New laws came into effect last week, heralded as the biggest shake-up in home ownership legislation for 80 years. 'Commonhold' creates a new third way of owning property in the UK, alongside freehold and leasehold. From September 27, Part 1 of the Commonhold and Leasehold Act 2002, together with the Commonhold Regulations 2004 became current legislation. The new laws aim to improve the rights of leaseholders in England and Wales. The major advantage of commonhold for property owners is that possession is not restricted to a set period of time, as it is under the leasehold system. It should avoid the need for the use of long leases. This, in turn, should solve the problem of decreasing lease terms and absent landlords, and reduce the likelihood of service charge disputes. Property investors can now choose whether to make a new development either commonhold or leasehold and people who are currently leaseholders can also switch to the commonhold system. Commonhold is a freehold-like tenure of a smaller part - called a `unit' - of a larger scheme. It is designed for use in mixed-use properties, for example blocks of flats, shops and offices. It also confers automatic membership of a `commonhold association' - a firm limited by guarantee - which operates the commonhold community statement, the protocol for management of the development. The commonhold system should help tenants avoid some of the problems that can arise in mixed-use properties. In contrast to leasehold, under the commonhold system, there is no landlord and every resident or "unit holder" in the property has equal rights. The unit holders and the commonhold association will join together as parties to a commonhold community statement. The statement will define the rights and liabilities of the unit holders, and will provide a binding legal framework for their enforcement. The statement will also deal with the management of the common parts of the development vested in the commonhold association, and with service charges - how much they are, and how they will be collected. As there will be no leases, there is no scope for reservation of a ground rent in favour of the developer. The developer may wish to factor in this potential loss of revenue by possibly charging a premium for commonhold flats. Many developers may decide instead to embrace the commonhold legislation, as this will enable them to make a "clean break" from the development. It can then be left to the unit holders to manage themselves through the commonhold association. For some leaseholders, it will still remain easier to band together and buy the freehold - for others, particularly those in big blocks with commercial property, commonhold can be a better option but it is by no means straightforward. It is as yet unclear how popular commonhold will prove to be. Developers may prefer to stick with the freehold/leasehold system, which they feel better protects their commercial interests, and leaseholders may be deterred by the fact that the switch process is complex. The new system has its origins in American and Australian property ownership laws. In both countries, it is seen as a sensible way of managing property. The Government of this country believes it will improve housing choice, and allow flat owners to be freeholders of their own properties and to deal collectively with repair, insurance, anti-social behaviour and other matters of mutual interest. It will be interesting to see if commonhold is adopted quickly, or whether leaseholders remain cautious about the prospect of indefinite freehold ownership of a unit within a building. Richard Freeman-Wallace is head of property at Watson Burton LLP. | 
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