Leasehold reforms dubbed the ‘next scandal’ facing the housing market’

Yesterday, the Leasehold and Freehold Reform Bill had its second reading in the House of Lords and comes as ministers are being squeezed to alter the legislation, including the cessation of “fleecehold estates”, which have been called “the next great scandal” facing the market.

A total of 46 MPs have written to the Government in a bid to put an end to “fleecehold estates”. The Independent reported that a Tory peer Lord Moylan and former advisor to Boris Johnson dubbed the fleeceholds ‘a scandal’ and has questioned councils on their effectiveness.

Lord Moylan said:

“I think this (‘fleecehold’) is the next great scandal approaching the housing market. It is in very large measure attributable to councils who are simply resiling from taking on their duties.”

The National Press has suggested that the Treasury will ‘not hold back’ on leasehold reform, but the National Leasehold Campaign (NLC) say that, ‘if the rumours are true, the Treasury and the Prime Minister have been hoodwinked by sector lobbyists’.

It has been suggested that alongside reforms being ‘withdrawn’ retrospective legal action and the knock-on effect on pension funds being cited as reasons for the Treasury withdrawing its support. The Law Society have called on government to stop delaying decisions on ground rent, adding that it support the addition of amendments to restrict the sale of new leasehold houses. 

“The provisions mean that, other than in exceptional circumstances, every new house in England and Wales will be freehold from the outset. Houses should be sold freehold unless there are specific reasons justifying a leasehold tenure. In the absence of current proposals to promote the use of commonhold tenure, we support the Law Commission’s 2011 proposals to reform freehold law which would enable houses on managed estates to be sold as freehold more easily. We would urge the UK government to include these proposals in this Bill.

Said Law Society president Nick Emmerson.

Linz Darlington, MD of Homehold describes the continued debate as a series of broken promises.

“We are still awaiting the outcome of the Ground Rent Consultation. Recent speculation over scrapping the reforms only creates additional uncertainty for all those in the sector. We urge the government to bring forward their proposals as soon as possible to allow for proper scrutiny,” added Nick Emmerson.

“The government should carefully consider retrospective provisions to cap ground rents in existing leases. The use of retrospective legislation could undermine the reputation of English law and merits further consideration.”

“It’s been less than a year since Michael Gove rolled back on the promise to “Abolish Leasehold”. It’s been less than a week since it was reported that a second promise to “Abolish Ground Rent” on existing leases had been quietly axed. While the Second Reading of the Leasehold and Freehold Reform Bill in the House of Lords was not devoid of positivity for leaseholders, their debate and recent experience simply begs the question: what promise will be broken next?

says Darlington, adding

“A first key promise of the Bill is to abolish a concept called “Marriage Value”. When a leaseholder extends their lease, they pay a sum of money to buy the extra years and buy out the ground rent. It’s likely that the value of their flat will jump up following the lease extension. Under the current law, if the lease is below 80 years, they must also share this hypothetical profit – known as Marriage Value – with their freeholder.

“Several of the Lords across the house are clearly advocating for the Government’s promise to abolish Marriage Value to be watered down or removed. Lord Palmer wanted the abolition of Marriage Value only to apply to leases that have not yet fallen below 80 years. Lord Moylan appeared to want it canned entirely. There seems to be a lack of understanding by legislators of why short leases sell for such depressed prices and Marriage Value exists in the first place. These flats sell at a discount because the buyer knows when they extend the lease they will be lumbered with the cost, the unfairness of the process and both sets of professional fees. Sharing the discount with the freeholder adds insult to injury.

“A second key promise is to make it cheaper to extend your lease or purchase your freehold. Whether or not lease extensions are made cheaper will entirely come down to complex rates – which are missing from the Bill. Labour insist these rates should be included in the legislation itself – to avoid a situation where these can be set behind closed doors and after lobbying from interested parties. Baroness Scott – representing the Government during summing up – insisted the Secretary of State must have flexibility to set these.

“The third key promise is simply timing. Leasehold Reform has been promised since a consultation in 2017, and it was included in the 2019 Conservative manifesto. Thousands of leaseholders have been waiting for years for clarity on these changes before they decide to extend their leases – and all the time their leases are getting shorter and extensions are getting more expensive. As Lord Kennedy pointed out, no clarity has been provided on when changes to lease extensions would come into effect. This means the Bill could be passed, but leaseholders could potentially have to wait for years into the future none the wiser on when the benefit of the promises might materialise.

“To avoid this legislation becoming an “eviscerated bill” , pressure needs to be maintained to ensure no more promises are broken.”

The issues are twofold; a proposed cap on ground rents and plans to reduce grounds to a peppercorn rate would, it was hoped, create an incentive for landlords to offload freeholds to the leaseholders. But with pension funds investing billions in buying up freeholds for blocks of flats, ministers are concerned that leasehold reform could wipe out between £15 billion and £40 billion of investment and disincentivise investment in new developments.

In December Trade body the Residential Freehold Association (RFA) warned that plans to retrospectively introduce a cap on grounds rents would result in investors seeking compensation from the Government. At the time it estimated the cost to be as much as £31bn. Housing campaigners say the potential impact has been greatly exaggerated.

The second issue is warnings from government lawyers that making retrospective changes to property rights could leave ministers open to legal challenge.

Leasehold reform has been a significant part of Michael Gove’s agenda as Housing Minister. In February 2023 he called for the abolition of leasehold, describing it as ‘feudal’, but was forced to backtrack May as abolition was ruled out. Reform has however been on the cards in the months since and was a key part of the King’s Speech in November, with the ‘Leasehold and Freehold Reform Bill’ introduced into Parliament just two weeks later.  It’s introduction wasn’t without controversy though as the landmark bill, which it was said would introduce a ban on new leasehold tenures, had been hastily drafted and omitted one of the key elements of the legislation.

10 Responses

  1. The widespread attack on ground rents being proposed by activists is an attack on the traditional ownership rights of property which is a foundation stone of democracy itself. Freeholders must be compensated fully otherwise the UK will look very much like Mugabe’s Zimbabwe after the conservatives sold out to the liberal brigade to put that thug in power

  2. Pension funds, charities etc “investing” in the freehold of leasehold homes should have expected to see this type of reform come into effect and should therefore not be surprised when their morally reprehensible investments are wiped. Freeholders should be NOT be making money off leasehold home owners. The UK is one of the last countries with this feudal model of home ownership – it has always been a ticking time Bonn and poor investment strategy.

  3. Pension funds, charities etc “investing” in the freehold of leasehold homes should have expected to see this type of reform come into effect and should therefore not be surprised when their morally reprehensible investments are wiped. Freeholders should be NOT be making money off leasehold home owners. The UK is one of the last countries with this feudal model of home ownership – it has always been a ticking time Bonn and poor investment strategy.

    Investment in property has been a part of this capitalist society of ours for years and years and years. You only have to look at Leases over houses in London pre-1900 and Rent Charges in Bristol in the early 1900’s. It is a very very convoluted system to untangle and any government is going to find this hard if not impossible. How do you compensate investors especially pension companies for a loss in investment? I don’t want my tax pounds to go on that. You cannot expect them to walk away with nothing. I like what they have done in making future Lease’s a peppercorn. They have to agree however a cap on existing leases, you will never get those down to a peppercorn just like that. We’ve tried with Commonhold before and that didn’t work.

    We need to live with it and make it work for all stakeholders. I am confident that there are ways around the problems to make it work and there are certain things you can legislate for. Sadly, this Government is extremely slow on the uptake. Reform is needed I agree and I think it will come but it will be in baby steps.

  4. The freeholders, especially pension funds should have seen the writing on the wall and started divesting their investments over the last few years.
    They’ve had adequate warning and should get minimal to no compensation for having their parasitic activity removed.
    How about they invest in skills, manufacturing and infrastructure, stuff that benefits the country rather then holds back the people stuck in these properties?

  5. The freeholders, especially pension funds should have seen the writing on the wall and started divesting their investments over the last few years.
    They’ve had adequate warning and should get minimal to no compensation for having their parasitic activity removed.
    How about they invest in skills, manufacturing and infrastructure, stuff that benefits the country rather then holds back the people stuck in these properties?

    How do you then compensate the innocent pensioners who rely on income from their pensions? Furthermore, once you have invested, if you are told it is a toxic investment and to get out, who replaces that investment? They wouldn’t be able to sell that to anyone else. An element of common sense needs to be applied here. Yes we can all agree that Leasehold reform is required and yes we can all agree things should have been done earlier. I don’t want to see Leaseholders lose out but I also don’t want to see investors/pensioners lose out. Due to the complex situation there needs to be a compromise otherwise a lot of public money will have to go in to compensating people.

    1. Simply by offering the freehold to the leaseholders at an adequate discount, does take much to figure it out. No, they sat on it hoping that the issue would disappear.

  6. This reform has been on the cards for years, my leasehold was traded to a new provider and have had nothing but problems since ie trying to force me to use their insurer at a riduculous cost vs market and being unwilling to negotiate on the cost of enfranchisement. I have waited 5 years for reforms to come into force and as others have mentioned enough time has elapsed to look elsewhere for investment returns by now – leasehold needs to be consigned to the history books to allow a basic freedpm to be enjoyed by all.

  7. If the investment is with no risk then by definition is not an investment but an extortion. The privileged classes who were able to get hold of freeholds in the first place did so in the belief that they were immune from any modernization. Nothing to do with property rights., democracy, human rights and such self righteous piffle.

  8. This deeply unfair system that allowed obscene fortunes to be made off the backs of leaseholders needs to be wiped off. It’s a criminal system that kept millions in poverty and financial insecurity. The conservatives only legislated in favour of their buddies. Out with the lot of them, time for deep reform.

    1. I totally agree it’s a deeply unfair system run by criminals. Currently my bully freeholder is making my life hell, hoping I’ll give in and sell so he can redevelop and make a profit.
      The property is being deliberately run down, damage to my property, threats and stalking. Its time the law stood up to these bullies and the freehold system abolished.

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