Leading law firm Travers Smith LLP and McCarthy Stone, the UK’s leading developer and manager of retirement communities have authored a report looking at commonhold and the retirement housing sector.
The report is a response to the Government's indication during the King's Speech in July 2024 that it is considering further leasehold reform, including looking at reinvigorating commonhold for all new apartments, which could potentially include new retirement housing schemes.
Commonhold is a form of freehold in which owners own their own unit and are also members of the commonhold association which owns the common parts in the building or wider scheme. Commonhold gives the owner greater control over its interest but also imposes obligations in respect of its maintenance, repair and use.
The use of commonhold in the context of the retirement housing sector comes with its own unique considerations. For example, many residents opt to live in retirement housing so that they don't need to worry about household maintenance or repairs, and so that they can benefit from managed communal facilities and services, like restaurants, gardens and wellbeing suites. Many schemes also deliver on-site care and food services. The average age of people moving into a retirement scheme is also around 80.
The paper looks at how commonhold could work for retirement housing given these features. It takes the position that, although leaseholders are in a strong position thanks to recent leasehold reform, commonhold could, in principle, be suitable for retirement housing as it has the potential to increase democratic accountability, address perceived concerns around transparency in the housing market and instil greater confidence.
Some important modifications to commonhold will be required however, to ensure it works for this form of housing given the age of its homeowners and the complexity of running retirement schemes. In addition to accepting the Law Commission’s recommendations in its 2020 report, Travers Smith and McCarthy Stone believe there is merit in introducing additional rules and safeguards specifically for commonhold in retirement communities that put residents’ needs first while also recognising the expertise of retirement housing operators to run the developments. Together they have looked at various structures that seek to get this balance right and suggest two have merit:
1. For retirement housing with support, they suggest using a form of commonhold where the whole development, including communal facilities, is owned as commonhold by residents. The retirement housing operator would then provide retirement housing services on the basis of a new sector-specific and standardised governance contract. There would also be a period of around 3-5 years where the original operator is in place while the scheme opens and is established after which residents could change the operator should they wish. This is the process in Scotland under the factors system.
2. For more complex retirement housing with care schemes, they suggest a different form of commonhold, in which residents would own the apartments as commonhold, but the ownership of the shared areas of the development that provide the communal facilities and services are retained by the operator and developer, again with a new standard retirement housing contract in place that governs how the services and shared areas are to be managed and charged. The operator would then work jointly with the residents’ commonhold association.
Alongside this they also propose modifications to the standard commonhold community statement for retirement schemes. These modifications would not require major change to the existing legislation but would, importantly, result in a retirement community sector that is both democratic and sustainable.
Sarah Walker, Real Estate partner at Travers Smith said: "I am delighted to have partnered with Harry Jeffries and the McCarthy Stone team to prepare a report on the important issue of leasehold reform and the extent to which commonhold could be an alternative for the retirement sector. Retirement communities deserve proper consideration in this debate and I very much look forward to continuing this discussion."
Harry Jeffries, General Counsel at McCarthy Stone said: “Leasehold has generally worked well across the developments we manage but we recognise there is strong political will for reform. Commonhold might help build consumer confidence in the housing market, but it is critically important that modifications are made to ensure that it works for new retirement communities, particularly given the age of our homeowners. They are typically at a point in their lives where they are looking for more help and support, and do not necessarily want to take on additional management responsibilities. Working with our partners at Travers Smith, we have suggested some potential solutions and we look forward to discussing them with Government.”
