|Updated:
By: Amber Murray
Retail Reporter
For a policy with rare cross-party support, reforms to the leasehold system in the UK have taken a surprisingly long time to sort out.
Reform nearly happened under the previous prime minister Rishi Sunak’s government, but changes were watered down by the time the bill came to be passed.
In the King’s Speech, the Government finally outlined plans to phase the “feudal” system out of England and Wales.
But, why has it taken so much time?
A short history of leasehold
Leasehold allows the homeowner to own the property only for the length of time set out in the lease. It has been described as “feudal” by housing campaigners as it forces the leaseholder to pay expensive ground rents and service charges to freeholders, who own the building or land on which the property is built.
The idea of lease-holding is quite literally medieval: it comes from peasants’ paying landlords with grain for the use of their land.
The modern system of long leases with ground rents, however, was only introduced in the 1920s. Post-war construction in the 50s then created a dramatic increase in leasehold flats, which is part of the reason the leasehold system affects more flats than houses.
Leasehold arrangements continue to face criticism for the power imbalance between tenants and landlords. Tenants’ concerns range from high fees for alterations to forfeiture rights and building defects.
There are around five million leaseholds in England and Wales, with 3.4m of those in cities.
Why did leasehold stick around in the first place?
A big part of the reason that the leasehold system has kept going in England is simply “political continuity”, director of Leasehold Knowledge, Seb O’Kelly, said. “We managed to change our government without killing each other – leasehold doesn’t exist in Western Europe because of the French Revolution.”
“In any other capital city in the world and elsewhere, people have insisted on owning their properties correctly.
Whereas here we’ve been fogged off through a good deal of marketing and clever sophistry from lawyers into accepting long tenancies, which is all that leasehold means,” he said.
Leasehold’s age also makes it complicated and anachronistic.
“The fact it’s taken us 15 years of work to persuade the government of the need for radical reform is partly because it is so complex,” chair of trustees at Leasehold Knowledge Partnerships, Martin Boyd, added.
Part of the problem is pressure from vested interests, too: “It’s a multi-million-pound industry now…We’ve created so many of these tenancies that the political pressure is enormous,” founder of Free Leaseholders Harry Scoffin said.
Attempts to reform leasehold
Bills in 1967, 1987, 1993 and 2002 all tried to reform the system, with varying degrees of success: by the time David Cameron took office, leaseholders had a right of first refusal where landlords wished to sell their freeholds, and could extend their leases or acquire their freehold.
However, problems persisted: ground rents swelled – as did grievances over the forfeiture system – and commonhold failed to take off as a viable alternative.
England’s flat leaseholders paid £7.6bn in service charges in 2023 alone, according to Hamptons.
Michael Gove attempted to introduce a swathe of radical reforms during Rishi Sunak’s conservative government, but ended up rushing through a significantly watered-down version of the bill at the very end of the last parliamentary session.
“The chaos in the Conservative government is largely to blame [for this], and a lack of sympathy for the leaseholders in the Conservative government,” O’Kelly said, which is “possibly connected with a very close association with property interests”.
Lack of a viable alternative
Commonhold was introduced in 2002 as an alternative to leaseholds. It allows buyers to share ownership of a multi-occupancy building, with households splitting equal responsibility for common areas and services.
However, it failed to catch on, with critics describing the system as “not fit for purpose”, primarily due to a lack of incentives for developers and the absence of continued income streams for them.
“The beauty of leasehold for developers is that they get to sell the property twice,” Scoffin said. “They don’t want to lose that”.
The Government plans to introduce a new legal framework to “reinvigorate” commonhold and ban the sale of new leasehold flats, making commonhold the default tenure.
Are there any upsides to Leasehold?
Modern leasehold has evolved into a tenure which provides residents with the “security of a single entity focused on the long-term upkeep and maintenance of complex residential buildings”, Mick Platt, Director at The Residential Freehold Association, said.
He continued: “Extensive research conducted by the previous government showed that most leaseholders do not want to assume the legal and financial liabilities associated with managing large and complex apartment buildings, as they would under a commonhold system.”
Is this the end of leasehold?
Tentatively, yes.
“A lot of work has been done, so it shouldn’t be too difficult for the new government,” Scoffin said. “We need to make sure that the next legislation doesn’t have loopholes… the draft bill gives us all time to identify loopholes and to iron out any creases”.
“There are so many vested interests that it’s become very difficult to [change] the system… but it’s looking good this time,” he said.
“[There are] some very well informed, motivated and bright high calibre officials [in the Government] who… are there to enact the leasehold reform agenda,” O’Kelly agreed.
“[I’m] optimistic about Labour,” he said.
