Ending leasehold’s ‘industrial-scale racket’

Originally posted on July 12 on my blog for Inside Housing.

As far back as I can remember, every government has promised to tackle abuses of our outdated system of leasehold.

Between 1979 and 1997, the Conservative governments of Margaret Thatcher and John Major legislated four times on leasehold reform.

The Labour government of Tony Blair promised ‘a comprehensive package of leasehold reforms’ in 2000 and introduced the alternative system of commonhold in 2002.

Piecemeal reforms improved things a bit for leaseholders but commonhold has still only been used on 50 developments at an optimistic estimate – in contrast to the expansion of similar tenures like strata title and condominiums across the rest of the world.

Little wonder when leasehold offers so many advantages to be profitably exploited by landowners, housebuilders and freeholders.

Now, in the wake of the twin scandals of cladding and leasehold, all that could – finally – be about to change.

The Competition and Markets Authority (CMA) was first out of the blocks last month with an investigation of potential leasehold mis-selling and unfair terms.

Then the government published a consultation outcome that promised (again) an end to the sale of new build houses and zero ground rents on new leases.

The latter was the original plan but had been amended to ground rents capped at £10 a year, a change that sounded insignificant but which leasehold campaigners argued would allow the whole exploitative system to continue.

But help for existing leaseholders was in much shorter supply – the government seems intent on voluntary deals with developers and freeholders; content to wait for the CMA’s report on outrageous fees; and intent on ignoring the issue of forfeiture of leases.

Meanwhile the outcome of a pledge to ‘reinvigorate’ commonhold in line with Law Commission recommendations remains to be seen.

And last week the government responded to a Housing, Communities and Local Government (HCLG) Committee report rejecting the MPs recommendation that leasehold should be described as ‘lease rental’ to make clear that it involves the sale of a long tenancy rather than conventional home ownership.

Labour would go much further, with a policy document this week proposing to end the sale of new leasehold houses immediately and end the sale of new leasehold flats in favour of a reformed commonhold within its first term in government.

It would also act to protect existing leaseholders by allowing them to buy their freehold or commonhold under a simple formula capped at 1% of the property value.

Ground rent would be abolished for new leases and capped at a maximum of £250 a year for existing ones and the party would also crack down on unfair fees and contract terms and give residents new rights on the management of their homes.

All this activity shows how rapidly leasehold has moved up the political agenda thanks to a combination of the Help to Buy scandal of escalating ground rents and the cladding scandal that has left leaseholders facing large bills where developers and freeholders refuse ministers’ pleas to ‘do the right thing’.

Labour’s more radical plan highlights the fact that the government has still not got ahead of either scandal, acting too late on new leaseholds while doing little to protect existing leaseholders.

But as all that previous legislation shows, leasehold has been a lot easier to condemn than it is to reform.

While leasehold itself dates back to the Domesday Book, the roots of the system we have now go back to the 19th century when it allowed big landowners to retain their underlying ownership of land while selling off a time-limited interest in what’s built on it.

As the common terminology of enfranchisement suggests, it was also intimately linked with the extension of voting rights so the electoral appeal of reforming it now is possibly not a coincidence.

If the long history of leasehold suggests a need for caution about the prospects for reform, this is not just about the home ownership (or even lease rental) sector. There are important considerations for social landlords too.

The government consultation paper proposes exemptions to the leasehold ban on new houses for shared ownership and community land trusts – but shared ownership would not be exempted from the proposed zero ground rents.

Labour’s document does not mention any specific exemption for shared ownership but the implication is that it would be covered by the new commonhold system.

And, in addition to the usual housebuilder and freeholder suspects, the HCLG committee heard evidence of abuses of leaseholders by big housing associations – from being treated as cash cows for maintenance to being charged for parking facilities that did not exist.

However, the real impetus for leasehold’s move up the political agenda has come from the behaviour of the big housebuilders.

In a Commons debate yesterday, MPs from all parties and implicated most of the biggest beneficiaries of Help to Buy in the new-build leasehold scandal while praising the work of campaigners from the Leasehold Knowledge Partnership and National Leasehold Campaign.

Tory MP Fiona Bruce raised the case of a couple in her Congleton constituency who bought a new home for £230,000 in 2011. The bill for ground rent will come to £186,000 over their lifetime and £1.8m over the 250-year lease. The alternative is to pay £30,000 to buy the freehold, six times more than they were advised it would cost when they bought.

Labour MP Jonathan Reynolds said residents of a block of flats in his constituency were quoted £32,000 to paint their communal hallways. ‘Frankly they could be painted with gold and it should not come to £32,000.’

Labour’s Jo Platt – a leaseholder herself – said you would be pushed to find anyone in her Leigh constituency who is not affected given that two-thirds of property transactions there now come with a leasehold.

And Labour’s Justin Madders (Ellesmere Port and Neston) said the CMA needed to consider evidence of wholesale exploitation by housebuilders with leases ‘optimised’ for charges and fees.

‘There is clearly an industrial-scale racket going on, and it is important for the future of the industry that we get to the bottom of it and make sure that they never get the chance again.’

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