Commonhold: An Australian perspective
Posted 14 June 2019
Looking back in time, it would be difficult for those first colonial settlers from 1788 to recognise the modern Sydney shoreline.
What wouldn’t surprise them is that habitation didn’t stray too far from the coast, given how difficult it has always been to build larger communities much further inland, with 90% of the population concentrated in the coastal urban centres. This has led to the increasingly higher density residential stock being built across Australian coastlines today. This development density has also led to the creation of strata title in the 1960’s, meaning that Australia has over 50 years of experience of commonhold tenure. While there are subtle differences between strata title and commonhold title in the UK, in principle, the operation of the development is the same. Interestingly, strata title also evolved as a response to lenders not favouring mortgages on other forms of non-freehold title for apartments, which should sound somewhat familiar to those owning a wasting asset such as a leasehold apartment in the UK.
Fexco has built the largest strata management group in Australia (https://picagroup.com.au/) managing in excess of 200,000 apartments as well as a further 60,000 via a franchise operation. The vast majority are homes in strata title schemes, so commonhold management is something we are very familiar with as an organisation. In contrast, from our experience of managing an additional 55,000 homes in the UK, we would comment that leasehold management can often be less straightforward than strata, while freehold, in the case of private estates, is still not a fully settled form of tenure for communal living arrangements due to land adoption issues.
What's happening in the UK?
The existing commonhold legislation in the UK has not matured and unlike leasehold, it certainly has not been property road tested, with only c. 20 developments in operation under commonhold title across the UK. That said, there are decades of experience to benefit from by studying hard lessons learned in both strata and condominium living in Australia, New Zealand and the US amongst other regions, giving the UK an advantage should the government choose to enact a more fully developed solution. As managing agents, it is not for us to question whether leasehold title still has its place. While we can and should consult in the development of commonhold legislation, our goal is to provide the best possible professional service for the good of all stakeholders within whatever form the legislation takes.
It will take some time to gain any meaningful momentum but as agents, what should we fear about commonhold management if it becomes a broader reality?
The short answer is not a lot. The long answer will depend on the pain points that arise as the legislation develops. Unlike leasehold in the UK which has LTA’s that are often impractical and constantly tested by case law (as well as having little equivalence for private estates), Australia has the benefit of legislation drafted for the benefit of the owners, with a strong nod to the wider good of effective community living. It is extensive and while some would say it is excessive (and confused by different adoption in each state), it is practical in its application. There are very few disputes that cannot be resolved by reference to state legislation or the by-laws of the Owners Corporation. Some aspects are very practical, such as the mandatory requirement for a capital works plan (10 year plan with annual review), which settles the sometimes thorny issue of major works that we face in the UK. Some aspects are draconian, though they are easier to interpret than the often poorly drafted leases or sometimes deficient LTA’s or covenants we have to deal with in the UK.
Commonhold brings greater control to the owners of the properties within a development which brings greater responsibility, so how does it work? Schemes vary but in general, the roles with a strata scheme are as follows:
Lot owner: An individual who owns a freehold unit or “lot” (commercial or residential) on the stata scheme. The lot owner will also buy a share of the freehold of the common parts when buying their lot.
Owners Corporation (or Body Corporate): statutory entity that has full responsibility for the common parts. Each lot owner is a member of the Owners Corporation.
Owners Committee: Committee members are appointed at AGM to represent the individual lot owners in administering the functions of the Owners Corporation. A committee member does not necessarily have to be a lot owner and a professional could be employed to sit on the committee to bring more professional order to how it is run. Larger schemes should have a chairperson, a secretary and a treasurer.
Strata manager: The property manager/managing agent appointed to keep the committee and the Owners Corporation functioning legally and administered properly. Duties involve full company secretarial and accounting, oversight of services, contracts, major works and certain facilities.
Building manager: Quite often, the committee will directly employ a building manager on larger blocks to assist with maintenance matters and forward planning. This person may arrange maintenance contracts on site, including the tendering of the strata manager. Traditionally this was a residential position with a remit similar to a facilities manager, though as buildings become more complex, the strata manager may adopt this function via the appointment of its own staff on-site due to the wider breadth of skills it can draw on and offer to the client.
Unlike a typical leasehold remit in the UK, there is no freeholder of the common parts in the background to share some of the duties and responsibilities on a strata scheme so with accountability for the finances, maintenance and H&S of a strata development resting on the Owners Corporation, a strong committee is required to avoid any disastrous lack of planning or preparation. Committee members tend to be more involved and informed as a result and roles tend to be better defined, such as having a treasurer keeping an eye on financial stewardship and a secretary to keep meetings in order. Overall, committees are well organised but they will demand strong and regular engagement from the agent. Your role as strata manager/agent is better understood and the direct relationship with one set of stakeholders certainly takes away some of the tensions found with leasehold management.
Some of the fear in the UK appears to be that it will be difficult for a collection of residents to mature in to a self-governing board/association/committee. Perhaps some of this comes from the experience of assisting RMC boards with what are often tricky leasehold management matters and there is a certain amount of apathy around standing as a director. It can be a difficult and thankless role but guidance and legislation in Australia has led to the development of mostly well organised committees with clear roles that run in a similar way to a club. This is where government needs to step up to set clearer guidance and where the managing agents can play a stronger advisory role to assist with organisation.
We need a shift...
It is unlikely that we will see a dramatic shift to commonhold in the UK and let’s hope any amendment to legislation is properly considered but if so, as managing agents we have little to fear from it. Direct ownership of the development by commonholders and being in charge of their own destiny is certainly not a disaster waiting to happen, though it will take time to mature. It might have taken Australia 50 years to get to where it is now and it certainly not perfect but from our experience, there is every reason to be believe that commonhold can work.
