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The Future of Freehold

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​On Wednesday 16th November SAY and deverellsmith acted in partnership to host ‘The Future of Freehold’ breakfast event, which aimed to offer insight and education on the leasehold legislation update and what challenges and opportunities the changes bring.

The discussion was led by Debra Yudolph, Partner at SAY Consulting, with contributions from other industry leaders including:

  • James Duncan, Winkworth Sherwood

  • Richard Silva, Longharbour

  • Charlotte Gilchrest, Argent Related

We asked Debra to provide an overview of the discussion through a quick Q&A which you can find detailed below.

 

What is Commonhold?

Commonhold is an alternative management solution to long leasehold ownership. In commonhold tenure there is not an overarching landlord, instead the freeholders of units in a building or across an estate own the assets equally and have a joint responsibility for the management of common parts.

 

How will this affect historic institutions such as Grosvenor Estate, Cadogan Estate etc?

The leasehold sector has offered historic institutions the opportunity to let residential units, both single and multi-let developments, on long leases in return for tenants paying an initial purchase price and ongoing ground rent, amongst other charges and premiums. This control over leaseholders has been profitable for historic institutions and saw them augment ownership over huge areas of strategic land.

Unlike leasehold, commonhold does not offer historic institutions long term interest in assets, as the freehold is transferred at the point of purchase.  As a result, the move to commonhold will likely disincentivise housing institutions from expanding their portfolio and recycling existing assets, as they may instead look to focus on the profit from their existing leasehold portfolios. We may therefore see historic institutions look to alternative and less regulated investments.

The loss of control over assets will also impact institutional investors from a reputational and branding perspective. With less control on the look and feel of their assets, the potential for miss-management of commonhold stock, may deter larger institutions from entering the sector.

 

How will the introduction of Commonhold affect the way Managing Agents go about managing a development?

In the leasehold sector professional freeholders fulfil a vital stewardship role, overseeing maintenance, safety and sustainability of building structures and communal areas, whilst taking on a significant responsibility for insurance and complying with legislative requirements. In the commonhold sector these responsibilities are handed to the individual unitholders, therefore the role of a managing agent will become even more vital and more complex.

One of the biggest contrasts between commonhold and leasehold is that what is expected of the managing agent will differ significantly between individual unit-holders (commonhold) and an experienced investor (leasehold). There will be a heightened level of interaction with multiple unit-holders, across commonhold developments, which will be management intensive and will place a greater burden on managing agents. There is the potential for management of commonhold assets to become consensus lead. So, it will be important managing agents don’t look to satisfy the majority and instead deliver best practice, despite differing resident agendas.

The rising level of legislation will add to these complexities, and it seems increasingly likely that managing agents will be more cautious when tendering for opportunities in a commonhold environment.

 

What do you see as the biggest challenge across the Leasehold sector to be moving into 2023?

I think the biggest challenge across the leasehold sector, moving into 2023, will be the effects of increasing requirement of new legislation. The introduction of the Leasehold Reform Act is seen by many as one of the most significant changes to property law and is a clear indication that the Government has an appetite to change the leasehold structure. At a time when management responsibility looks to being handed back to leaseholders, new legislative requirements such as the Building Safety Act are complex and management intensive, so 2023 could be a challenging year for the leasehold sector. 

About the author

Debra Yudolph, Founding Partner of SAY Property Consulting

Debra is a Founding Partner of SAY Property Consulting, an award-winning advisory business specifically established to provide residential, commercial and mixed use management consultancy services to property owners, developers and investors. Debra has over 25 years’ experience in residential property and is recognised as one of the major contributors to the industry. Before starting SAY with Charles Seifert, Debra was Director of Asset and Property Management at Grainger plc for ten years.

Debra is an expert in residential property and asset management with a particular focus on Build to Rent, Place Making, Regeneration and industry innovation. Debra has a keen interest in the positive social impact that can be delivered through new development. She is a recognised spokesperson on behalf of the residential sector and is a member of Property Weeks Resi Senate.