Commonhold interests

Produced by Tolley

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Commonhold interests
  • What is a commonhold interest
  • Who can have a commonhold interest?
  • Commonhold arrangements
  • VAT treatment of creating a commonhold
  • A developer constructs a new building and sets up a commonhold
  • A number of freeholds are converted into a single commonhold
  • A leasehold is converted into commonhold
  • Sales of a commonhold interest
  • Sale of a commonhold unit by a unit holder
  • More...

Commonhold interests

Until the Commonhold and Leasehold Reform Act 2002, English law only recognised two forms of property ownership:

  1. freehold – which confers upon the party absolute title in a property

  2. leasehold – which confers upon the party holding the lease of a property of an interest in that land and property for a fixed number of years

From 2002 a new form of property interest was introduced called a commonhold interest in land and property.

What is a commonhold interest

Commonhold is a way of owning property in a multi-occupancy property and offers an alternative to the leasehold system. It allows for multi-occupancy buildings to be divided into units and common parts to be in the form of freehold ownership rather than leasehold. The freehold interest in the communal areas and its structure are usually owned by a commonhold association that is comprised of the owners of the units. It is designed to overcome some of the disadvantages of having a leasehold interest in a property. Commonhold can be applied to residential and commercial buildings however in practice it is more likely to be used in residential developments. In residential properties this will mean that each flat owner will own a freehold rather than a leasehold interest.

Who can have a commonhold interest?

Commonhold is available for residential, commercial or mixed use developments. Parties owning the interest in individual units under commonhold are referred to as 'unit-holders'.

Commonhold arrangements

A commonhold may only be registered when all those with an interest in the property have agreed to form a commonhold.

It is possible for the property developer or landlord to enter into an agreement with existing occupants or identified future unit-holders to set up a commonhold. This will happen where a leasehold development is being converted to a commonhold.

It is possible for the property may be registered as a commonhold in advance of the future unit-holders being identified. The property developer will then sell the units in the same way as any

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