The leasehold reform dream could be over for leaseholders across the country, as the Treasury fears the move would have wiped up to £40bn off pension fund investment. That is according to a report in the Sunday Times yesterday.
The National Leasehold Campaign (NLC) responded last night by saying it is “disappointed” to hear that the government is allegedly going soft on leasehold reform.
A company spokesperson said last night: “We know that thousands of leaseholders have responded to the government’s Ground Rent consultation, explaining in their droves why existing ground rents need to be reduced to a peppercorn to avoid the inherent unfairness of a two-tier system now that ground rents are limited to a peppercorn on new build properties.
“It is extremely frustrating that, if the rumours are true, the Treasury and the prime minister have been hoodwinked by sector lobbyists who have no regard for the leasehold misery faced by millions of leaseholders across the country. It also seems they are running scared from legal challenges funded by freehold investors with skin in the ground rent game and deep pockets.
“We believe that retrospective action on ground rents would have no material impact on pension schemes, and those pension schemes that do have ground rent investments should be reassessing them – no reputable company with a responsible and ethical investment strategy would invest in ground rents if they saw first-hand the misery they cause and the deplorable sales tactics that have led so many leaseholders to have onerous ground rents.
“With a general election looming, abandoning a manifesto commitment that would help thousands of leaseholders is just pure folly.”
Tories accused of ditching manifesto pledge to scrap ground rents
I can see why the NLC might be disappointed in Gove backtracking, but perhaps they should have lobbied for more sensible change. I can only assume that the people in NLC are young, as otherwise, I don’t know how they can be so cavalier about pensions. £40bn (as estimated by the Treasury) would be the difference between penury and comfort for many pensioners.
Pensioners have paid their dues. If “living a life a misery” is unavoidable, where should the misery fall? With pensioners who’ve worked hard all their lives, and planned for their retirements, or with leaseholders who were legally advised before exchange, and either didn’t take the time to understand what was being advised, didn’t care, or had a plan, but didn’t see it through?
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Or weren’t told by the professionals they paid to advise them.
There are a couple of duty of care issues buried in the post Grenfel tragedy leasehold shenanigans, from building control allowing councils and developers to bling up their high rise homes with flammable claddings, mortgage surveyors missing that flammable cladding meant the homes they were approving mortgages on weren’t worth as much as they were being sold for and the purchaser conveyancers who missed the maths of a service charges that compound doubles every 7 years or so.
A lot of people have an issue with the reversion to freeholder in 25 generations time- but what most people don’t realise is the service charges and sinking fund chaos they’re signing up to.
I wonder what the cost to the building societies will be if every leaseholder defaults on the unsaleable homes, I’m guessing they will take the home on their books, rent them out and find a way for everyone to pay for a series of professional failings
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100%. The issue I have is people not wanting to take responsibility for their own actions/decisions. If the legal advice is at fault, then, that could be a major issue, as after 6 years, it is most unlikely that any Indemnity Insurance will be on the line.
For decades/centuries, leaseholders were ‘ok’. They knew what they were buying and all seemed fine. Now there’s a problem, all of a sudden. I get that greedy developers did try some hoodwinking, but in the main, they’ve now put things right through Supplementary deeds.
I probably don’t fully understand the issue, but I doubt it is as widespread as to justify a change in the fundamentals of property law, and I speak as both a freeholder and leaseholder, who would be a massive net beneficiary from what was proposed, as I’d be ‘unjustly enriched’.
I am all for fairness, and what Gove promised was bonkers. Even a good 6th Form Economics student could have probably told him that.
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No, you don’t understand anything about the current state of leasehold in England & Wales. By the way, we are the only 2 countries still forced to keep leasehold. Why?
If Scotland can change it, why can’t England & Wales. Surely, the pension funds were invested in Scottish leaseholds!
We always knew the freehold lobby would use its financial and political muscle to try to kill off these reforms, and it looks like they have succeeded.
Yes, leasehold was ‘OK’ for hundreds of years, but for the past 20 years or so, the big developers monetised leasehold by selling the ground rents through a loophole [deliberately included in legislation?] to ground rent investors, including pension funds, but primarily offshore funds who saw ground rents as a low cost, zero risk, and highly profitable venture. The ground rents wee no longer ‘peppercorn’ as they had been, but we based on rapid accelerators such as doubling and RPI every few years. The law then allowed freeholders to repossess [typically] flats if leaseholders defaulted on paying, even if they had paid off their mortgage. The reality was this forfeiture rarely happened because the lenders would pay the debt and add it to the mortgage. But the lenders then refused to lend on these compromised leases, which meant properties dropped in value, and couldn’t be remortgaged or sold. This has lead to negative equity for many. Meanwhile, the freeholders’ managing agents saw the chance to levy huge fees because the law allows it, and if challenged, they resort to legal tactics which leaseholders can’t afford. Not only that, the agent’s legal fees are charged to the service charge account and paid for by the very leaseholders who they are ripping off. Also, you may have hears about the new law banking insurance commissions. Why, you ask. Because, managing agents will find the policies with the highest commissions, which are at the highest premiums. These premiums are paid by the leaseholders, while the agents keep the secret commissions. If the leaseholder is paying, the commission should be returned to the service charge account.
I could add many more ways freeholders and managing agents are destroying the lives of leaseholders, but perhaps this gives you a little insight into why the law must be changed.
When all financial companies are being forced to examine their ESG investing strategies to avoid business activities with certain environmental, social and/or governance characteristics, I would have thought leasehold, and the serious damage it is doing to the health and financial wellbeing of millions of leaseholders, should be at the top of insurers’ priorities for exiting that market. If not, investors in those pension funds need to be taking their investments elsewhere.
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Colour me utterly surprised.
What politicians promise and what they actually deliver are rarely even close.
Being so bombastic about something as complicated as Leasehold was always foolish.
Don’t get me wrong, I would love for the leasehold problem to be sorted, but unless someone has a magic wand then it will have to naturally take time.
2025 is the 100th anniversary of the Law of Property Act 1925 when 14 different types of property ownership and tenancy were condensed into just two, Freehold and Leasehold.
It’s simply not possible to unravel 100 years of history at the swish of a fountain pen.
It would be much more sensible to state that by “such and such” a date, this, that and the other will happen, and then put a transitional framework in place for the interim.
Instead, what we have is politicians trying to buy votes with click-bait solutions.
I’m sick to the back teeth with our politicians – reminds me about a comment from Douglas Adams about when the revolution comes…
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Not Anonymous Coward at all, but Truth Teller . Again, I agree 100%!
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The main problem remains is that Granny just won’t do the decent thing and die. Increased life expectancy have forced pension funds to turn to ever more extreme ways to increase their returns to cover the needs of pensioners.
Until a way is found to compensate the pension funds who are directly and indirectly funding the ground rent industry then the misery will continue.
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“street was sold to an offshore tax haven – now we’re trapped in our un- mortgageable homes”
“In 2014 the freehold of more than 70 homes in three streets in Cornwall – built as affordable shared ownership schemes – were transferred to the British Virgin Islands.”
“In 2019, the freehold of Pentowan Gardens was sold to Estates & Management Ltd which is part of the Consensus Business Group and manages assets that belong, ultimately, to Vincent Tchenguiz’s Tchenguiz Family Trust based in the tax haven of the British Virgin Islands.”
“ Mr Tchenguiz – a British-Iranian billionaire property tycoon – is also a major Conservative party donor.”
Only saying..
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I hear you, but the current owner of the freehold is not really relevant to the terms agreed when the lease was created, or assigned, no?
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Correct, but the terms of leases over the past 20 years have been deliberately written to encourage growth in the ground rents investment market. Take one issue, which is responsible for the stagnation of the market in flats; the setting of the ground rent to effectively create an AST. The law states if a ground rent is £250 outside London or £1000 inside London, it effectively becomes an AST, and freeholders are entitled to forfeiture. Also, applying accelerators to ground rent increases which were never heard of when there was no market in ground rents. This pushes ground rents up to the point where they will be £000s per year, and unaffordable many, especially pensioners. If they can’t pay, and there’s no lender involved, the freeholder can take the property, even if the leaseholder has paid off their mortgage. Also, the ground rent s will have been purchased at a fraction of the return on investment the freeholder will be making. To say they are losing their investment is disingenuous. Their investment was minimal, and they have made their money many times over.
This is immoral, and pension funds have no place in trading in them.
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