attributes of the commonhold association and its relationship with the outside world. It is required to state the name of the commonhold association, whether the registered office is to be situated in England or Wales, the objects of the commonhold association, the fact that the liability of its members is limited and the amount of the guarantee.
28. The articles of association regulate the internal organisation and affairs of the commonhold association. They determine how the powers conferred on the commonhold association by the memorandum of association shall be exercised. The articles cannot confer wider powers than the memorandum. If there is any inconsistency between the two documents, the memorandum of association prevails and any alteration to the articles which conflicts with the memorandum is void.
29. 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. However, it is not entirely comprehensive and must be read in conjunction with the memorandum and articles of association and with the registers of the common parts and unit titles. In the event of any conflict between the memorandum and articles and the commonhold community statement, the provisions of the memorandum and articles will prevail.
30. One of the principal advantages of commonhold over long leasehold ownership is the use of standard documents. Before considering the provisions of the governing documents in detail we need to consider whether the documents should, in whole or in part, be capable of amendment, and if so, how those amendments should be presented.
31. In general terms the options are that the governing documents should be:
(a) prescribed and not susceptible to amendment;
(b) prescribed and capable of amendment in whole or part, subject to specified limits; or
(c) prescribed but freely amendable.
32. We consider that total prescription is likely to lead to difficulties where a commonhold has special needs or responsibilities. Total flexibility would, however, re-invent the diversity of the leasehold tradition. Our provisional conclusion is that the memorandum, articles and commonhold community statement should be capable of amendment subject to certain limits.
33. We will discuss several of the more important provisions of these documents in detail later in the paper. In general terms, however, we need to consider whether a particular term should be a mandatory, an optional or a default provision. For this purpose we include within 'mandatory' a choice between specified alternatives. To assist readers in considering this issue we have annexed copies of the specimen draft memorandum, articles and commonhold community statement prepared during the passage of the Commonhold and Leasehold Reform Bill to assist Parliament in its consideration of commonhold. The documents are at Annexes C, D and E respectively. In relation to most of the substantive sections we have inserted a range of options. Readers are invited to indicate, using this, which option they consider appropriate for each section and to return the annotated copy to us.
34. Of course, the provisions in the specimen drafts may not be comprehensive. We would welcome suggestions as to topics that may have been wrongly omitted.
35. Our provisional view is that the memorandum of association should not be capable of variation; that the articles of association should, in part at least, be variable, and, that the commonhold community statement should also, in part at least, be variable. To assist readers the texts at Annexes C, D and E indicate those provisions that were considered by the Department to be optional when specimen documents were drafted.
36. Assuming that amendments are permitted, consideration should be given to whether there should be rules to require the variations from the standard documents to be clear on the face of the commonhold documents, even at the commencement of the commonhold. We are concerned that if it is not clear where standard provisions have not been used, the whole of the documents will have to be perused with the same attention to detail as a lease. This would make advice more expensive.
| Q9. 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 provisions included should be mandatory, default or optional? Q10. 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? |
37. The memorandum, articles and commonhold community statement cover a wide range of very detailed provisions. The memorandum and articles draw heavily on Table C of the standard memorandum and articles prescribed under the Companies Acts. [Endnote 16] As we have provided specimen drafts at Annexes C, D and E we do not propose to consider every provision in detail in the main body of the paper. Instead we will focus on those provisions that seem to us to raise issues that are most likely to be of interest to consultees. We do, however, welcome comments on those aspects that we have not covered in detail. We turn first to the memorandum.
38. The memorandum of association sets out the objects of the company. The principal object of any commonhold association must be to carry out the functions of the commonhold association in relation to a commonhold. We envisage that the commonhold will usually have been identified before a commonhold association is formed so that a brief address or description should be readily available, but would welcome views as to whether the description is essential.
| Q11. Is it necessary to identify the particular commonhold in the object clause (see Annex C paragraph 3)? |
39. The majority of the specimen memorandum consists of the secondary objects of the company. These are intended to be comprehensive. The remainder of the substantive provisions comprises a provision requiring the income of the association to be used for the objects of the association (except on termination) and the guarantee of the association's liabilities by each of the members. The articles of association, by contrast, govern the internal administration of the association. The articles define the membership; the procedure for meetings of the association, including voting; the rules governing directors and their meetings; access to records; notices and indemnity. We discuss several of these topics in the course of the paper but would welcome views on all aspects of the memorandum and articles.
| Q12. Do you have any comments on the content of the specimen draft memorandum and articles of association at Annexes C and D? |
40. The concept and much of the content of the specimen memorandum and articles of a commonhold association will be familiar to anyone dealing with companies and company law. The commonhold community statement is, however, a new creation. We shall therefore consider its provisions in greater detail.
41. The specimen draft commonhold community statement at Annex E has four parts and begins as follows:
This Commonhold Community Statement (referred to as "this Statement") is to be read together with the memorandum and articles of association of the company referred to above (referred to in this Statement as the "Memorandum", the "Articles" and the "Commonhold Association" respectively). In the event of any conflict between the provisions of this Statement and the Memorandum and Articles, the provisions of the memorandum and articles shall prevail.
This Statement may only be amended in accordance with sections 23, 24, 30 and 33 of the Act and regulations made thereunder (as applicable).
The Statement must be signed by or on behalf of the applicant for registration.
FURTHER INFORMATION ABOUT THE COMMONHOLD [ENTER NAME OF COMMONHOLD] MAY BE FOUND IN THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE [ ] COMMONHOLD ASSOCIATION AND BY LOOKING AT THE RELEVANT REGISTERS KEPT BY HM LAND REGISTRY.
| Q13. Should any more information about the nature of the document and its contents should be made available for consumers and others at the beginning of the commonhold community statement? If so, what information should be provided? |
42. Part I describes the commonhold organisation, the commonhold land and the applicant for registration in the following terms:
The Land
1. Address(es) of the Commonhold:
| Q14. Do you agree that a brief postal address is adequate in Part I of the commonhold community statement? |
The Commonhold Association
2. Name of the company:
3. Registered number of the company at the Companies Registry:
4. Date of incorporation:
5. Registered office:
| Q15. Do you think that details of any change of name should be listed in Part I of the commonhold community statement? |
The Applicant for Registration (the Developer)
6. Name
7. Address
8. Company registration number (if applicable)
| Q16. Do you think it is necessary to include details of the applicant for registration in Part I of the commonhold community statement? |
43. Part II of the commonhold community statement describes the commonhold.
In the event of any inconsistency between any of the descriptions given below and the plan or plans of the Commonhold attached hereto, the plans will prevail.
The Commonhold
1. Description of the type of Commonhold (residential only, commercial only, or mixed use):
| Q17. 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? |
The Commonhold Units
2. The total number of Commonhold Units in the Commonhold:
3. Identification of the Commonhold Units (in words) by reference to the plans attached hereto, including in each case:
(a) a description and the distinctive address(es) of the unit;
(b) a description of any excluded structures, fittings, apparatus or appurtenances;
(c) whether the unit is a residential unit as provided for in Section C of the Rules in Part IV below:
(d) the relevant percentage or percentages allocated to the unit for the purposes of the payment of the Commonhold Assessment and any levies under sections 38 and 39 of the Act.
The Plans
5. A plan or plans of the Commonhold showing each Commonhold Unit, the Common Parts and any Limited Use Areas is/are attached to this Statement.'
44. The commonhold community statement is required to define the extent of each commonhold unit.[Endnote 17] In doing this it:
45. Regulations will prescribe the specification for the plan of the commonhold unit.[Endnote 19] We propose that each plan must comply with the following requirements:
it must be clearly marked with the version number and date of the commonhold community statement to which it relates;
it must be no larger than an A0 size;
it must show measurements in metric form;
it will be expected to be to a scale of 1/500, however 1/1250 may be acceptable if individual boundaries can be shown clearly;
it must be based on an accurate survey, plotted to the chosen scale;
it must show sufficient details to enable the position of the commonhold land to be related to the boundaries of the registered freeholder's title;
it must show sufficient detail to enable the position of each unit to be related to the boundaries of the common parts;
it must define the extent of each commonhold unit, including any separate parking spaces and garages etc, which must be distinguished by means of a separate number and colour reference;
it must identify the floor level of each unit; and
it must define the extent of the common parts by a colour reference.
| Q18. Do you agree with these requirements relating to the plan of the commonhold unit to be included with the commonhold community statement? If not, why? |
46. Part III of the commonhold community statement defines the rights of the developer during the development of the commonhold following the registration of the land as commonhold and culminating with the sale of the final unit. Part IV sets out the rules of the commonhold association in eight sections, including the use of the commonhold; insurance; repair and maintenance; financial matters; dispute resolution and more general rules. We will return to the issues raised by both Parts III and IV later in the consultation paper.
47. Part V of the commonhold community statement provides space for additional information to be added. This was intended to record special or unusual features of the individual commonhold.
| Q19. Do you think that a commonhold association should be able to add such additional material as it thinks fit to the commonhold community statement (see Part V)? |
48. Part VI provides for the signature of the commonhold community statement by the applicants for registration of the commonhold at the Land Registry. Provision is made for two signatures and for the statement to be dated. The specimen also provides for a record to be kept of the occasions on which the statement is amended. The intention is that the Land Registry will keep the current version of the commonhold community statement on the Register. On each occasion that a statement is amended, a new, signed version of the statement as amended will have to be filed at the Land Registry. The Land Registry is consulting separately on the procedure for such applications.[Endnote 20]
| Q20. We would be grateful for views on the following points relating to Part VI of the commonhold community statement: (a) whether it is necessary to have two signatories; (b) whether only certain categories of person should be able to sign; (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; and (d) whether an alternative form of Part VI should be prescribed for use on amendment of the statement? |
49. The Act provides that an application for registration of a freehold estate in commonhold land cannot be made without the consent of:
the registered proprietor of the freehold estate in the whole or part of the land;
the registered proprietor of a leasehold estate in the whole or part of the land granted for a term of more than 21 years;
the registered proprietor of a charge over the whole or part of the land; and
any other prescribed class of person.[Endnote 21]
50. We will now consider what (if any) classes of person should be prescribed. In broad terms we think that there are two main alternative approaches to consider:
prescribing the consent of those who have specified major interests; or
prescribing the consent of all those who have an interest protected on the register, regardless of its nature, by reference to the method of protection.
51. In general terms, registration as a freehold estate in commonhold land does not affect the encumbrances, such as restrictive covenants, easements or rentcharges, to which the land is subject. The title to the land remains subject to them. Subject to the special rules about leases and charges, our initial provisional conclusion is that there are few categories of interest that would merit prescription under section 3(1)(d).
52. Possible candidates would include:
(a) Unregistered lessees with a lease granted for a term of more than 21 years.
It has been argued that because such lessees and their mortgagees have as much to lose as their registered equivalents, their consent should be required.[Endnote 22] Voluntary registration of title would confer the relevant protection on them but some might consider this an unreasonable imposition, at least if only a short part of the term remains unexpired. We do, however, recognise practical problems in ensuring that the consent has been given because identifying the lessee may be difficult.
(b) The proprietor of a rentcharge.
(c) A person entitled to purchase the land.
A contract or an option to purchase creates an interest in land. Such a person would clearly be interested in a proposal to convert to commonhold.
(d) A person entitled to the benefit of an estate management scheme.
There exist in several parts of the country estate management schemes that bind freehold owners. Such schemes under the Leasehold Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993 have to be registered as local land charges. Schemes also exist under the Rentcharges Act 1997.There exist in several parts of the country estate management schemes that bind freehold owners. Such schemes under the Leasehold Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993 have to be registered as local land charges. Schemes also exist under the Rentcharges Act 1997.
| Q21. 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; (b) the proprietor of a rentcharge; (c) a purchaser under a contract or an option; (d) the manager of an estate management scheme registered as a local land charge or rentcharge? Are there any further categories of interest whom you would wish to see prescribed as falling within the category of a required consent? |
53. The alternative approach we mentioned was to require consent from any person whose interest was protected in the prescribed way on the register. The relevant types of protection on the register under the Land Registration Act 2002 are:
54. The inherent difficulty with this approach is that the type of protection does not necessarily gauge the importance of the interest. Consideration would also have to be given to the priority of an application for an entry made on the register received, for example, on the same day as an application for registration of a commonhold.
| Q22. 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 be sought in relation to all categories of protection or only specific categories. If the latter, please specify. |
55. Regulations are also required to provide further details relating to the consents. These regulations relate to the consents required under section 3(1)(a) to (c) as well as any prescribed under section 3(1)(d).
52. Regulations[Endnote 24] may provide for:
the form of the consent;
the effect and duration of consent (including provision for consent to bind successors);
the withdrawal of consent (including provision preventing withdrawal in specified circumstances);
for consent given for the purposes of one application under Section 2 to have effect for the purpose of another application;
for consent to be deemed to have been given in specified circumstances; and
enabling a court to dispense with the requirement for consent in specified circumstances.
56. We shall consider each in turn:
(a) The form of consent[Endnote 25]
We propose that the consent must be given in a formal written document, which will be signed by the person consenting. Apart from the requisite factual details relating to the application the document will also describe the interest the person has in the land. As the giving of consent may have significant implications - not least for a leaseholder - we anticipate that a 'health warning' will form part of the form alerting the person giving consent to the possible need to consult a lawyer before signing.
An illustration of a possible format for the proposed form is set out below. The form is only indicative.
| COMMONHOLD Consent to the Registration of Land as Commonhold Land Commonhold and Leasehold Reform Act 2002 Section 3(1) |
Description:
Name:
Address:
Address for Service (if different):
Name of Person consenting:
Address:
Address for Service (if different):
Details of the Interest:
Consent Valid Until:
VERY IMPORTANTThis consent will bind you and any subsequent owners of the property. Before signing this form you are strongly advised to seek legal advice. |
| Q23. Do you think the details shown in the provisions of the draft form for the section 3 consent are sufficient? If not, what further information would you wish to see included? Q24. What form do you think the 'health warning' on the section 3 consent form should take? Q25. Do you think that the form of consent should be accompanied by prescribed notes explaining the process? If so, what notes are necessary? |
(b) The effect and duration of consent[Endnote 26]
We provisionally propose that the giving of consent will be binding on the successors in title of the person giving the consent and that the consent be irrevocable for a period of three months from the date on which it was given until an application to the Land Registry is submitted. We also propose that it might be convenient if the giving of consent were to authorise the Land Registry to remove any relevant entry on the register on the completion of the section 2 application. However, if a chargee gives consent, this ought not to imply that his charge is to be discharged.
| Q26. Do you think that the giving of consent should be binding on successors in title? Q27. Do you think that the consent should have an 'expiry date' if no application is submitted? Q28. Is three months an appropriate period of time to specify? Q29. 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)?. |
(c) Withdrawal of consent[Endnote 27]
If a consent is irrevocable it is clearly inappropriate to permit it to be withdrawn. However, there may be cases in which it would be fair to permit this to happen. For example, if a person wished to withdraw his or her consent because there had been a significant change to the proposed development. However, at present, in view of the relatively short three-month period for the duration of a consent, we have no proposals to permit the withdrawal of a consent.
(d) Consent given for one application to have effect for the purpose of another application[Endnote 28]
We have no proposals to exercise this power at present.
(e) Consent to be deemed to have been given in specified circumstances[Endnote 29]
We have no proposals to exercise this power at present.
(f) When a court may dispense with the requirement for consent in specified circumstances[Endnote 30]
We provisionally consider that it might be appropriate to permit the court to dispense with the requirement for consent if all reasonable efforts have been made to trace an individual whose consent was required and it has not been possible to trace him or her.[Endnote 31]
We considered, but rejected, the possibility of adding the ground that an individual was unreasonably withholding his or her consent. Defining the circumstances in which consent is unreasonably withheld may be difficult and time consuming and dispensing with consent on that ground might introduce an element of compulsion which would be inappropriate for conversion to commonhold. In respect of an untraceable individual stringent tests would have to be adopted to ensure that all reasonable efforts really had been exhausted. These may include requiring evidence of details of where the person was last heard of; enquiries with family, neighbours, government department, former employer and work colleagues; advertisements that had been placed and details of the next of kin.
| Q30. Do you agree that a court may dispense with the requirement for consent where a person cannot be traced? Q31. Do you have any other proposals for regulations under section 3(2)? |
57. The application to the Land Registry must also be accompanied by a certificate signed by the directors of the commonhold association[Endnote 32] confirming that the memorandum and articles of association comply with regulations and that the commonhold community statement complies with the requirements of the Act. The certificate must also confirm that the commonhold association has not traded; that it has not incurred any liability which has not been discharged; and, that no land included in the application is land which may not be commonhold land.[Endnote 33]
58. The Act provides that certain land may not be commonhold land. This includes "flying freeholds"; certain agricultural land;[Endnote 34] and certain contingent estates.[Endnote 35] In relation to the latter regulations may amend the list of enactments that create relevant contingent estates but, at present, we have no proposals for regulations under this head.[Endnote 37]
| Q32. Would it be useful to prescribe a form for the director' certificate of compliance? Q33. Do you think that the list of relevant enactments for contingent estates should be amended by regulations? |
59. Having registered the commonhold association as a company at Companies House and received a certificate of incorporation, the applicant for registration at the Land Registry will complete the Land Registration form CM1, as detailed in the Land Registry's consultation paper.[Endnote 38] This will be sent with the certificate of incorporation; the memorandum and articles of association; the commonhold community statement; the prescribed consents (if required); the directors' certificate of compliance and any other documents required to the Registrar.[Endnote 39]
60. On receipt of this application the Registrar will register the freehold estate in land as freehold estate in commonhold land provided that none of the land is already registered as commonhold. On registration the Registrar will record on the land register the necessary details of the commonhold association and the registered freeholder of each commonhold unit.[Endnote 40] If the commonhold has been created from a new development, the Registrar will create a common parts title and the necessary number of unit titles. At this stage all of these titles will be registered in the name of the applicant for registration. These details will form an integral part of the information held by the Land Registry on the open register for those who wish to search for information relating to particular commonhold. Regulations under section 5 must prescribe these details and we invite you to comment on the details suggested.
(a) Prescribed details of commonhold association (section 5(1)(a))
We propose that the following details should appear on the register of the common parts title when they have vested in the commonhold association at the end of the transitional period:
| Q34. Do you agree with the proposed prescribed details required for the commonhold association? |
(b) Prescribed details of the registered freeholder (section 5(1)(b)):
We propose that the following details of the registered freeholder of each commonhold unit are referred to on the register of that unit:
| Q35. Do you agree with the proposed prescribed details required for the registered freeholder of the commonhold unit? |
61. A commonhold made up of two or more areas of land that are not contiguous is a multiple site commonhold.[Endnote 41] Before the registration of the land as commonhold these separate parcels of land may be owned by more than one individual, each of whom owns the freehold estate in land and regulations may provide for an application to be made in such a circumstance.[Endnote 42] The issue is whether such regulations should be made and, if so, whether they should:
(a) modify or disapply any provisions of the Act; or
(b) impose additional requirements.
62. Our initial view is that a joint application would create insuperable difficulties for the Land Registry if proposed units spanned different titles.
We, therefore, propose that the various freehold interests should be first combined into one title before the application is submitted, although the application to register this amalgamation could be submitted at the same time as the section 2 application.
| Q36. 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? |
63. In our consideration of the setting up of a commonhold we have been assuming that it is being created in respect of a new development. However, a commonhold may be established from an existing freehold or leasehold development. In these cases, the essentials of the procedure remain the same but, in practical terms, the principal barrier for long leaseholders who do not control their freehold is that the freeholder must make the application. The only additional requirement is that the application be accompanied by a statement requesting that section 9 of the Act is to apply.
64. The statement must include a list of the commonhold units giving in relation to each one the prescribed details of the proposed initial unit-holders.[Endnote 43] To assist consultees we provide a draft of a possible section 9 (1) certificate below. This is for illustrative purposes only.
| COMMONHOLD Section 9 Statement: Application for Registration of Freehold Estate in Commonhold Land |
| UNITS | UNIT-HOLDER |
| Unit Postal Address Title Number (if registered) |
Name Address Address for Service (Repeat as necessary for joint unit-holders) |
| Unit Postal Address Title Number (if registered) |
Name Address Address for Service |
This form closely follows the format of the proposed land registration form CM1, on which the Land Registry is consulting.[Endnote 44]
| Q37. Do you think the details included in the section 9 statement are appropriate? Q38. Would you wish to see any other details included? Q39. Do you agree that this form could be combined with Form CM1? |
65. Where two or more persons together comprise the unit-holder, the issue arises whether they can only be liable for a breach of an obligation jointly or jointly and separately. Section 13 of the Act lists the provisions of the Act that fall into each category, but also enables the list to be amended by regulations.[Endnote 45] Section 13 also enables regulations to provide for the application to joint unit-holders of legislation; the memorandum and articles of the commonhold association; the commonhold community statement and any other document.[Endnote 46] At present the draft commonhold community statement includes the following provision:
Wherever permitted or required by regulations made under section 13(6) of the Act, references in this Statement to Unit-holders include joint Unit-holders.
66. Regulations made under the Act that refer to unit-holders are required to make provision for joint unit-holders.[Endnote 47] We propose waiting until the content of the regulations is more settled before addressing these issues of detail. We would, however, welcome views.
| Q40. Are there any specific issues relating to joint unit-holders that you wish to draw to our attention? |
Regulations will have to make provision for the application of the commonhold community statement to tenants, licensees and others as well as to unit-holders and the commonhold association. At present the draft commonhold community statement includes the following provision in the opening notes to the statement:
To the extent provided by such terms and conditions and with such minor modifications as the context requires, references in this Statement to a "Unit-holder" shall be construed as applying also to a licensee, grantee or occupier of a Commonhold Unit.'
As our principal concern is to consult on the main substance of the regulations we think it would be premature to seek detailed views on the treatment of derivative interest owners generally. We would, however, welcome views.
| Q41. 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? |
Register of Members
Meetings of the Commonhold Association
Voting
Directors of the Commonhold Association Indemnity
Notices
Transfer of a Commonhold Unit
Letting a Commonhold Unit
Licences to Occupy
Other Interests in Commonhold Units
Use, Insurance, Repair, Maintenance, Cleaning and Alteration
Commonhold Assessment
Reserve Fund
Dispute Resolution
Ombudsman
67. In Part II we considered the issues to be addressed in the regulations relating to the setting up of a commonhold. We now consider the issues to be addressed in the regulations to be made under the Act relating to the day-to-day running of a commonhold where the size of the units and the common parts and the content of the governing documents remains the same. First, we will consider the issues arising under the memorandum and articles. The topics considered will include: the meetings of the commonhold association; the voting rights of the members; provisions for managing agents and directors. We categorise these as company issues. We will then consider the property and land issues affecting the commonhold, such as the transfer,[Endnote 48] leasing,[Endnote 49] assignment and licensing of a unit;[Endnote 50] insurance, use,[Endnote 51] repair and maintenance of the common parts,[Endnote 52] and units;[Endnote 53] before considering the financial aspects of commonhold management;[Endnote 54] behaviour within a commonhold;[Endnote 55] and the enforcement of obligations and compensation.[Endnote 56]
68. For clarity we have drawn together the provisions of the Act, the draft memorandum and articles and the draft commonhold community statement in relation to the subject being addressed. For example, all provisions in the Act, the memorandum and articles and the commonhold community statement relating to the transfer of a unit are considered together. As already mentioned, specimen drafts of the memorandum and articles of association and the commonhold community statement are set out at Annexes C, D and E. We have indicated in the draft documents which parts were intended to be optional. The Act is set out at Annex B for readers to consider as a whole.
69. The commonhold association is a company limited by guarantee which must be registered at Companies House. As discussed in Part II the memorandum of association regulates the relationship of the company with the outside world, whilst the articles of association regulate the internal organisation and affairs of the commonhold association. The memorandum and articles of association form the contract agreed between the commonhold association, and the company members, the unit-holders.
70. A person is entitled to be registered as a member of the commonhold association if he or she becomes a unit-holder.[Endnote 57] The draft articles of association provide:
5. Part 2 of Schedule 3 to the 2002 Act shall apply to determine the entitlement of any person or persons to membership of the Commonhold Association from time to time.
6. The Commonhold Association shall maintain a register of members and shall comply in all respects with regulations made in relation thereto from time to time pursuant to paragraph 14 of Schedule 3 to the 2002 Act.
71. The commonhold association is required to establish and maintain a register of members,[Endnote 58] this is in accordance with the provisions of the Companies Act 1985.[Endnote 59] Regulations may make provision for the performance of this duty,[Endnote 60] in particular requiring entries to be made on the register within a specified period of time.[Endnote 61] We anticipate that many associations will keep the register in electronic form.
72. With regard to the time periods within which entries must be made on the register we propose that :
(a) the commonhold association must enter the details of the individual unit-holders on the register of members within twenty-one days from whichever of the following occurs first:
(b) If the member of the commonhold association resigns by notice in writing to the commonhold association, the commonhold association[Endnote 63] will make the necessary entry on the register within twenty-one days from receipt of the notice.
| Q42. Do you consider that the form of the register of members should be prescribed? If so, what form should it take? Q43. Do you agree with the proposals for the time periods within which entries must be made on the commonhold association's register of members? Q44. Are there any other matters relating to the register of members that should be prescribed in the regulations? |
73. The Act provides, in effect, that joint unit-holders may choose that only one of them will be entered on the register of members of the commonhold association.[Endnote 64] If one of the joint unit-holders is nominated to be entered on the register, this nomination must be made in writing to the commonhold association and received within a period of time to be prescribed by regulations.[Endnote 65] If no nomination is received by the end of the prescribed period of time, the person whose name appears first on the proprietorship register at the Land Registry is entitled to be entered on the register of members.[Endnote 66] On the application of a joint unit-holder the court may order that he or she is entitled to be entered on the register of members of a commonhold association in place of the person who is or would be entered because they are the first name cited on the proprietorship register of the unit.[Endnote 67] If the joint unit-holders do nominate one of themselves to be entered on the register, the nominated person is entitled to be entered on the register of members of the commonhold association in place of the person entered by previous nomination or by the court.[Endnote 68]
74. Regulations are therefore required to prescribe the period of time within which a nomination for one of two or more joint unit-holders to be entered on the register must be received, as described above.[Endnote 69] We propose that this will be within twenty-one days from the date on which the unit was transferred to joint unit-holders.
| Q45. 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 twenty-one days from the date of the transfer of the unit? |
75. We provisionally propose that the articles of association will make mandatory provision for the holding of an Annual General Meeting and one extraordinary general meeting each year to hold an interim review of the affairs of the association. We also propose that directors may convene general meetings and, on the request of a member, will convene an extraordinary general meeting. The requirements for the notice to be given for, and the quorum to be present at these meetings will be set down in the articles. The articles will also specify the requirements for the business to be conducted at these meetings.
76. The relevant provisions of the draft articles of association are:
7. All general meetings other than annual general meetings shall be called extraordinary general meetings.
8. The directors may call general meetings and, on the requisition of members pursuant to the provisions of the Companies Act, shall forthwith proceed to convene an extraordinary general meeting for a date not more than 28 days after the date of the notice convening the meeting. If there are not within the United Kingdom sufficient directors to call a general meeting, any director or any member of the Commonhold Association may call a general meeting.
9. In addition to its annual general meeting, the Commonhold Association shall hold at least one extraordinary general meeting each year at which, in addition to any other business, the directors shall present an interim review of the business and affairs of the Commonhold Association since the preceding annual general meeting. Such meeting shall not be held within three months of any annual general meeting of the Commonhold Association.
| Q46. Do you agree with the current draft proposals of the articles of association for general meetings of a commonhold association? |
77. The draft commonhold community statement, contains the following provisions in relation to the location of the meetings of the commonhold association:
52. All meetings of the Commonhold Association shall be held on the Commonhold or at such other suitable place as is nearby and reasonably accessible to all members.
| Q47. Do you agree with the proposals for the location of meetings of the commonhold association in the draft articles of association? |
78. The draft articles of association provide:
10. An annual general meeting and an extraordinary general meeting called for the passing of a special resolution or a resolution appointing a person as a director shall be called by at least twenty-one clear days' notice. All other extraordinary general meetings shall be called by at least fourteen clear days' notice but a general meeting may be called by shorter notice if is so agreed,
10.1 in the case of an annual general meeting, by all the members entitled to attend and vote thereat; and
10.2 in the case of any other meeting by a majority in number of the members having a right to attend and vote being a majority together holding not less than ninety-five per cent of the total voting rights at the meeting of all the members.
11. The notice shall specify the time and place of the meeting and in the case of an annual general meeting, shall specify the meeting as such.
12. The notice shall also include or be accompanied by a statement of the agenda of the business to be transacted at the meeting, the text of any resolutions to be proposed at the meeting, and an explanation to be provided by the proposers of any resolution of the motivation for such resolution.
13. Subject to the provisions of these articles, the notice shall be given to all the members and to the directors and auditors.
14. The accidental omission to give notice of a meeting to, or the non-receipt of notice of a meeting by, any person entitled to receive notice shall not invalidate the proceedings at that meeting. With the exception of article 12, these articles broadly follow Table C of the Companies (Tables A to F) Regulations 1985.
| Q48. 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? |
79. The draft articles of association provide:
15. No business shall be transacted at any general meeting unless details relating to it were included in the notice convening the meeting in accordance with Article 12 above. A proposal to amend an ordinary resolution may, however, be voted upon if the terms of the proposed amendment were received by the Commonhold Association at its registered office, or at any address specified in the notice convening the meeting for the purpose of receiving electronic communications, not less than 48 hours before the time for holding the meeting. The decision of the Chairman as to the admissibility of any proposed amendment shall be final and conclusive and shall not invalidate any proceedings on the substantive resolution.
16. At any general meeting, so far as practicable and subject to any contrary resolution of the meeting, any business arising from a requisition of members shall be transacted before any other business, and if there were more than one requisition, the business arising therefrom shall be transacted in the order in which the requisitions were received by the Commonhold Association.
21.The chairman may, with the consent of a meeting at which a quorum is present (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place, but no business shall be transacted at an adjourned meeting other than business which might properly have been transacted at the meeting had the adjournment not taken place. When a meeting is adjourned for fourteen days or more, at least seven clear days' notice shall be given specifying the time and place of the adjourned meeting and the general nature of the business to be transacted. Otherwise it shall not be necessary to give any such notice'
| Q49. Do you agree with the proposals for the proceedings at general meetings in the draft articles of association? |
80. The draft articles of association provide:
19. The chairman, if any, of the board of directors or in his absence some other director nominated by the directors shall preside as chairman of the meeting, but if neither the chairman nor such other director (if any) be present within fifteen minutes after the time appointed for holding the meeting and willing to act, the directors present shall elect one of their number to be chairman and, if there is only one director present and willing to act, he shall be chairman.
20. If no director is willing to act as chairman, or if no director is present within fifteen minutes after the time appointed for holding the meeting, the members present and entitled to vote shall choose one of their number to be chairman.
| Q50. Do you agree with the provisions relating to the chairman in the draft articles of association? |
81. We provisionally propose that the articles of association should provide for three possible types of resolution:
a) unanimous resolution: this requires the votes in favour of all the members
present at the meeting;
b) a special resolution: this requires the votes in favour of 75% of all
the members present at the meeting;
c) an ordinary resolution: this requires a majority vote in favour from
the members present at a meeting.[Endnote
70]
| Q51. Should any other types of resolution be permitted? |
82. At present articles 23 to 30 of the draft articles of association provide for a show of hands on a resolution and for a poll if requested. On such a poll every member present will have one vote for every commonhold unit he or she owns. We consider below whether this ought to be the distribution of votes in all cases or whether it should be included in the articles of association as a default provision. The procedure for a poll is closely modelled on Table C. Articles 23 and 24 provide that:
23. A resolution put to the vote of a meeting shall be decided on a show of hands unless before, or on the declaration of the result of, the show of hands a poll is duly demanded. Subject to the provisions of the Companies Act, a poll may be demanded-
23.1 by the chairman; or
23.2 by at least five members having the right to vote at the meeting; or
23.3 by a member or members representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting;
and a demand by a person as proxy for a member shall be the same as a demand by the member.
24. Unless a poll is duly demanded a declaration by the chairman that a resolution has been carried or carried unanimously, or by a particular majority, or lost, or not carried by a particular majority and an entry to that effect in the minutes of the meeting shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against the resolution.
| Q52. Do you agree with the proposals for voting in the draft articles of association (see articles 23-30)? |
31. Subject to articles 33 and 34 below, on a show of hands, every member who (being an individual) is present in person or (being a corporation) is present by a duly authorised representative, not being himself a member entitled to vote, shall have one vote.
32. Subject to articles 33 and 34 below, on a poll, every member shall have one vote, provided that a member who is a unit-holder of more than one commonhold unit shall have one vote for every commonhold unit in respect of which he is entitled to have his name entered in the register of members of the Commonhold Association.'
83. As we mentioned when we opened our consideration of voting, the provision for a poll in the draft articles of association states that every member present shall have one vote for every commonhold unit he or she owns.[Endnote 71] This is, at first sight, a fair way to divide power. It may not, however, reflect the actual make-up of the commonhold. If we consider the example of a mixed-use commonhold, there may be one very large unit on the ground floor, perhaps a supermarket, above this there may be ten or more smaller residential units. It may create an unfair environment if the supermarket only exercises the same voting strength as each residential unit. On the other hand, if one person owns multiple units he or she may exercise the voting rights for every unit owned, which may effectively allow one person to dominate proceedings in the commonhold.
84. We would welcome views on the following possible alternative proposals for the allocation of voting rights:
(a) the number of votes allocated to each unit may be determined by the size of the unit: either by its area or volume. The voting percentages for each unit would need to be specified in the commonhold community statement;
(b) the number of votes allocated to each unit may be determined by the value of the unit. The voting percentages for each unit would need to be specified in the commonhold community statement;
(c) a large unit, such as the supermarket in the example above, might or might not be deemed to comprise a number of units which would allow the unit-holder to exercise the votes of all those units. If we continue to consider the example of the supermarket below flats, the supermarket may be comprised of ten units so that it has equal voting rights to the ten residential units;
(d) class voting might be introduced, allowing different unit-holders to vote on those matters affecting them. This could be useful in a mixed-use development where owners of non-residential units may vote on matters pertaining to non-residential units and similarly for owners of residential units. In order to prevent abuse, those issues which are considered directly to affect non-residential owners or residential owners might have to be detailed in the commonhold community statement; and
(e) finally, one way of preventing a multiple unit-holder from gaining effective control over the management of the commonhold association may be to prescribe that a multiple unit-holder may only exercise the voting rights for a certain number of his or her units or a proportion of the total number of units.
| Q53. Do you agree with the current provision in the draft commonhold community statement for one unit, one vote? If not, what provision should be made for voting rights in a commonhold? In particular: (a) should units be allocated different voting percentages according to their size (either area or volume)? (b) should units be allocated different voting percentages according to their value (and if so, how are changes in value to be accommodated?)? (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? (d) should class voting be provided for in the commonhold community statement? (e) should the voting rights of multiple unit-holders be limited? |
35. A member in respect of whom an order has been made by any court having jurisdiction (whether in the United Kingdom or elsewhere) in matters concerning mental disorder may vote, whether on a show of hands or on a poll, by his receiver, curator bonis or other person authorised in that behalf appointed by that court, and any such receiver, curator bonis or other person may, on a poll, vote by proxy. Evidence to the satisfaction of the directors of the authority of the person claiming to exercise the right to vote shall be deposited at the registered office, or at such other place as is specified in accordance with the articles for the deposit of instruments of proxy, not less than 48 hours before the time appointed for holding the meeting or adjourned meeting at which the right to vote is to be exercised and in default the right to vote shall not be exercisable.
36. No objection shall be raised to the qualification of any voter except at the meeting or adjourned meeting at which the vote objected to is tendered, and every vote not disallowed at the meeting shall be valid. Any objection made in due time shall be referred to the chairman whose decision shall be final and conclusive.'
| Q54. Do you agree with the proposed provisions for the qualification to vote in the draft articles of association? |
85. The draft articles of association provide:
37. On a poll votes may be given either personally or by proxy. A member may appoint more than one proxy to attend on the same occasion.'
86. This provision allows a member to appoint more than one proxy to attend on the same occasion. By comparison the Companies Act 1985 provides that, unless the articles state otherwise, a member of a private company is not entitled to appoint more than one proxy to attend on the same occasion.[Endnote 72]
| Q55. Do you think that the number of proxies a member may appoint on one occasion should be limited? If so, to what? |
87. The draft articles of association provide a form of proxy. The provisions are detailed but are based upon Table C. We would welcome views on articles 38 to 41.
| Q56. Do you agree with the provisions for proxies from the draft articles of association? If not, why? |
88. The commonhold association may own a unit if it chooses to do so. This unit might, for example, be used for the registered office or even for the purpose of leasing it and receiving an income. However, if a commonhold association owns a unit it will not be subject to the usual provisions for units. Provision has already been included in the Act to allow that the percentage of a commonhold assessment allocated to a unit may be zero.[Endnote 73] We propose including a provision that the commonhold association may not exercise the voting rights for any units it may own in the articles of association.
| Q57. Do you agree that the commonhold association should not be allowed to exercise the voting rights attached to any unit it may own? |
89. We would also welcome consultees' views on whether an article should be added to the effect that once cast, a member's vote cannot be altered.
| Q58. Do you agree with this inclusion of an article to the effect that a member's vote once cast is irrevocable? |
90. If the unit is owned by two or more persons then issues may arise on which the joint unit-holders do not agree. In these cases how is the vote of the unit to be cast? This may be a particular issue if only one of the joint unit-holders is registered as a member of the commonhold association.[Endnote 74]
91. One solution might be to allow the vote of the unit to be split so that the vote could be cast to reflect differing views between joint unit-holders but that has the potential to become rather complicated. An alternative could be that where there are joint unit-holders their vote may only be cast if they all agree. If they fail to agree how to vote, the vote will not be cast. A further alternative could be that, if the unit-holders do not agree, the member may cast the vote anyhow. If members can be required to give effect to the wishes of joint unit-holders, to what extent should the commonhold association be required to investigate that the vote is being cast as it should.
| Q59. What control (if any) should joint unit-holders
who are not members of the commonhold association have over the way
the joint unit-holder who is a member votes? Q60. If non-member joint unit-holders are to have such power what evidence should the member be required to produce of the views of the non-member? |
92. Subject to a rule that no lessee may vote on resolutions that require unanimous votes or on termination resolutions, we propose that it be a matter for decision between the lessor and the lessee who will exercise the voting rights in respect of a unit. We would expect this to be specified in the lease but doubt if it must be so. If the lessee is to exercise any voting rights, we propose that the commonhold association must be formally notified of this fact and of which resolutions the lessee may vote on, before the lessee may do so.
| Q61. Should individual leases determine whether voting rights will be exercised by the unit-holder or the lessee, save that the vote for a unanimous resolution or for a termination resolution must be exercised by the unit-holder? |
93. We propose that a chargee will not be entitled to vote unless the unit-holder defaults on payment and the chargee takes possession of the unit. In these circumstances, the chargee would only be able to vote after giving written notice to the commonhold association of the exercise of its right to possession of the unit.
| Q62. Do you agree that a chargee will be entitled to exercise the vote of a unit if it has taken possession of the unit and given written notice of this to the commonhold association? |
94. The current draft of the articles of association proposes:
17. No business shall be transacted at any general meeting unless a quorum is present. The quorum for the meeting shall be 20% of the members of the Commonhold Association entitled to vote upon the business to be transacted, or two members of the Commonhold Association so entitled (whichever is the greater) present in person or by proxy.
95. Although a quorum of 20% is frequently adopted by companies it has been suggested in the past that a quorum of 20% is too low, particularly if a unanimous resolution is necessary. A solution to this might be to require a higher quorum where a unanimous resolution or special resolution is to be considered. If a resolution must be passed unanimously the articles could provide that the quorum of the meeting shall be 50% of those members of the commonhold association entitled to vote. If a special resolution is to be considered the quorum at the meeting could be 35% of those members of the commonhold association entitled to vote. A further refinement could be that in a commonhold of only four units or less, the quorum required for a general meeting will be fifty percent of those members entitled to vote, with the quorum for unanimous resolution being seventy-five percent.
| Q63. Do you think that the basic quorum of 20% for meetings of the commonhold association is acceptable? If not, do you consider a higher quorum of say 50% and 35% of members entitled to vote, should be specified for unanimous and special resolutions respectively? Do you consider a special rule should apply to common holds of 6 units or less? |
96. The draft articles of association provide:
18. If such a quorum is not present within half an hour from the time appointed for the meeting, or if during a meeting such a quorum ceases to be present, the meeting shall stand adjourned to the same day in the next week at the same time and place or to such time and place as the directors may determine.'
97. The absence or loss of a quorum may hinder any progress being made by the commonhold association and may cause financial loss for the commonhold or difficulty for unit-holders. A procedure often adopted by companies is that if a meeting is reconvened following a failure to achieve the necessary quorum or a meeting ceasing to be quorate, the quorum for the reconvened meeting will be deemed to be the number of persons attending. We propose to include such provision here.
| Q64. Do you agree with provision in the draft articles about the adjournment of the meeting if the necessary quorum is not obtained? Do you consider it appropriate to provide that the quorum for a meeting which has been reconvened due to a failure to achieve a quorum or to remain quorate will be deemed to be the number of persons attending? |
98. We propose that the commonhold association will be managed by directors appointed by the members of the commonhold association. The draft articles of association address how a director may be appointed; the retirement by rotation of directors; alternate directors;[Endnote 75] the disqualification and vacation of office by directors; the powers of directors; the appointment of managing agents; delegation by the directors; the remuneration of directors; director's expenses; director's appointments and interests and the proceedings of directors.
99. From the draft articles of association:
42. A director need not be a member of the Commonhold Association.
100. We consider it appropriate to allow for the employment of persons who are not members of the commonhold association as directors. This will allow for those circumstances where no one in the commonhold association has the time or inclination to serve as a director. We propose that on an ordinary resolution a non-member director may be appointed and will be remunerated from the commonhold assessment paid by members of the commonhold association. It has, however, been suggested that the directors may employ managing agents and that, therefore, the post of director itself would be merely an honorary position, which members of the commonhold association should be allowed to fill. However, it may still be possible that in some commonhold associations no member would wish to assume even an honorary position.
| Q65. Do you think that provision should be included for non-member directors of the commonhold association? If so, do you think their number should be limited? |
101. The draft articles of association provide:
43. The maximum number of directors of the Commonhold Association shall be as determined by ordinary resolution of the Commonhold Association, and if not so determined, shall be six. The minimum number of directors shall be two.
102. We propose that the commonhold association may determine the maximum number of directors by ordinary resolution, but if no such resolution is passed we propose that the default provision in the articles should be for six directors. The minimum number is prescribed by the draft articles as two directors.
| Q66. Do you agree with the provisions for the numbers of directors of the commonhold association, namely 2-6 (inclusive)? |
103. The draft articles 45 to 52 of association include proposed provisions for the appointment and removal of directors of a commonhold association. This includes provision for the retirement by rotation of directors and for the filling of the vacancy created by the retirement of a director. It also provides for the notice to be given to the members of the commonhold association and any others involved in the appointment of director from those persons who have been recommended for appointment by the directors. The commonhold association will then vote by ordinary resolution to appoint a director. If a vacancy needs to be filled prior to an Annual General Meeting, the directors may appoint someone until the next meeting. The draft articles are based on Table C other than in relation to developers' directors and the transitional period.
45. At the first annual general meeting after the end of the transitional period, all of the directors other than any developer's directors[Endnote 76] shall retire from office, and at every subsequent annual general meeting one-third of the directors who are subject to retirement by rotation or, if their number is not three or a multiple of three, the number nearest to one-third shall retire from office; but if there is only one director who is subject to retirement by rotation, he shall retire.
46. A developer's director shall not be subject to retirement by rotation. Subject to the provisions of the Companies Act, the directors to retire by rotation shall be those who have been longest in office since their last appointment or reappointment, but as between persons who became or who were last reappointed directors on the same day those to retire shall (unless they otherwise agree among themselves) be determined by lot.
50. The directors may appoint a person who is willing to act to be a director, either to fill a vacancy (other than a vacancy in respect of a developer's director) or as an additional director, provided that the appointment does not cause the number of directors to exceed any number fixed by or in accordance with the articles as the maximum number of directors. A director so appointed shall hold office only until the next following annual general meeting. If not reappointed at such annual general meeting, he shall vacate office at the conclusion thereof.
51. Subject as aforesaid, a director who retires at an annual general meeting may, if willing to act, be reappointed. If he is not reappointed, he shall retain office until the meeting appoints someone in his place, or if it does not do so, until the end of the meeting.
| Q67. Do you agree with the proposals for the appointment and removal of directors of a commonhold association in articles 44 to 52? |
104. We propose that to cater for the eventuality that a director is unable to attend a meeting, he or she may appoint any other director or any other person approved by a resolution of the directors to be an alternate director. The alternate director will be entitled to receive notice of meetings and to attend and vote at these meetings, but he will not be entitled to receive any remuneration for his service as an alternate director. Articles 53 to 57 of the draft articles of association include provision for alternate directors which is based on Table C.
| Q68. Do you agree with the proposals for alternate directors in the draft articles of association? |
105. The draft articles of association include proposals for the disqualification and vacation of office of director. We propose that the office of a director shall be vacated in certain circumstances, for example, if a member director ceases to be a member; if he becomes bankrupt or prohibited by law from being a director; if he resigns or if he is absent for more than six months without permission of the directors. The draft articles of association provide:
58. The office of a director shall be vacated if:-
58.1 having been a member of the Commonhold Association when appointed a director, he ceases to be a member of the Commonhold Association;
58.2 he ceases to be a director by virtue of any provision of the Companies Act or he becomes prohibited by law from being a director; or
58.3 he becomes bankrupt or makes any arrangement or composition with his creditors generally; or
58.4 he is, or may be, suffering from mental disorder and either:-
58.4.1 he is admitted to hospital in pursuance of an application for admission for treatment under the Mental Health Act 1983 or, in Scotland, an application for admission under the Mental Health (Scotland) Act 1960, or
58.4.2 an order is made by a court having jurisdiction {whether in the United Kingdom or elsewhere) in matters concerning mental disorder for his, detention or for the appointment of a receiver, curator bonis or other person to exercise powers with respect to his property or affairs; or
58.5 he resigns his office by notice to the Commonhold Association; or
58.6 he shall for more than six consecutive months have been absent without permission of the