Apartment Ownership: The English Version Needs Reforming

• Jurisdiction: South Africa
• Pages: 185-202
• Citation: (2013) 24 Stell LR 185
• Published date: 16 August 2019
• Date: 16 August 2019
• Author: P F Smith

185

APARTMENT OWNERSHIP: THE ENGLISH

VERSION NEEDS REFORMING

PF Smith

Reader in Property Law

University of Reading, UK*

1 Introduction

Commonhold was ushered in by t he Commonhold and Leasehold Reform

Act 2002, the English counter part of the South African Se ctional Titles Act 95

of 1986. Commonhold is a fairly new form of registered freehold ownership. It

allows for the development of freehold ats and the ownership of the common

areas of the scheme by a commonhold associat ion, a perm anent management

body. Due to a practice by some English developers to gra nt leases of

apartments for 99 to 125 years, t he parallel long lease system used for the

development of apartment schemes is rathe r a misnomer, given that leases

of this duration are wast ing assets and potent ially a poor mortgage secu rity.

Long leasehold as a property for m for developing apart ment schemes has also

been plagued by problems of poor management ,1 and is adversely affected by

the fact that the dra fting of leases can be of variable quality.2 At the same time,

it is attractive to developers, be cause they can use thei r freehold reversion to

extract fu rther capital su ms from any lessees who might w ish to extend their

leases.3 The long lease s ystem co-exists alongside com monhold, which only

outlaws the background law, little used, yi ng freehold system.4

The commonhold legislation5 has u seful features not present i n the long lease

system. To revisit some of these,6 it imposes on the commonhold associat ion

a stat utory liability to insure agai nst re and to repair the common par ts of

the building, such as the roof, found ations and other str uctural elements.7

The latter expressly include exte rnal windows with in units.8 Th is legislative

imposition of liability to insu re and to repair with regard to the main bu ilding

and common areas on f reehold land as held by the commonhold association

* The author would l ike to thank h is two anonymous r eferees for their co mments on this a rticle in dra ft; but

he is solely respons ible for its contents

1 AJ Hawkins “ The Nugee Comm ittee Repo rt: The Mana gement of Privat ely-Owned Blo cks of Flats”

(1986) Conveyancer 12 12-17 (identify ing lack of reser ve funds, s ome suggestion s of misapplicat ion

of service cha rges, and difficult ies in forcing foreign-base d freeholders to under take any management

tas ks)

2 DN Clake Commonhold: The New Law (20 02) 7-8

3 As under Lea sehold Reform, Housing a nd Urban Development Act 1993 Par t I

4 Commonhold a nd Leasehold Reform Act 20 02 Sch 2 para 1

5 On earlier pro posals see DN Clarke “C ommonhold: A Prosp ect of Promise” (1995) 58 MLR 486

6 See furt her PF Smith “An Initial A ssessment of English Co mmonholds” (2005) 16 Stell LR 514 517-520

7 Model CCS para 4 5 1 1 (inserte d by Commonhold Re gulations 2 004 SI 2004/1829 Sch 3, herea fter

referred to a s “2004 Regulati ons”)

8 For an analysis of a rec ent set of Singapor e rules rend ering uni t holders liable for re pairs to external

windows with in their un its see TK Sood “ Selected Str ata-Mana gement Issues: Per spectives f rom

Singapore” in H Mo stert & MJ de Waal (eds) Essay s in Honour of CG van der Me rwe (2011) 355 359-361

(2013) 24 Stell LR 185

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represents a complete break w ith English background law.9 Unhappily,

however, the compulsory insura nce rules10 are said to be defective,11 which

could easily have been avoided.12 Des pite th is lat ter de cie ncy, st and ard isat ion

of scheme obligations is an importa nt facet of the commonhold legislation,

when compared to the long lease syste m.13 A related aspect of commonhold

is t hat the legislation caters for the tra nsmission in plain terms of nancial

obligations from the seller to the pu rchaser of a unit when the un it changes

hands.14

Apartment owner ship statutes should ideal ly promote access for lower

or modest income groups to th is form of propert y, not to mention for those

who wish to own second homes or to own a un it for investment purpose s.

Apartment owner ship in statutor y form should also be att ractive for single

persons to whom apar tments may be a more economically v iable proposition

than a tradit ional freehold house.15 There might also be some pent-up demand

for a move into commonhold from among the one mil lion current English long

leaseholders.16

Other useful as pects of commonhold include the fact t hat it requires a

management body to be in place at t he outset,17 which is not always the case

with long lease systems. A common hold association in stand ard form must

thus form part of each com monhold registration applicat ion forwarded to

HM Land Registr y by the developer.18 The association automatically comes

into being as soon as the rst unit is sold.19 In addition, unit holders are

freeh olders, 20 not the holders of leases. Despite these benecial elements, there

9 Rhone v Stephe ns [1994] 2 AC 310 affirming a genera l rule of no liabilit y T he English Law Commi ssion

has recomme nded that the whole r ule should be abrogate d: ENGL Law Commission M aking Land Work;

Easements a nd Profits a Pren dre Law Com No 327 (2011) para 569 -570 Thi s has taken place in I reland

thanks t o s 49 of the Land and Convey ancing Law Reform Ac t 2009, but the suggest ed removal of the rul e

in England ha s been critici sed by P O’Connor “Caref ul What You Wish For: Positive Free hold Covenants”

(2011) 75 Conveyancer 191

10 Model CCS para 4 4

11 SMJ Wong “Potentia l Pitfalls in the Commonhol d Community Statement ” (2006) 70 Conveyancer 14

22-24 While fir e insurance is compu lsory, the extent of insu rance against all ot her risks is left to loca l

rules (Mod el CCS Annex 4) for each develop er to fix if they so w ish

12 Compare the co mprehensive provision s under s 3(1)(h) of the Sectional Titles S chemes Management Ac t

8 of 2011

13 In Adami v Lincol n Grange Management Lt d [1998] 1 EGLR 58, damage caused by g radual deter ioration

as opposed to s udden collapse was not covered by a lo ng lease insurance pol icy, probably owing to an

omission Th e court, in acc ordance with est ablished princ iples (see Hafton Proper ties Ltd v Camp [199 4]

1 EGLR 67 69K-70B) refused to fill t his gap

14 S 16(1) and (2) of the Commonhold and Lea sehold Reform Act T he seller is not, as fr om the transfer d ate,

liable for any fu rther obligations to t he commonhold associat ion L iability for pre-tra nsfer assessments

falls on the selle r subject to arr ears being rec overable from the pu rchaser on notic e and only up to the su m

stated ther ein (Model CCS para s 47 3- 47 7)

15 CG van der Mer we Sectional Titles Sh are Blocks and Time Sha ring Volume 1: Sectional Titles 2 e d (OS

1998) 1-12 -1-13

16 Lord Chanc ellor’s Department Proposals for Commonhold Regulations (2003) Annex F par a 9

17 See CG van der Me rwe “Apartment Ow nership” in AN Yia nnopoulos (ed) Inter national Ency clopedia of

Comparative Law VI (1994) Ch V 3 25

18 S 1(1)(b) of the Commonhold and Le asehold Reform Act

19 Ss 7(3) and 9(3) of the Commonhold and L easehold Reform Act, de pending on whethe r there are exist ing

unit holders or n ot; this is simil ar to the rules u nder ss 18 and 20 of the NSW St rata Schemes Ma nagement

Act 1996

20 S 1(1) of the Commonhold and Leas ehold Reform Act

186 STELL LR 2013 1

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