Commonhold associations

It is important to understand that the way the commonhold association is formed and registered is governed by the rules and procedures of the Companies Act 2006 and, although the law relating to commonholds sets certain requirements that the commonhold association must meet, the association must be run as a company under company law. It must meet the requirements of the Registrar of Companies, including submitting confirmation statements to Companies House.

A commonhold cannot be registered until the commonhold association has been formed, and the secretary and members will need to deal with the separate registration procedures and rules of both Companies House and the Land Registry.

The aim of the company must be ‘to exercise the functions of a commonhold association in relation to specified commonhold land’ as set out in the Commonhold and Leasehold Reform Act 2002 at Section 34. This means it must be formed especially for a defined parcel of land (or parcels in a split-site commonhold).

Because forming the commonhold association is a necessary part of the application to register the commonhold, the definition or description of the land which will form the commonhold must be included in both applications (to Companies House and the Land Registry). These descriptions do not have to be identical, but it must be clear that they refer to the same land. The description in the company registration is likely to be brief, whereas the CCS will describe the land in detail and will refer to a plan.

The name of the company must end with ‘Commonhold Association Limited’ or, in Wales, ‘Cymdeithas Cydradd – Dolaliad Cyfyngedig’. Only commonhold associations can use this wording.

The way a company is run is governed by its articles of association. For a commonhold association, many of the conditions in the articles are prescribed by the Commonhold Regulations and must be adopted. Companies can add to the articles, but none of the prescribed conditions can be adapted or deleted, other than in line with the regulations.  This is to make sure that all commonholds in England and Wales are formed and run in line with a similar set of rules.

The prescribed articles are set out in the Commonhold Regulations 2004 (SI 2004 no 1829) as amended by the Commonhold (Amendment) Regulation 2009 (available from The Stationery Office or at www.legislation.gov.uk, or in Welsh at www.legislation.gov.uk/wsi).

A solicitor, a company agent or the person who wants to register the commonhold can form the commonhold association, and it is a relatively simple process.

Contact:

The Registrar of Companies
Companies House
4 Abbey Orchard Street
Westminster
London
SW1P 2HT

Phone: 0303 123 4500

Companies House website

Every unit-holder is entitled to become a member of the commonhold association and only unit-holders can be members. Under the Companies Act, the association must keep a register of its members and, when a unit changes hands, must register the new unit-holder as soon as it receives notification that the sale has been completed.

If a unit has joint owners, only one of them can be registered as the member of the association and they must decide between them which one to nominate. If joint owners fail to nominate anyone, by law the first name registered on the title deeds of the unit will be registered as the member of the association.

The commonhold association will need at least two directors. The directors do not have to be members of the company, and so do not have to be unit-holders. This allows the commonhold association to appoint property professionals or other relevant experts to the board to bring in management or financial expertise. The rules for appointing the directors are set out in the prescribed articles of association for the commonhold association. The association must give Companies House the names of all its officers. (The officers of the company will have certain duties under company law, and it may be wise for the commonhold association to arrange directors’ and officers’ liability insurance.) The directors of the company can appoint a secretary of the commonhold association and set the employment terms, pay and conditions they consider appropriate. They can also remove the secretary if necessary.

The Commonhold regulations set out special rules for new-build commonholds (those registered without unit-holders), which allow the developer to appoint directors, and this must be allowed under the CCS. However, because the developer will probably prepare the CCS as part of their application to register the commonhold, this should not cause a problem. During the transitional period (the time between the commonhold being registered and the first unit being sold), the developer can choose and appoint up to two directors, as well as any appointed by the initial subscribers i.e. those people who originally set up the company.

At the first annual general meeting of the company after the end of the transitional period, all the directors must resign and a new board must be appointed. While the developer still owns more than a quarter of the unsold units, they can appoint one quarter of the directors. This allows the developer to influence, but not control, the way the commonhold is managed while they still have a significant financial interest in it.

Like all companies, the commonhold association must hold an annual general meeting. It may also call other general meetings to pass resolutions or discuss issues relating to managing the commonhold. General meetings can be called by the board or by the members, in line with the articles of association.

The association does not have to arrange a special meeting to discuss and agree the budget (known as the ‘commonhold assessment’), although it may find it is good management practice to so do.

A quorum will apply to all general meetings. (A quorum is the minimum number of members that must be present for the meeting to go ahead.)

The prescribed articles of association set the quorum as 20% of the members, or two members (whichever is more). The association can change the quorum by passing a resolution, but it cannot be less than 20% (or two members).

The essential principle of commonhold is to manage the building democratically through the commonhold association, and the main way of doing this will be through an open vote, by a show of hands, at a meeting where each member will have one vote.

However, the prescribed articles of association also provide arrangements for formal polls. The chairman, at least two members of the association, or a member (or members) who represents 10% of the total voting rights can demand a poll. In a formal poll, votes are allocated for each unit in the CCS, and not all unit-holders will necessarily have an equal numbers of votes (see the commonhold community statement section below).

During the period before the commonhold is activated, and during any transitional period, each member has one vote in any poll.

There are arrangements in the articles of association for proxy voting (to allow a member who is unable to attend a meeting to ask someone else to vote on their behalf) and, if a unit has been repossessed, for any lender who has possession, or any receiver or trustee (if the unit-holder is bankrupt) to vote in certain circumstances.