Leaseholds should not exist. Can a cross-party campaign to phase them out succeed?

Johnson out, Truss in, Truss out, Rishi Sunak in, economy on the ropes - we’ve been through a lot since the Conservative government began its most recent spiral. But one group among us has been looking on with particular consternation. “Devastated,” is the word one leaseholder uses.

That is because campaigners had thought they were about to get somewhere in reforming England and Wales’ bizarre, broken leasehold system. 

Lisa Nandy, Labour’s shadow levelling up secretary, stood up in the Commons in June, calling leasehold a “feudal, archaic model” and noting that almost every other country had already reformed or abolished it. But she was only echoing the language used by the government – in 2017, Sajid Javid, then communities secretary, promised to end “feudal practices” in leasehold. 

The government had been working on legislation meant to chip away at some of the worst problems, and 186 MPs from across the political spectrum have joined an all-party parliamentary group on the issue. At last, some headway seemed to be being made. But as political chaos has met economic disaster, all that has been thrown into jeopardy.

Now, with Michael Gove - probably the strongest advocate in government for leasehold reform - back for a second stint as housing secretary, some are hoping that the government will do something even more radical. Many campaigners want the very concept of leasehold to be scrapped, and replaced with an alternative way of owning flats - commonhold.

What's leasehold – and what’s so wrong with it

Leasehold, as we know it, exists only in England and Wales, having been scrapped or reformed in the rest of the world. Between them, the two countries have nearly five million leaseholders. While the leasehold is widely seen as a form of home ownership, it is in fact a very, very long rental - in the form of “ground rent” paid to the freeholder, who is the actual "owner" of the building because they own the land the building is on. 

This distinction is not just antiquated, it's ancient. Freeholds were mentioned in the Domesday Book in 1086, and lawyers say it has its origins in agricultural workers leasing land from estates in the 11th century. Leaseholds really started taking off in the middle of the 20th century, in the post-war building boom. The first leasehold scandal occurred almost straight away, in the 1960s, after elderly leaseholders started being evicted from their homes when their leases ran out. The 1967 Leasehold Reform Act gave the first right for leaseholders of houses to buy their freehold. Then, in the 1980s, leaseholders were given a right of first refusal if their freeholder wanted to sell the land. In 1993, leaseholders were given the ability to extend their lease or buy the freehold, if more than half of them agreed.

But in the last five years, two scandals have again made the problems with leasehold a matter of political urgency.

The first is widely and tragically known. On Wednesday, 17 June 2017, the Grenfell Tower fire killed seventy-two people. The defects in that building included the use of deadly, flammable cladding - cladding which had been used on hundreds of other buildings. 

The situation for leaseholders in blocks with dangerous cladding was dire. They were not only now having to live with the fear of a deadly building, they were also lumbered with huge bills to fix the problem. Their stories started to gain attention. Sophie Bichener received a bill for £208,000 to cover the costs of fixing her flat in Stevenage, which she had bought for only £230,000 just before the Grenfell fire. Leaseholders were being asked to pay not just to fix the cladding and other fire safety issues that emerged, but for ‘waking watches’ to monitor their buildings for fire around the clock until the work could be completed. 

The problems also caused a meltdown in the sales market, with mortgage lenders unwilling to make loans on flats unless their safety had been certified. The situation was so bad it prompted the creation of the End Our Cladding Scandal campaign. The Building Safety Act came into force earlier in 2022, finally making it law that leaseholders in buildings over eleven meters tall aren’t financially responsible for making their buildings safe. At the end of November, the government began its first case under this act, aiming to force freeholder Grey GR to fix fire safety defects in eight blocks, it took out a court order relating to Vista Tower in Stevenage, Hertfordshire. The Times reports that the 100 residents of the tower are facing bills of up to £208,000.

To give a sense of the scale of the problem, more than 1,000 buildings have made applications to the government’s Building Safety Fund - one of two funds to remediate cladding problems similar to Grenfell - but as of the latest figures work has been completed on only seventy-one of these. 

While all this was going on, another leasehold scandal was brewing. 

Towards the end of 2016, and start of 2017, media investigations found that mass housebuilders had been selling newly build homes with doubling ground rent. The leaseholders stuck in these homes have become known as “doublers”. An example found by consumer champion Which? found a home with an annual ground rent of £295 in 2008 would reach nearly £9,500 a year in 2058. 

As stories of “doublers” started to gain attention,  the Competition and Markets Authority investigated the issue. By December 2021, it had signed an agreement with Taylor Wimpey, one of the biggest housebuilders, that said it would not collect ground rent beyond that set out in the initial lease, with immediate effect. In August, the CMA said it had also reached similar agreements with nine companies that had bought freeholds from Taylor Wimpey, while four more developers - Crest Nicholson, Redrow, Miller Homes and Vistry - said they would work with companies that bought their freeholds to remove doubling terms. 

These two scandals have turned the spotlight on the leasehold mechanism itself. What that spotlight shows is an even larger, fundamental problem dogging not only those living in poorly constructed new flats, or with onerous ground rent clauses, but the entire system.

The problem runs deep 

Consider the situation faced by Katie Kendrick, one of three self-described “northern mums” to launch the National Leasehold Campaign (NLC). Back in 2014, Katie bought a new-build property from housebuilder Bellway. “I knew it was a leasehold. But there were no other new build properties in the north west that were not. The sales lady told me to not worry and said you can buy the freehold in two years for a couple of thousand. That was all done verbally. I didn’t look into the long-term implications of leasehold,” she explains.

Katie had to buy a new-build home because she needed to make use of the government’s Help to Buy scheme for first time buyers, where the government provides a 20% loan, meaning the buyer only needs to find a 5% deposit. The scheme was only applicable to new-build properties.

“The freehold got sold on to an investment company and everything changed from that point,” she explains. Even though Katie didn’t have an onerous doubling ground rent, and describes her situation as nowhere near as bad as others, the freeholder raised the fees for leaseholders to do things like build an extension. The cost of buying her freehold rose from the few thousand she had expected, to £13,000.

“I set up a local Facebook group, and all these other people from around the country began to join. I somehow opened up Pandora's box. I just thought it was a local issue but it’s a national scandal on an epic scale,” Katie says.

“The whole leasehold system is so unbalanced,” she adds. For example, leaseholders with problems with their freeholder – for example who feel they are being charged unfair levels of service charges – are able to go to a First Tier Tribunal to seek resolution. But, Katie says, “it costs so many thousands of pounds to challenge a fee, it’s not financially viable to go down the route of questioning them. The freeholder has all the money to defend themselves. The First Tier Tribunal is a revolving door.” In many cases freeholders can simply claim their legal expenses in service charges, further escalating bills faced by leaseholders.

Posting on the NLC’s Facebook group for leaseholders to talk to for this story results in a deluge of replies from people desperate to talk about their own problems in the hopes publicity could lead to some kind of resolution.

Wendy Bowen is an older woman whose maisonette has been plagued with escalating service charges. In her case, the family believes that she may even own a share in the freehold, but the situation is so complex that this hasn’t been established.

“When they first bought the house the service charges were about £50 a month, they were both retired on a pension. Now my mum’s on her own, it’s over £3,000 a year,” says her daughter Linzi. The charges are unaffordable and they've made the two-bedroom property hard to sell. This leaves Wendy feeling trapped in her home. “All I care about is my mum getting out of that situation. She’s so low from losing my dad, then Covid and then trapped as a leaseholder. Seeing her in her twilight years is hideous. It’s just so horrible. It shouldn’t be happening. There must be a way to get this regulated.”

Another leaseholder hit is Anna Scoffin, who lives with her grown up children in a central London three-bedroom flat. “My service charges are spiralling,” she says. “It’s a no-frills block, I don’t have a pool, a gym, or a garden. There’s no capping, no control over the amount I’m spending.” Last year, the family had to pay £26,000 in service charges, and this year it has risen 20% to £30,000.

Because the flats share the building with a hotel chain, they are not able to even consider the current exit route for leaseholders: scraping together and buying the freehold. They had been pinning their hopes on government plans to reform leasehold – the second tranche of which was expected to be announced in the Queen’s Speech on 11 May. Leasehold campaigners had been led to expect legislation that would help some existing leaseholders, including a change that would allow them to club together and buy the freehold of their building as long as residential apartments made up at least 50% of the building - an improvement on the current rule, which effectively sets the bar at 75%. 

“We were watching the Queen’s speech, we were quite excited,” Ms Scoffin says. But then, the leasehold reform legislation was left out.

“We were promised it [the legislation abolishing new ground rent] would be followed up swiftly by the second part of the legislation,” says Ms Kendrick from the NLC. Because it was left out of the Queen’s speech, this has put back the timetable, and the first time legislation could go to the Commons is 2023-24. 

“They’ve been promising this since 2018. Next year they’ll be preparing for a general election,” Ms Kendrick notes, wearily.

Leasehold campaigners still don’t know what happened – it seems leasehold reform was meant to be included, and the media was briefed on it ahead of the Queen’s Speech. Ms Scoffin’s son Harry says: “While the ground rent is so historic and important, for the future, we need action now for those existing leaseholders who are trapped in this corrupt, inefficient system.”

 

A new push for reform 

The first step in reform scraped through this summer just before political chaos engulfed Westminster. On 23 June, the Ground Rent Act came into force. This abolishes ground rent for new leaseholders, which could be seen as a significant step. Ground rents are a lucrative income stream for housing developers and investors that specialise in buying freeholds, and without removing them from the equation, there would be no interest in moving away from leasehold. Ground rents are not linked to any service provision or maintenance.

When the next stage of leasehold reform didn’t make it into the Queen’s Speech, the-then housing minister Eddie Hughes said to Parliament: “In the next Parliamentary session we will legislate to reform the leasehold system, including by supercharging leaseholders’ ability to buy their freeholds, helping millions of households genuinely to own their own home.” Now, with Michael Gove back in as housing secretary for the second time, campaigners are more hopeful - as he had previously championed action for leaseholders.

Government had set out what leaseholders should expect from reforms. As well as making it easier for leaseholders to buy their freehold. In cases like Ms Scoffin’s where a large part of the building floorspace includes commercial operations, campaigners were also expecting the abolition of “marriage value” – a system whereby it becomes much more expensive to extend your lease if it falls below eighty years.

Existing leaseholders celebrated that ground rent on new homes has been abolished, saving future leaseholders from being stuck in spiralling situations. But they’re worried the change will make their homes even harder to sell. 

“When this Ground Rent Bill comes in, it creates an even bigger two tier system. Who is going to want to buy a house with a ground rent attached? We were promised it would be followed up swiftly by the second part of the legislation. [Now] we have to wait until next year,” Ms Kendrick from the NLC adds.

The long-term solution would be, as other countries have done, to phase out and replace leasehold with something called commonhold. Under commonhold, the individual flat owners also own the freehold. Buyers purchase a ‘unit’ in the building, and become members of an association that owns and manages the common parts of building, including the walls, lifts and stairs. 

Unlike a leasehold, it’s not limited in time. And also unlike a leasehold, it’s not a weird hybrid of mediaeval England meeting post-war Britain. It is the system commonly used throughout the world - for example, the condominium system in the United States.

Of course, disputes could and do arise still. But campaigners such as Ms Kendrick from the NLC argue that the pitfalls are less, and commonhold would take out the financial incentives that lead to freeholds being bought and sold by investment companies with little inherent interest in the maintenance of the building. It also would put residents in charge.

So far though, commonhold has had a slow start. Even though it has been possible to build commonholds since 2002, the Leasehold Charity says only 15 have ever been built – listing all of them on its website. Housebuilder Stewart Moxton is one of the few giving it a go. Himself a dissatisfied leaseholder, Moxton set up the company Hopton Build in Yorkshire to build and sell commonhold homes. Yet, he said on Twitter, buyers experienced such problems with purchasing the homes that the experiment might not be repeated. “The solicitors and professional valuers are very negative. Our last buyer even had to sign a disclaimer against the solicitors confirming,” Moxton wrote.

“We need to get commonhold working and viable before anyone will be brave enough to move across to it,” Kendrick says.

Meanwhile, millions of leaseholders continue to wait for further action to help their situation. The impacts are certainly financial, but also a huge strain on the mental health of leaseholders. Many feel trapped in their homes, with limited options to get out of the situation unless the government intervenes. As Linzi says, “If my mum does manage to sell and spends every last penny living a better life I don’t care, I just need her to get out of that leasehold property.”

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Correction: an earlier version of this article said campaigners were calling on the government to allow leaseholders to buy the freehold of their building if residential apartments made up at least 25% of the properties. The actual figure is 50%. We regret the error.