Section 21: Part-unit: interests.

69.     Section 21, subsection (1) provides that the creation of interests in part only of a commonhold unit is not possible, and subsection (3) provides that an attempt to create such an interest in contravention of subsection (1) will have no effect. Subsections (2) (a) and (b) make the exception to subsection 1 for the creation of leases in part-units which, by virtue of subsection (6), is made subject to the regulations on residential leases to be created under section 17. Subsection (7) provides that regulations may modify the application of provisions of the Act relating to the unit-holder or tenant where part of the unit is held under a lease, so that wrinkles in day-to-day operation can be ironed out. As to transfers of part units, subsection (2) (c) and subsection (8) provide that the transfer of the freehold estate in part of a commonhold unit is possible where the commonhold association consents in writing. However, the commonhold association will only be able to consent to the transfer following a resolution with at least 75 percent of those members who vote, voting in favour (section 20, subsection (4)). Subsections (4) and (5) provide that where land becomes commonhold land or is added to a commonhold unit in such a way that an interest over a part unit would exist, such an interest shall be extinguished. Subsection (9) provides that if the freehold interest in part of a unit is transferred the part transferred will become a new commonhold unit, unless the commonhold association allow it to become part of a unit specified in the request for consent under subsection (2)(c). The commonhold community statement may require new units created in this way to be registered (subsection 10).

Section 22: Part-units: charging

70.     Subsection (1) of section 22 prohibits the creation of a charge over part only of an interest in a commonhold unit. This reflects the technical point that a unit as such cannot be charged, rather it is the unit-holders' interest in the unit that is charged. Subsection (2) renders ineffective any attempt to create a charge over part only of an interest in a unit. Subsections (3) and (4) provide that where land is added to a commonhold in such a way that a charge over a part unit would exist, such a charge shall be extinguished.

Section 23: Changing size

71.     Section 23 provides that, where for whatever reason, it is desired to change the size of a commonhold unit, for instance because an existing unit-holder has a garage in a block of garages which is, nonetheless designated as part of his unit, and the commonhold association wishes to demolish the garages for some purpose, the unit-holder's consent must be sought.

Section 24: Changing size: charged unit

72.     Section 24 is intended to ensure that where a unit is subject to a registered charge and the commonhold community statement is amended such as to change its extent either by enlarging or diminishing, the owner of the charge consents in writing before the change is made. This is because, as there cannot be a charge over part of a commonhold unit, the section provides that where land is taken out of the charged unit, the charge in relation to that part is automatically extinguished, and in the case where land is added, the existing charge is extended to cover it. Consent is required as the charge is in effect the property of a third party and that party's rights must be protected. Subsection (1) defines when the section will apply, subsection (2) provides for the seeking of written consent in advance of the planned change, subsection (3) provides for a court to dispense with the need for consent, subsection (4) provides for automatic extinguishment where appropriate and subsection (5) for automatic extension, and subsection (6) provides for the making of regulations which would require notice to be given to the Registrar and requiring the Registrar to register changes arising from subsections (4) and (5).

Common parts

73.     Sections 25-30 cover the same ground for the common parts as the previous section did for the individual units. The common parts may include conduits for the delivery of services and are, in effect, any part of the development not delineated in the commonhold community statement and the plans as units.

Section 25: Definition

74.     Section 25 defines common parts as all those parts of the commonhold land which are not, for the time being, defined in the commonhold community statement as units. In effect, they will include hallways, stairwells, lift shafts, landscaping, gardens etc, though the status of a particular type of land in any particular commonhold development will be defined in the commonhold community statement for that development. Subsection (2) introduces the concept of the limited use area. This will remain part of the common parts but may be limited to the use of a single unit-holder, for instance in the case of a balcony the only access to which is through the unit in question, or to a group of unit-holders, for instance the use by them of a garden associated with a particular group of units they occupy. This is expected to be a useful concept when dealing, for instance, with parking spaces, as opposed to garages, where the commonhold association may wish to take responsibility for maintenance but to allocate particular spaces to particular unit-holders. Subsection (3) provides that the commonhold community statement may make special provisions which affect only limited use areas and also which make different provisions for different such areas.

Section 26: Use and maintenance

75.     Section 26 requires that the commonhold community statement must make provision for the regulation of the use of the common parts, in effect to set out the rules and regulations for corporate living in the development, and must also provide for the association to insure, repair and maintain the common parts.

Section 27: Transactions

76.     Section 27 provides that the commonhold community statement must not restrict the right of the commonhold association to transfer its interest in any part of the common parts, i.e. to sell part of the common parts, or to create any interest over any part of the common parts, such as a right of way.

Section 28: Charges: general prohibition

77.     Section 28 imposes, subject to section 29, the general prohibition on charging of common parts. Subsections (2) and (3) provide for the extinguishing both of charges in existence when the commonhold association comes into being, so far as they apply to the common parts and of charges on any part of common parts which are added at a later stage.

Section 29: New legal mortgages

78.     Section 29 provides the exception to the general rule in section 28 allowing a commonhold association to borrow on the security of common parts providing it obtains, in advance, a unanimous resolution of members.

Section 30: Additions to common parts

79.     Section 30 makes the necessary provision to achieve the registration of the commonhold association as the owner of common parts when new land is added to them. This is achieved on the submission of an amended commonhold community statement by the commonhold association under section 33, the Registrar registering the interest without the need for a separate application.

Commonhold community statement (CCS)

80.     Sections 31-33 set out the provisions governing the commonhold community statement, which combines the functions of describing the physical attributes of the development and containing the rules and regulations by which the commonhold will be conducted. Although it is intended that there should be a significant degree of standardisation between the statements of all commonholds, there must inevitably be a degree of flexibility to take into account the different nature of, for instance, an existing block of long leasehold flats in an urban environment converting to commonhold and a development of detached houses together with a small block of flats with shops and other services provided.

Section 31: Form and content: general

81.     Section 31 sets out at some length the core provisions to be made by the statement. Subsection (1) makes it clear that, in relation to the commonhold land in question, the statement makes provision both in respect of the commonhold association and the unit-holders. Subsection (2) requires the statement to be in a form to be prescribed and subsection (3) gives the power for the statement to confer rights or impose duties on both the commonhold association and on unit-holders. Subsection (3) also confers the power to regulate the taking of decisions in connection with the commonhold land, but subsection (4) makes these powers subject to any provision of Part 1 of the Act and to the memorandum and articles of association of the commonhold association. Subsection (5) lists examples of duties which the statement might impose, and subsection (6) provides that, where there is a duty to pay money, whether under subsection (5) or otherwise, that duty can be extended to the payment of interest if payment is late. Subsection (7) provides that easements, rights duties privileges etc may be created by the statement with no need for further formalities. It is often the case that such formalities would otherwise include the preparation and execution of a deed; that will not be necessary in the case of such grants or impositions arising from a statement. Subsection (8) provides that the statement may not make provision for the loss of any interest in land, to be contingent on any future event. Subsection (9) provides that any provision written into a statement that is contrary to the regulations governing the prescribed form and content (see section 32), to any provision of Part 1 of the Act or with the memorandum and articles of association of the commonhold association, will be of no effect.

Section 32: Regulations

82.     Section 32 sets out the regulation making powers in relation to the commonhold community statement. Subsections (1) and (2) set out the general powers for the making of the regulations. Subsection (3) provides that, if a statement is defective in any respect set out in the regulations, it may be deemed to contain such matter or be allowed to contain provisions which stand in place of provisions which otherwise would be deemed by the regulations to exist in the statement. Subsection (4) permits regulations to make different provisions in different circumstances and subsection (5) sets out the sections to which the regulations may apply, whilst not restricting the scope to those listed.

Section 33: Amendment

83.     Section 33(1) requires that regulations made under section 32 must contain provisions as to how the statement can be amended, particularly (subsection (2)) in respect of what the regulations may deem to be included (section 32(3)(a)) or what may be permitted to stand in place of a deemed provision (section 32(3)(b)). To have effect, the amended statement must be registered with HM Land Registry (subsection (3)) and the Registrar is required to keep in his custody the amended statement in place of the then existing statement if it is submitted in accordance with this section (subsection (4)). The commonhold association must file with the amended statement a certificate that the statement accords with the requirements of this Part (subsection (5)). Where the amendment changes the extent of a unit or of the common parts, the necessary consents relating to charges must be submitted, or the court orders dispensing with them, as required in section 24(3) and section 30(3) respectively (subsections (6) and (7)). Subsection (8) gives the Registrar the discretion, on filing the amended statement under subsection (4), to make any other amendments to the register as he thinks appropriate.

Commonhold association

84.     Sections 34, 35 and 36 (and Schedule 3) set out the provisions relating to the commonhold association, which, as has been mentioned, owns and manages the common parts of the commonhold development and is a private company limited by guarantee, its membership consisting exclusively of all the unit-holders in the development.

Section 34: Constitution

85.     Section 34(1) makes provision about the type of company as mentioned above, and goes on to say (subsection (1)(a)) that one of the objects of the company must be to carry out the functions proper to a commonhold association in relation to specified commonhold land and (subsection (1)(b)) that the guarantee required of each member shall be £1. Subsection (2) brings Schedule 3 into effect.

Section 35: Duty to manage

86.     Section 35(1) places on the commonhold association a duty to manage the development in such a way as to allow unit-holders (or their tenants (subsection (4)) to exercise their rights and to enjoy their occupation of their units. However, subsection (2) also requires the association to use any of its rights and powers granted under section 37 to ensure that any unit-holder or tenant who is in breach of any requirement or duty imposed on him either complies or stops committing the breach. Subsection (3) gives the association discretion not to enforce if that would be more conducive to corporate harmony and requires the association to consider alternative dispute resolution before resorting to the courts.

Section 36: Voting

87.     Section 36 relates to any voting provision in Part 1 of the Act which requires unanimity or a specified percentage of votes in favour of a resolution. Subsection (2) requires all members of the association to be given an opportunity to vote on such a resolution in accordance with any relevant provision in the commonhold community statement or the memorandum and articles of association of the commonhold association. Subsection (3) provides that a vote may be cast in person or, if such provision is made in the statement or the memorandum and articles of association, by proxy, by post or in any other way in accordance with the regulations governing the particular commonhold association. Except in relation to section 44 a vote is to be considered unanimous if all those members voting cast a vote in favour of the motion or proposition (subsection (4)).

Operation of commonhold

Section 37: Enforcement and compensation

88.     Section 37(1) gives power to make regulations covering enforcement of rights or duties springing from the commonhold community statement, the memorandum and articles of association of the commonhold association or Part 1 of the Act or any subordinate legislation made under it. Subsection (2) lists matters about which the regulations may make provision. The list is not exhaustive. Subsection (3) provides that any mention of a provision for the payment of compensation that may be payable under such regulations or under the commonhold community statement should include provision for determining the amount of the compensation and provision for the payment of interest if payment is late. Subsection (4) makes it clear that regulations made in relation to commonhold community statement may include regulations under section 32(5)(b).

Section 38: Commonhold assessment

89.     Section 38(1) requires the commonhold community statement to include provision for the setting of annual budgets (subsection (1)(a)) to meet the expenses of the association and to enable the setting of interim budgets (subsection (1)(b)) in addition to the annual budget from time to time. It must also specify the percentage of the annual and other estimates which fall to be collected from the unit-holders to be allocated to each unit (subsection (1)(c)), ensuring that the total of those percentages shall be 100 (subsection (2)) and must require each unit-holder to pay the required amount, to be called the commonhold assessment, in response to a notice or notices which the association must issue (subsection (1)(e)). Subsection (2)(b) makes it possible to specify a 0% share for a unit. This is chiefly to ensure that, where a commonhold association is the unit-holder, it is not in the anomalous position of having to levy assessments on itself. It will be possible for the commonhold community statement to specify a 0% for any unit.

Section 39: Reserve fund

90.     Section 39 provides that regulations made under section 32 may require a commonhold community statement to include provision for the setting up and maintaining of reserve funds for the repair and maintenance of either or both of the common parts (subsection (1)(a)) and the units (subsection (1)(b)) within the commonhold. Subsection (2) provides that, where such fund or funds are set up, the statement must provide for the commonhold association to set a levy from time to time (subsection (2)(a)), allocate percentages of the levy to be paid by each unit (subsection (2)(b)), again with the requirement that the percentages total 100 (subsection (3)), (though also allowing the setting of a 0% share for specified units) requiring the unit holders to pay (subsection (2)(c)) and providing for the issue of notices requiring payment (subsection (2)(d)).

91.     Section 39(4) provides that funds established under this section may not be used in satisfaction of any debt other than a judgement debt arising from an activity which, under the commonhold community statement, could properly be funded from such a fund. Thus, if regular roof replacement is an item to be funded by the reserve fund under a statement, and a roofing contractor has to proceed against the commonhold association, the reserve fund may be used in satisfaction of the debt if a court finds in the contractor's favour. However, if the association is required to pay a substantial excess to its insurer in connection with a claim and the payment of insurance is not a proper call on the reserve fund, the fund cannot be touched by the insurer, even if it is in possession of a judgement, except where the association is insolvent (see definition of reserve fund activity in subsection (5)(a)). Subsection (5)(a) defines reserve fund activity, (see note to subsection (4) above), subsection (5)(b) specifies what is meant by assets being used for purposes of debt enforcement, and subsection (5)(c) makes it clear that the term judgement debt includes any interest on such a debt.

Section 40: Rectification of documents

92.     Section 40(1) makes provision for a unit-holder to apply to the court for a declaration that either (a) the memorandum and articles of association of the commonhold association relating to the commonhold association or (b) the commonhold community statement relating to the commonhold association do not comply with the provisions of the Act or regulations made under it. Subsection (2) provides that, where the court makes such a declaration, it may make any other order it thinks appropriate, and subsection (3) lists a number of matters that might be covered by such an order. These include requiring that the officers of the commonhold association take steps to alter or amend the offending document or take other specified steps, requiring the association to pay compensation and ultimately, ordering that the land cease to be commonhold. Subsection (4) sets a time limit for such an application of three months from the date the applicant became a unit-holder, three months from the alleged start of the failure to comply, or, failing these, subject to a time limit or any other permission laid down by the court.

Section 41: Enlargement

93.     Section 41 applies where a commonhold association relating to existing commonhold land votes unanimously and in advance (subsection (3)) (and see section 36 as to unanimity) to apply to bring further land into the commonhold to be held as part of their commonhold land and an application under section 2 is submitted to the Registrar (subsection (1)). The requirement that all the documents listed in Schedule 1 should be submitted for registration is lifted in relation to this application by subsection (2) but consents will be required as set out in paragraph 6 of Schedule 1, as will an application as set out in section 33 to amend the commonhold community statement to take account of the new land. Also to be provided will be a certificate stating, first, that the application satisfies Schedule 2, which specifies which land may not become commonhold land, and second that the vote leading to the application was unanimous.

Section 42: Ombudsman

94.     Section 42 gives the Lord Chancellor power to approve an Ombudsman scheme or schemes as part of the dispute resolution process available to commonhold associations and unit-holders.

Termination: voluntary winding-up

95.     Sections 43-49 deal with the termination of a commonhold following from a voluntary winding up of the commonhold association, which might arise, for instance, from the decision to recognise the eventual demise of a building through old age, or from a particularly advantageous offer by a developer to buy the land. The sections differentiate between terminations which are the result of unanimous resolutions (section 44) and those which are the result of majority votes (section 45).

Section 43: Winding-up resolution

96.     Section 43 provides that, for any winding-up resolution to be effective, there must have been a declaration of solvency by the directors in a specified form (so that the winding up will be commenced as a members' voluntary winding up rather than a creditors' voluntary winding up) and that a termination statement resolution (agreeing the details of the termination and disposition of assets) should have been passed, with at least 80% of the members voting in favour.

Section 44: 100 per cent agreement

97.     Section 44 provides that the liquidator of a commonhold association shall make an application for termination within six months of the association's having achieved a 100% vote in favour of winding-up and termination-statement resolutions from the members. Should the liquidator fail to do so, the application may be made by a unit-holder or some other prescribed person.

Section 45: 80 per cent agreement

98.     Section 45 provides for the liquidator to make an application to a court to determine the terms upon which a termination application may be made and also the terms of the termination statement which must accompany the application, in the event that a vote of between 80% and 100% is achieved in favour of winding-up and termination statement resolutions. The liquidator must make the application to the court within a period, prescribed by regulations, from the date of the passing of the winding-up resolution, and must make the termination application within 3 months of the court order. Should the liquidator fail to do so, the application may be made by a unit-holder or some other prescribed person.

Section 46: Termination application

99.     Section 46(1) defines the termination application as the application to the Registrar to achieve the result of the termination resolution that all the commonhold land for which the commonhold association acts should cease to be commonhold. Subsection (2) requires that such an application should be accompanied by a termination statement (see section 47) and subsection (3) requires the Registrar to note the application on the register on receipt.

Section 47: Termination statement

100.     Section 47(1) requires the termination statement to specify what is to be done with the land which had been the commonhold land, when the commonhold association has acquired the freehold estate in all the units under section 49(3), and how any assets of the commonhold association will be distributed amongst the members. Subsection (2) provides that a commonhold community statement may make provisions as to how the termination statement will make arrangements "of a specific kind", or how it will determine in a specific manner about the rights of unit-holders in the event of termination. Subsection (3) requires any termination produced for the purposes of a termination application to comply with the terms of the commonhold community statement. Subsection (4) allows for a court to disapply subsection (3) as to all the terms of the statement or in respect of specific matters or for a specific purpose, and an application to the court for this purpose may be made by any unit-holder. This gives the court the power to take into account changed circumstances since the current statement reached its final state. It also allows challenges to the fairness of the statement in this respect which otherwise would not have given rise to a challenge.

Section 48: The liquidator

101.     This section deals specifically with the position of a liquidator in a members' voluntary winding up and specifically his position vis-...-vis the termination application. Section 48 applies where a termination application has been made and a liquidator has been appointed (subsection (1)). Subsection (2) requires the liquidator to inform the Registrar of his appointment and subsection (3) requires him either to notify the Registrar that he is content with the termination statement or to make an application to the court under the Insolvency Act 1986 for an order determining the terms. Subsection (4) requires the liquidator to inform the Registrar of the outcome of any application to the court under subsection (3)(b), subsection (5) specifies that the requirement under subsection (4) is to be satisfied in addition to anything which is required to be done under the terms of section 112(3) of the Insolvency Act 1986, and subsection (6) specifies that any duty placed on a liquidator by this section must be done as soon as possible (the term used by the parent Act being 'forthwith'). Subsection (7) explains that references to the liquidator encompass not only the person appointed in the members' voluntary winding up, but also, in the rare case where the members' voluntary winding up becomes a creditors' voluntary winding up, the person who thereupon acts as liquidator (who may be the same person).

Section 49: Termination

102.     Section 49 provides that, where the Registrar receives notice from the liquidator that he is satisfied with the statement, or receives a copy order from the court in accordance with section 48(4), or an application is made under section 45, the commonhold association will become entitled to be registered as the owner of the freehold interests in all the units (subsection (3)). Subsection (4) then requires the Registrar to take the appropriate action to give effect to the termination statement.

Termination: winding-up by the court

103.     Sections 50, 51, 52, 53 and 54 deal with winding-up by the court following a petition to declare the commonhold association insolvent by a creditor. Section 51 makes provision for a successor commonhold association to be set up where the court approves, so that those members of the association who have paid all their liabilities to the creditors of the insolvent association may continue to live in a stable commonhold development.