The proposed leasehold reforms, championed by the housing secretary Michael Gove, could still become law today.
Legislation is currently being rushed through as Friday is the last day MPs will sit in parliament before the election.
The Leasehold and Freehold Reform Bill promises to scrap leaseholds on new houses but not new flats, which make up 70% of leasehold properties. Given that the bill is still at committee stage in the House of Lords, where peers will consider it in detail, it was considered unlikely to make the wash-up period.
However, the bill to reform leaseholds will now be debated in the House of Lords on Friday. Labour sources have indicated that while they want to strengthen the bill, they are prepared to back the legislation as it stands.
Tory MPs had threatened to rebel in recent months over the government’s leasehold and freehold proposals.
In a letter to Chancellor Jeremy Hunt earlier this month, more than 30 Tory MPs stated their dissatisfaction with the current leasehold system and implored the government to scrap ground rent on leasehold properties.
Currently, there is no cap on the amount freeholders can charge existing leaseholders for “ground rent”.
It was widely reported recently that annual charges levied on leaseholders would be capped at £250 rather than being cut to zero, or “peppercorn” rate, as first outlined in the Conservative 2019 manifesto.
Gove, who last year referred to leasehold as a “feudal system that needs to go”, has faced opposition from Treasury to his plans. Given that insurance funds have invested huge sums in ground-rent portfolios and an internal Treasury analysis suggests that up to £37bn of investment could be wiped out, which may lead to compensation claims aimed at the government.
There are close to 5m leasehold dwellings in England, according to Department for Levelling Up, Housing and Communities data published last May, which is 20% of the English housing stock, and so naturally scrapping leaseholds would prove to be a popular policy with potential voters.
Former housing minister Robert Jenrick is among those that wants to see the leasehold system scrapped altogether.
“It’s an affront to the Conservative dream of homeownership, it’s not fair and it’s not right,” he said.
Harry Scoffin, founder of campaign group Free Leaseholders, said earlier this month: “Every single Conservative MP elected in 2019 stood on a manifesto committing their party to restricting ground rents to a peppercorn, or zero financial value.
“The Conservative Party has a clear choice: it is on the side of young homeowners and aspiring first-time buyers, or rent-seekers, extortionists and middlemen? Rishi Sunak must hold his nerve and stand up for the little guy.”
For anyone to expect that freeholders should just give up all their future income from ground rents when they have bought the freehold with that income as a large part of the value is utterly ridiculous. I agree wholeheartedly that ground rents should be capped, and £250 pa is a good start as it stops properties getting caught us in the Housing Act 1988. All new properties should have zero ground rent without doubt. But how do you compensate an investor who has been buying freeholds with high ground rents for their pension/investment? Is it fair to just change the law and bankrupt them? How would any of us like it if the law was changed and all money in all savings accounts was deemed to be unfair to the younger generations so was reduced by 90% and distributed equally amongst all under 30’s as deposits on property purchases? Might sound ridiculous but it’s the same sort of State Regulation as is being proposed. Or how about that it’s not fair for older couples to stay living in houses over 2 bedrooms so they are forced to sell them once their children have moved out? These kinds of laws are not in line with free trade, democracy and capitalism. Be careful which path we go down here.
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PS. Neither I nor any of my family own freeholds!
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Clearly you are not a leaseholder, either.
As a result of ground rents being monetised as an additional profit stream by developers, who used a loophole to circumvent the law, Freeholders were given the opportunity to purchase ground rents at ridiculously low prices, and in return, are entitled to charge increasing ground rents, often doubling in 5 years, and outrageous service charges contrived to force leaseholders into ill-health, bankruptcy, and default. Guess what the happens to the property? The freeholder gets it for free! And even when a leaseholder successfully challenges a service charge demand, the losing freeholder has their legal costs paid by the winning leaseholder. Fair?
As to government changing the law which affects someone’s investment, they do it all the time. S24 was introduced which penalises private landlords who invested in rental property knowing they could claim back the mortgage interest as business financing. The government removed the relief for unincorporated landlords. No consultation! And how about Gordon Brown’s raid on the pension industry, which seriously damaged pension funds. Again, no consultation!
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Rushed legislation is nearly always bad legislation. I am 100% for leasehold reform, the overall system is actually very useful for enforcing conduct within a shared space, but the monetary inequality must be removed.
Imagine being the leaseholders of a block of say 20 flats.
The freeholder was doing a horrendous job of looking after the building so you decided to enfranchise (buy out the freehold) so that you could do the job properly and not get ripped off.
You clubbed together to enfranchise and paid a total of £250,000 for the freehold because some of the flats had short leases (therefore marriage value was payable) and some of the flats had big ground rents. Valuation and legal fees were a total of £60,000 (you had to paid the freeholder’s costs too).
If all 20 leaseholders had taken part that would be an average of about £15,500 each including the valuation and legal costs.
However, only 11 of the leaseholders took part because the other 9 didn’t have the money at that time.
That means that the 11 leaseholders actually paid an average of approx. £28,200 each including legal and valuation costs.
Under the new legislation, the 9 remaining leaseholders may now be able to get really cheap lease extensions for a fraction of the cost that the other 11 actually paid. No marriage value would be payable, the ground rents will be capped and the freeholder would have to cover their own costs.
The 9 remaining leaseholders might end up paying a total of £6-7k each to their freeholder (the other 11 leaseholders) rather than the full value of the lease extension – a loss of approximately £10-15,000 for each one.
How is that fair…?
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My son has a leasehold property in a victorian house split into 3 flats. One flat owns the freehold and abuses the maintaining of the building using his own overpriced trades. Will the new leasehold act help his situation. Any advice will be very appreciated? Many thanks Geoffrey
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There was a hope managing agents [including freeholders] would be controlled but I doubt it will happen. Have your son and fellow leaseholders considered RTM and self-managing?
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Hi Thanks for your message. I don’t know what RMT and self management are, so I couldn’t say I know if they have considered it as an option ?
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RTM is the Right to Manage, whereby 50% of leaseholders can legally taken over the management of their property. It is a set process and you would be advised to use a specialist, but the freeholder cannot prevent it happening. As he represents only 25% of the leaseholders [assuming he even has a lease], your son and fellow leaseholders will be able to stop his price gouging. He will probably kick up a fuss, but the law is on their side. They can then choose to self-manage or outsource to a managing agent under their control.
I’ve done it twice and our service charges are significantly lower.
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Brilliant. That’s very helpful and I’ll pass on the advice. Many thanks Geoffrey
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It might do. I recommend that you visit the Leasehold Advisory website for some more information.
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Join the #NationalLeaseholdCampaign. Plenty of free advice from the members of the organisation behind the push for leasehold reform.
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My dad is 89 he moved to a Mcarthy & Stone retirement flat when my mum passed away 6 years ago. He needed company, comfort and relative safety. He bought his flat which is 2 bedroomed outright. Sometimes i need to stay over. As he has a 2 bed he has to pay 1.5x service charge compared to 1 bed. Why is this? He uses same lift, communal area, garden, warden as the others. The fees are ridiculous, £5000 a year plus ground rent. If he didn’t live there he would be in an old peoples home as he can’t maintain a house alone, this needs looking at. I am dreading when i lose him as i still have to pay these charges on an empty property even though no services are being used and i have no money myself.
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Thank God for the new Law.
The English leasehold system is nothing short of a cunning scheme concocted by the elite lords during the colonial era.
The antiquated system, which continued to prevail for centuries deserved an immediate abolition.
One victim of this nefarious scheme is a resident in Kensington who had the balls to question a sophisticated dishonest management regarding the abysmal lack of service and the ever-increasing service charges of £35K per year. However, instead of the self elected management addressing the concerns raised, he was met with an eviction notice and SLAAP injunction forbidding him from speaking out against them and the whereabouts of the missing millions from the trust fund.
What’s even more appalling is the staggering revelation that the same management has squandered a jaw-dropping £2.6 million on 4 years of legal costs for their 26 lawyers at Russell Cooke LLP in a relentless pursuit to recover a measly £354 in interest.
This brazen misuse of the Leaseholders funds served only to shield themselves from the watchful eyes of the the law while shamelessly lining their pockets with the hard-earned money of absentee and frightened residents, all intended for the well-being of an iconic historical building Albert Court.
Today’s decision was long overdue and time has finally come to expose the Carthaginian injustice that protected the rogue lawyers and their disgusting clients who can’t escape accountability anymore.
The exploitation of vulnerable widows and tenants is now coming to an end and must end quickly, the archaic law of freehold/ Landlord system must be abolished once and for all!”
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Leaseholders have, yet again, been betrayed. The Bill was so diluted by the government, that it was hardly worth the time to rush it through ‘wash-up’.
No improvements to ground rent. No control of managing agents.
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I don’t think it is right to blame lawyers for doing their Job. A lawyer that defenses a terrorist is not a terrorist. The law has always been the problem and as you rightfully point out it has been written to protect the interests of the wealthy and corporate class. This is a start and hopefully Labour will fullfil their promise to finish the job.
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Agree
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