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Coronavirus and housing: Government doing nothing much

<strong><span class="has-inline-color has-accent-color">by Dermot McKibbin</span></strong>
by Dermot McKibbin

Labour, Housing, Co-operative Party activist, campaigns to replace feudal UK leasehold housing tenure with the modern co-operative Commonhold system.
Vice-Chair Beckenham CLP.
http://getcommonholddone.co.uk/

The government has been accused of being unclear in its communications around Coronavirus. But this headline appears on the Ministry of Housing website; ‘Complete ban on evictions and additional protection for renters’. Poor communication or a straightforward lie?

The policy is actually to ‘suspend new evictions’ until after the crisis, initially 3 months. So, Minister Robert Jenrick’s statement that ‘no renter who has lost income due to coronavirus will be forced out of their home’ is a short-lived commitment.

They call it a ‘radical package’ which it plainly is not. They fail to address basic questions about possession proceedings that are already underway. Surely no-one should be evicted in the current crisis.

So far, no additional measures have been introduced to enable tenants to pay their rent, whether they are in work with reduced pay, laid off from work, or already not working. So, the best that can be said for the policy is that it will defer possession proceedings from starting and will therefore delay eviction. Protection from eviction during the crisis is of course important (although some people have noted that the Courts may well be closed anyway), but what is needed is a policy to prevent tenants being forced into arrears during the crisis, for which they may be evicted afterwards.

Landlords with buy to let mortgages have had the ‘mortgage holiday’ policy extended to them. This is something they can apply for and the devil might be in the detail. But if a landlord qualifies for a holiday, no arrangements have been announced to make sure the benefit of this is passed on or at least shared. Landlords who qualify will of course need to catch up with their mortgage afterwards, although many will add the 3 months to the end of their term, which might be 20 years away. It could be that tenants who pay rent will essentially be creating a short-term cash-flow boost for landlords. Meanwhile, those tenants who cannot pay will accrue arrears, which they may not have the income to repay, and might face possession proceedings when the crisis is over.

At that point the policy falls apart entirely. There will be a strengthened ‘pre-action protocol’ before possession proceedings – engagement between landlords and tenants to establish a repayment plan and to ‘resolve disputes’, during which landlords should ‘reach out’ to tenants to ‘understand the financial position they are in’.  Almost unbelievably, “The government will also issue guidance which asks landlords to show compassion and to allow tenants who are affected by this to remain in their homes wherever possible.” I have little belief that the protocol will work in practice as intended. And it not a criticism of landlords – Twitter is full of both good and bad examples of landlord behaviour, that’s how the sector works – to say that NO policy should be determined by hoped-for ‘compassion’ rather than rights and obligations in law.

In practice, many tenants may be saved by the fact that landlords will see value in hanging on to existing tenants even if they get into Coronavirus arrears. Given the broadly-based reduction in incomes and hence savings that is likely over the next few months, one predictable market correction might be a reduction in rents and the costs of starting up new tenancies. Under these circumstances, keeping a tenant on an existing contract might be an attractive option.

Given that the Chancellor was talking in terms of hundreds of billions of pounds in loans for businesses, the government should be pushed into actions like those taken in other countries to guarantee incomes, putting money directly into the hands of those who are affected by the crisis to enable them to maintain the basics of existence. I would argue that the same should apply to the biggest cost of all, housing. Affected renters must be enabled to pay their rent through direct support from government, not the goodwill of landlords (private and social) – although that is also to be encouraged.

I’m not expert enough to know the best detailed mechanism for achieving the aim of enabling people to pay rent, I assume it’s a mix of entertaining new emergency housing benefit claims, changing Universal Credit rules (paying it immediately, guaranteeing that the housing element will cover all of the rent), and relaxing current policies like the bedroom tax (otherwise how are people to obey the government and ‘sleep in the spare room’ if they get Covid19?). But the purpose of policy must be to enable people to pay their rent during the crisis and to avoid the debt which will create a crisis later. Even the awful Iain Duncan Smith has called for benefit rates to be increased.

Jenrick’s performance as Housing Minister during all this has been exceptionally poor and uncaring. Homeless people and tenants have been inconvenient afterthoughts with half-baked inadequate policy responses. Some loose change for rough sleepers, nothing that I have seen for people living in temporary accommodation (eg extra rooms), no workable special arrangements for people living in shared accommodation or overcrowded housing.

Of one thing I have no doubt: Jeremy Corbyn and John McDonnell would have risen to the challenge – indeed they are doing so in opposition – in a way that Johnson is incapable of doing. Because today’s Tories have not learned the lesson that was learned by the Victorians – as we are reminded by Jules Birch

Go back a century and more, and it was public health concerns about infectious disease spreading from insanitary slums that led to the rise of council housing and the birth of the welfare state in the first place.

If the Coronavirus is as bad as some are predicting, this lesson will have to be learned all over again.

As the government publishes the required legislation, keep in touch with commentary via the excellent @nearlylegal twitter feed and blog and of course @insidehousing 

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Official crackdown on fleecehold

<strong><span class="has-inline-color has-accent-color">by Dermot McKibbin</span></strong>
by Dermot McKibbin

Labour, Housing, Co-operative Party activist, campaigns to replace feudal UK leasehold housing tenure with the modern co-operative Commonhold system.
Vice-Chair Beckenham CLP.
http://getcommonholddone.co.uk/

Get Commonhold Done!

dermot1

The Competition and Market Authority (CMA) is about to take legal action against housing developers on behalf of leaseholders who were mis-sold their properties by leading housing developers. Such a move is unprecedented and if fully supported by all progressive opinion in England and Wales would be an important step in abolishing and not merely “polishing up” the antiquated leasehold tenure system in England and Wales.

The CMA has wide powers to require business organisations to remove unfair contract terms from consumer contracts and can apply to court for an injunction to prevent their continued use.

The CMA is concerned that leasehold “homeowners” have been unfairly treated and prospective buyers misled by housing developers.

These concerns include:

  • Ground rents: homeowners having to pay escalating ground rents, which in some cases can double every 10 years. This increase is often built into contracts, meaning people can often struggle to sell their homes and find themselves trapped.
  • Cost of the freehold: the CMA has seen evidence that people have been misled about the cost of converting their leasehold to freehold ownership. When buying their home, some people were told the freehold would cost only a small sum, but later down the line this price had increased by thousands of pounds with little to no warning.
  • Misleading information: not being told upfront that a property is leasehold and what that means. Some developers are failing to explain the differences between leasehold and freehold when directly asked, and some tell potential buyers that there is no difference. By the time people find out the realities of owning a leasehold, including the regular charges to be paid, they are often unable to pull out of the purchase, or would face significant difficulties if they tried to do so.
  • Unreasonable fees: being charged excessive and disproportionate fees for things like the routine maintenance of a building’s shared spaces or making home improvements. If people want to challenge such charges, the process is often difficult and costly, meaning few people decide to go through with it.

In some ways the CMA intervention is surprising. A 2014 report by the CMA into the leasehold housing market gave it a clean bill of health. Cardiff Trading Standards has already settled a mis-selling case against Persimmons one of the biggest housing developers. An out of court settlement meant that the company agreed to give freehold title to leaseholders who complained that they had been sold leases instead of full ownership of their properties.

The truth is that the CMA has been sat on by the powerful all-party House of Commons Select Committee in its bi-partisan critical inquiry into the leasehold system in March 2019. The leasehold lobby is increasingly influential. The Facebook page for the National Leasehold Campaign now has over 17,000 followers and growing. The All Parliamentary Group on Leasehold reform currently stands at 153 members.

The CMA have correctly picked up that some leaseholders will come within the scope of the 1988 Housing Act. Where ground rents exceed £250 per year or £1,000 per year in London, a leaseholder is classed as an assured tenant. This means, for even small sums of arrears, leaseholders can be subject to a mandatory possession order.

Unfortunately, the CMA have given the solicitors involved a clean bill of health. Builders required prospective purchasers to use their own solicitors who failed to tell their clients that they were not in fact buying a freehold property. It is remarkable that this conflict of interest is compatible with professional conduct rules. These solicitors are now subject to negligence claims by fresh lawyers.

This pending enforcement action is embarrassing for the Government who had persuaded housing developers to sign up to a voluntary code of practice in order to “limit” the damage of toxic leases. There are links between housing developers and the Conservative party.

Unlike the rest of the English-speaking world, England and Wales has the leasehold tenure system. This originates from 1066. William the Conqueror seized all the land after his invasion. He leased land to his barons in return for services. They in return leased land to their supporters in return for services. This ultimately led to the freeholder and tenant relationship.

In America, riots and the formation of the Anti-Rent Party in the nineteenth century lead to the abolition of feudal tenures.

dermot2

A lease is a wasting asset. Once it runs out, a leaseholder becomes a mere tenant. Lenders are reluctant to lend on short leases. Leasehold do not own the land their property is built on. This is owned by the freeholder for which they pay a ground rent. The freehold title can be sold on a third party without the knowledge or consent of the leaseholder. If a leaseholder breaks the lease, the freeholder can exercise the nuclear right of forfeiture and if successful the leaseholder is evicted thereby losing any equity in the property. There are problems with high service charges and permission fees.

Leasehold reform is rapidly moving up the political agenda. The House of Commons Select Committee is launching an inquiry into the cladding scandal in residential blocks. The Law Commission is about to publish a report on how to develop the Commonhold tenure. Commonhold is a form of tenure whereby all the residents in a block own the freehold title. Each flat owner automatically becomes a director of the company that owns and manages the shared areas. There is no freeholder or ground rent. Commonhold is in effect a type of property-owning housing co-operative.

Surprisingly there are no accurate figures for the precise number of leasehold properties in England and Wales. Estimates vary from 4 million to 7 million properties. It is thought that two thirds are flats and one third houses. Of the 20 parliamentary constituencies with the highest number of leasehold properties, all of them are in London. 18 are held by Labour and 2 by the Conservatives. The 20 parliamentary constituencies with the highest number of leasehold houses are in the North-west of England. 10 are held by Labour. The other ten were won by the Tories in the last two general elections.

If all leasehold properties were converted to the Commonhold tenure over the lifetime of a Parliament as envisaged by the Labour Manifesto in 2019 this would lead to the biggest ever increase in the number of properties that are owned co-operatively. All sections of the Labour and Co-Operative Parties need to be seen to be campaigning with leaseholders if their votes are to be won.

See also – The Truth about leasehold – an unjust and immoral system

 

Dermot Mckibbin

Beckenham Constituency Labour party.

Twitter @dermotmckibbin1

 

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Unsafe cladding, leaseholders, government inaction: Labour’s response

<strong><span class="has-inline-color has-accent-color">by Dermot McKibbin</span></strong>
by Dermot McKibbin

Labour, Housing, Co-operative Party activist, campaigns to replace feudal UK leasehold housing tenure with the modern co-operative Commonhold system.
Vice-Chair Beckenham CLP.
http://getcommonholddone.co.uk/

On 12 February 2020, Hilary Benn, the Labour MP for Leeds Central, hosted a short but significant parliamentary debate in Westminster Hall on unsafe cladding in residential accommodation occupied by leaseholders. The debate looked at the development of Government policy to deal with fire safety in private blocks since the tragic fire at the Grenfell Tower block on 14 June 2017.

Leaseholders save up to buy their flat only to discover that the cladding is dangerous. Some of these purchases will have received assistance from the Government’s help to buy scheme. The Fire Brigade tells residents in the block that they must set up a waking watch 24 hours per day to patrol the block. If they do not do so, they must vacate the block. In one block in Leeds such a watch is costing each flat-owner £670 a month plus VAT on top of mortgage payments and service charges.

claddingThe leaseholder may then be asked to meet the cost of putting in a fire alarm. Then to their absolute horror they are asked to pay for the cost of replacing the dangerous cladding to make their home safe. They simply do not have that amount of money. Their flat becomes worthless and they cannot remortgage. The UK Cladding Group has reported insurance costs for these blocks going up from £40,000 to £200,000. Leaseholders run the risk of becoming bankrupt, and if they work for the police or are lawyers they will lose their jobs as well.  They will become homeless. This is not a situation of the making of leaseholders. They are the innocent victims of Government policy.

In May 2019 the Government set up a fund of £200 million to support the removal of ACM style cladding from private residential blocks to protect leaseholders from bearing the cost. Leaseholders in blocks with other types of cladding were excluded. However local fire brigades do not differentiate between ACM and other forms of cladding that are equally dangerous. They take the view that there is no difference between different types of cladding if they were dangerous. In January 2020 Government Ministers were talking about loans to leaseholders to pay for cladding removal. This was a clear departure from the Government’s previous position that leaseholders should be protected from paying for these costs.

MPs from all parties and all parts of the country queued up to contribute to the debate. They reported problems with privately owned blocks in Leeds, Manchester, Sheffield, Liverpool, London, Birmingham. Ellesmere Port, Ipswich, Newton Abbot and Glasgow.

14 MPs from London spoke in the debate. In Greenwich and Woolwich 20 privately owned buildings were found to have ACM cladding. Greenwich Council has found at least 24 buildings with high pressure laminate cladding. In many cases the property is no longer owned by the original developer. The new Labour MP for Putney, Fleur Anderson, reported 2 blocks in her constituency with cladding that is a mix of ACM and HPL. Her constituents have been informed that their liability will be between £50,000 and £80,000 per flat!

Scotland has an unusual problem. Even though there is no leasehold/freehold distinction north of the border, the Scottish Government has limited influence on the actions of mortgage lenders since this power is reserved to Westminster. The London Government has issued an advice note that deals with fire safety in buildings post Grenfell throughout the United Kingdom. Even though building standards are higher in Scotland than in England, lending organisations now require home inspection reports to reflect the new London imposed standards. Consequently, some leaseholders in Scotland who wish to sell or remortgage have found that they have been imposed with a nil valuation.

Sarah Jones, MP for Croydon Central, responded for Labour’s front bench. Nine in ten private blocks with Grenfell-style cladding are still covered in cladding.  Government data indicates that 75 private block owners do not even have a plan to remove this cladding. Labour has for years called on the Government to legislate to ensure that building owners cannot pass costs on to innocent leaseholders. The Government cannot justify the distinction between ACM and other forms of cladding.  In November 2019 fire swept rapidly through a student accommodation block in Bolton with fortunately no fatalities. The block had non-ACM cladding.

Ministers have failed to audit residential blocks, so the public do not know how many blocks are still covered in non-ACM but still dangerous cladding. According to Inside Housing the façade materials of 3,708 out of 5,320 tower blocks has yet to be established. The Government announcement in December 2019 that the height limit for removing ACM had changed from 18 metres to 11 metres means that potentially more blocks and leaseholders are covered. The Minister declined to answer the question whether the Government even knew how many blocks will now be covered by this rule change or why it took the Government over two and half years to make this decision.

Esther McVey MP responded for the Government as the then Housing Minister with the clear knowledge that she was about to be sacked from her position. Legislation is promised in a new fire safety bill.  Discussions are pending with the Treasury to increase the size of the fund. The Government has failed to name and shame the freeholders of relevant blocks with unsafe cladding.

The situation is about to get worse for the new Housing Minster. Leasehold Knowledge Partnership are now pointing out that Government answers to Members of Parliament do not accurately reflected what is happening on the ground.

Why is this issue of political importance for Labour? John Healey MP, the Shadow Housing Minister, has pointed out that Labour has double digit lead over the Tories on housing. Amongst owner -occupiers the Conservatives poll better than Labour. If Labour can persuade one conservative owner-occupier to change their vote, this will increase Labour’s poll lead even further. The Tories are too close to the interests of property to tackle this issue effectively.

The difficulties that leaseholders face on cladding issues is separate from the problems that leaseholders living in houses face who have been mis-sold dodgy ground rents. There is an investigation by the Competition and Market Authority due to be released later this year. Many leaseholders live in parliamentary seats in the North of England that were once held by Labour. The National Leasehold Campaign Group Facebook followers has grown to 16,500 in less than 3 years.

The 2019 Labour Manifesto contained positive polices to abolish the leasehold tenure system over the lifetime of the new Parliament. Commonhold would be compulsory for all new builds. All high-rise residential blocks would be made safe.

Unfortunately, the problems of leaseholders, despite being a vote winner for Labour is hardly ever discussed at Labour Party Conferences. The Co-operative Party fringe meeting on leasehold reform at the 2019 conference was a welcome exception.

If Labour is ever to win another election, the new Party leader needs to come out positively on the side of the 5 million leaseholders in England and Wales. S/he must work collaboratively with senior shadow Cabinet figures. There should be an Opposition debate in the Commons on this issue as well as a party-political broadcast.

With over 580,000 party members, Labour should consider using the talents of these members to set up support groups for leaseholders in relevant areas such as the North West. The party needs to produce maps of where leaseholders live and in which parliamentary constituency. Work is needed to expose the links between the Tory Party and freeholders such as David Cameron’s brother in law. Sympathetic lawyers should be contacted to draft possible legal solutions.

Footnotes:

1>https://hansard.parliament.uk/Commons/2020-02-12/debates/6D6EFAB8-F69B-4FEC-9709-17E30601974C/details

2> https://www.gov.uk/government/news/new-measures-to-improve-building-safety-standards

3> See https://www.databoy.co.uk/words/mapping-the-leasehold-scandal

4> See https://www.leighday.co.uk/News/2019/June-2019/Leaseholders-of-flats-covered-in-Grenfell-type-fla

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Labour to modernise feudal leasehold system – in response to Tory inaction

On 11 July there was a debate in the Commons on the Government’s response to the House of Commons Select Committee critical report on the leasehold tenure.

The Government claims to be bringing forward reforms to:

  1. Ban the granting of new leases on houses other than in exceptional circumstances.
  2. Restricting ground rents on newly established leases to zero.
  3. Working with the Law Commission to look at ways to reinvigorate commonhold and improving the process for buying a freehold or extending a lease, or exercising The Right to Manage.
  4. By reviewing charges faced by both leaseholders and freeholders and professionalising and regulating property agents.
  5. By clamping down on unjustified legal costs for leaseholders, ensuring all landlord freeholders belong to a redress scheme and giving freeholders on private estates equivalent rights to leaseholders to challenge communal costs.
  6. By persuading developers to sign up a to public pledge to help existing leaseholders trapped in unfair and costly agreements.

The Government claim to be committed to introducing legislation as soon as parliamentary times allow. However due to the Brexit debate Parliament has been clocking off early and few bills are in fact currently going through Parliament. Ministers have repeatedly promised action to tackle the abuses that leaseholders face, yet with over 60 official announcements since 2010, no new legislation has been introduced. The Government lacks the political inclination to progress this issue as it is too close to the interests of property.

The Government claim in their response that leasehold is a legitimate form of home ownership. However, England is about the only country in the world that has not yet moved away from this feudal form of tenure. The leaseholder has to pay a ground rent to the freeholder and at the end of the lease the leaseholder becomes a mere tenant if no action is taken. The leaseholder can forfeit their lease if they break a term of the lease. There is no legal defence to the freeholder’s right to remove the lease. The relationship is a landlord/tenant one which is feudal in nature and no longer appropriate for the 21st century

Memes, Masters, and Liberalism: RADICAL PEASANT  WE'VE GOT TOGET  RID OF THIS FEUDAL  SYSTEM  IT'S KILLING US.  ARE YOU WITH US?  LIBERAL PEASANT  NO, NO, THAT'S  TOO EXTREME.  JUST WAIT UNTIL  WE GET A NEW LORD.  I HEAR THE MASTER'S  SON HAS SOME  GOOD IDEAS ABOUT

Alternatives to leasehold are available through co-operative flat ownership in Europe, strata title in Australia and condominium ownership in the USA. Closer to home, Scotland, Wales and Northern Ireland have all taken steps towards ending leasehold.

The Shadow housing front bench has recently produced an excellent consultation document called ‘Ending the Scandal: Labour’s new deal for Leaseholders’.

Labour plans five radical changes:

  1. Ending the sale of new private leasehold houses with direct effect and the sale of private leasehold flats by the end of the first term in office.
  2. Ending the ground rent for new leasehold homes, cap the ground rent for existing leaseholders at 0.1% of the property value, up a to a maximum of £250 per year.
  3. Set a simple formula for leaseholders to buy the freehold to their home, or commonhold in the case of a flat, capped at 1% of the property value.
  4. Crack down on unfair fees and contract terms by publishing a reference list of reasonable charges, requiring transparency of service charges and giving leaseholders a right to challenge rip-off fees and conditions or poor performance from service companies.
  5. Give residents greater powers over the management of their homes, with new rights for flat-owners to form residents’ associations and by simplifying the Right to Manage.

The report poses 11 consultation questions which require a response by 30 September to leaseholdconsultation@labour.org.uk.

The document correctly refers to the growth in the number of leaseholders. The precise number is still surprisingly unknown, but is estimated at between 4.3 and 6.6 million: up to one in four of all homes. Over the past 20 years, the proportion of houses built as leasehold is thought to have doubled.

Over 90% of all leasehold house owners say they regret buying a leasehold property and almost two-thirds feel like they were mis-sold. Many leaseholders thought they had brought on the basis they could easily and cheaply convert to freehold ownership, only to later find that a complex and often expensive process makes enfranchisement impossible for them to afford.

According to the report it is increasingly clear that there is a systematic problem with the selling of properties on a leasehold basis. Leasehold mis-selling has the potential to be a new PFI scandal.

In 2018, the Conveyancing Association published research suggesting that 98% of sales of leasehold properties with onerous or doubling ground rents had been in breach of consumer protection regulations. The campaign group Leasehold Knowledge Partnership have estimated that up to 100,000 homes cannot be sold due to a high ground rents and other onerous lease conditions.

At the heart of Labour’s plans to help leaseholders is the opportunity to obtain true ownership of their property through conversion to freehold or commonhold in the case of flat owners. Labour will legislate for a simple buy-out formula that will apply to longer leases, set at a proportion of freehold capital value. Labour will set the maximum ground rent chargeable at 0.1% of the ground rent, with a cap of £250 per year.

For a leaseholder currently living in a house or flat worth £200,000, Labour’s simple new formula would mean they can buy their freehold for just £2,000. This is a significant saving compared to leasehold enfranchisement for a £200,000 property: with 90 years left on the lease and a £250 per year ground rent, the current cost for enfranchisement would be over £6,000 plus expensive legal fees. For properties with ground rents above £250, the cost would be significantly higher still.

Mis-selling of leases is a big issue in the North West. This region has 75 MP’s of whom 20 are Conservative. Approximately two thirds of leaseholders live in London where there are elections in 2020.Hopefully this report will be read and acted upon by all Labour Party members. A House of Commons briefing paper is helpful and the accompanying table has useful regional and constituency statistics. (2)

By Dermot Mckibbin, Beckenham CLP

For more information see:

https://researchbriefings.parliament.uk/ResearchBriefing/Summary/CBP-8047 and its associated tables (Excel Spreadsheet) http://researchbriefings.files.parliament.uk/documents/CBP-8047/CBP08047—Tables-for-download.xlsx

Image credit: me.me

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Feudalism, toxic leases and a Parliamentary Select Committee

A bi-partisan leasehold reform inquiry report by the House of Commons Housing, Communities and Local Government Select Committee has trashed the English leasehold tenure system.

leasehold sel cttee report 2019

Using strong language, the report concluded that:

“Too often, leaseholders, particularly in new-build properties, have been treated by developers, freeholders and managing agents, not as homeowners or customers but as a source of steady profit. The balance of power is too heavily weighted against leaseholders and this must change. Our report sets out recommendations for how this might happen”

These recommendations included that:

  1. Commonhold should become the primary model of the ownerships of flats in England and Wales, as it is in many other countries
  2. Mis-selling in the leasehold sector should be investigated by the Competition and Market Authority.
  3. Documents in the purchase of properties should be standardised so that the key features of the lease are fully transparent.
  4. Incentives to use a particular solicitor should be abolished.
  5. Retrospective legislation is required to remove onerous ground rents and permission fees from existing leases.
  6. There should be a new system of consultation for leaseholders affected by major works in privately -owned buildings.
  7. The Government must ensure that freeholders are not allowed to recover their costs from their leaseholder where the leaseholders have won their case at a tribunal.
  8. The current law allows freeholders to recover the lease from the leaseholder through the strict legal right of forfeiture. This should be abolished.

Leases in English law date back to feudal times. Once your lease expires even if you have paid a lot of money for it, you become a mere tenant of the freeholder. All leaseholders pay a ground rent to the freeholder.

In virtually all other English-speaking countries this form of tenure has been abolished and replaced by some type of communal ownership of the freehold.  The Commonhold and Leasehold Reform Act 2002 introduced the commonhold tenure whereby the freehold title would be shared by all residents in the block. Commonhold failed as it was not made compulsory for new developments and require the agreement of all leaseholders in a block to transfer to this tenure. In practice this was impossible to obtain.

If a leaseholder does not pay their service charges, the freeholder can apply to court to have the lease forfeited and the leaseholder loses the right to live in the property. This feudal practice should have no place in modern Britain.

The Committee were anxious to see commonhold becoming the primary model of the ownership of flats in England and Wales, as it is in many other countries. There is no reason why the majority of residential buildings could not be held in commonhold; free from ground rents, lease extensions and much greater control for residents over service charges and major works.

The Committee were concerned that leading developers had in the past sought to use their dominance to exploit customers through the imposition of onerous ground rents.  They were also disappointed that leading developers were unwilling to respond to their requests for more information as to the number of leasehold properties sold with ground rents exceeding 0 .1% of the value of the properties.

Leasehold houses

There has been much press coverage of volume builders such as Persimmon and Taylor Wimpey building houses with leases. Some of these properties were sold with dodgy freeholds to third parties. The influential Leasehold Knowledge Partnership estimate that there are 100,000 new build leasehold flats and houses that are unsellable due to onerous ground rent terms.

The Prime Minister is on record as saying that, other than in exceptional circumstances, she does not see why new homes should not be built and sold with the freehold interest at the point of sale. Government figures in 2015/6 estimate that there were 1.4 million leasehold houses and 2.9 million flats. The fact that there are over one million leasehold houses tend to reflect the high profits of leading developers. There is a little need for leasehold houses unless the freeholder wants to use such properties for income generation purposes.

To make matters worse John Healey MP has uncovered official figures showing Help to Buy has been used to purchase 17,586 leasehold homes since 2013. The Government claims that they cannot stop this until the scheme expires in 2021.

Government response

On 28 March 2019 the Government announced via a press release that that 40 leading developers had signed “a pledge” to crack down on toxic leasehold deals. Developers will contact current leaseholders with ground rents that double more than once every 20 years and offer them a ground rent linked to RPI.

One leaseholder with a Taylor Wimpey ground rent calculated that under her lease a doubling ground rent is just short of £2 million for the duration of the lease (250 years). Doubling stops after 50 years. If the ground rent was linked to RPI at the current rate of 3.3 % per annuum, the total ground rent is £25.7 million. The fact that some lenders will not provide mortgages for such inflation linked ground rents is ignored.

The pledge will not apply to leaseholders who have sold at a loss to get out of this mess. Nor will it apply where the ground rent has been sold on to a third party. The developers have not been asked to pledge not to build leasehold houses for which they are being subsidised via the help to buy scheme. The Government’s response has been condemned by the Chair of the Commons Select Committee. The response does not address all the recommendations made by the Committee.

This issue is going to run and run especially as many Tory MP’S are concerned at how their constituents are being treated. The select committee received a record number of over 600 responses to their inquiry. The national leasehold Facebook campaign has over 6000 followers. The Leasehold Knowledge Partnership group now believe that leaseholders could in fact form 25% and not 18% of all homes in England.

Political implications

Even though leasehold reform is often not discussed in Labour circles, politicians cannot afford to ignore the issue. The Government estimates that in 2015/6 there were 4.3 million leasehold dwellings in England. This equates to 18% of the English Housing Stock. In the same period there were 1.4 million leasehold houses and 2.9 million flats. These figures contrast with 4.5 million private rented households and 4 million households who rent from either a local council or a housing association. (See English Housing Survey Headline Report 2017-18).

An excellent House of Commons briefing paper provides helpful regional and constituency trends. After London, the North West had the largest number of leasehold transactions. 58% of all leasehold houses were built in the North West. This region has 75 MP’S in Parliament of whom there are 20 Tories.  There is a constituency breakdown to show the highest proportion of leasehold flats. This also includes leasehold houses only.

Leasehold reform should be a rich campaigning area for Labour. The Tories are too close to propertied interests to tackle this issue properly and yet claim to be the custodians of a property owning democracy. On the one hand the Government promises to make commonhold compulsory for new developments and yet cannot immediately stop the help to buy scheme from subsidising developers building leasehold houses with dodgy freeholds.

If Labour is to win the next election, the culture within the Labour Party must change. All sections of the party must recognise that the leasehold housing system is broken and needs to be fixed. Labour should campaign to expose Tory failings and present some of the positive solutions contained in this parliamentary report.

By Dermot Mckibbin, Beckenham CLP

For more information see:

  1. https://www.parliament.uk/business/committees/committees-a-z/commons-select/housing-communities-and-local-government-committee/inquiries/parliament-2017/leasehold-reform-17-19/
  2. https://researchbriefings.parliament.uk/ResearchBriefing/Summary/CBP-8047