Debates about housing policy are rarely riveting affairs. But, if you’ve been paying any attention at all, you can’t have failed to notice the almighty row raging over the leasehold system.
Housing Secretary Micheal Gove had initially pledged to abolish the leasehold system in January this year. However, this promise was met with stiff resistance from Downing Street. And it now looks like leaseholds won’t be abolished this time around (although, it should be noted reform is coming).
This raises an interesting question. Given the clear appetite for it among homeowners, are we any closer to the end of leaseholds? Also, what does the alternative look like? Let’s look at both sides of the argument.
Yes, Leaseholds Will Be Abolished
It’s hard to argue with the case for abolishing leasehold property. It is, as Gove said, “an outdated feudal system that needs to go”. Millions of people across the UK own leased homes which, as well as meaning they only technically own the home for a set period, means paying annual ground rents, service charges, and maintenance fees due to the covenants that come with the property.
The system affords owners very little power over their homes. Owners can be landed with bills for tens of thousands of pounds to repair common areas of their buildings, whether they agree with or even want the work.
A particularly grotesque example of this is how many leaseholders were initially told they would be footing the bill for unsafe cladding on apartment buildings in the wake of the Grenfell tragedy. Although this has since been remedied, with developers set to pay out instead, it’s a great example of the inequities of leasehold property.
The system is both deeply unpopular and unfair and there seems to be some political will for ending it. As we’ve already mentioned, the Housing Secretary proposed a bill to end leaseholds earlier this year. The mooted plan was to replace them with the commonhold system that prevails across most of Europe which at least grants owners a collective say over what happens in the common areas of their building.
That no longer looks like it’s set to happen. Nevertheless, the government is expected to pass a set of reforms later this year, including:
- An upper limit on the amount of ground rent the freeholder can charge a leaseholder (around 0.1% of the property’s value)
- New rules on what is and isn’t an acceptable service charge fee
- Banning commission on buildings insurance
- Giving leasehold tenants the right to choose their own property management company
These reforms don’t go nearly far enough. What’s more, it’s worth mentioning that the government appears to have dropped its plan to make lease extensions cheaper and fairer – giving tenants’ properties value beyond their lifetime.
Despite this, the reforms are at least a step in the right direction. And, they represent a growing appetite for abolishing leaseholds. In time, we might come to view them as the moment the death knell for a medieval system finally began to ring.
The Reasons Why They Won’t
Although leaseholds are mighty unpopular and there’s a growing demand for their abolition, there are a few key reasons why they might not be going anywhere just yet.
First of all, the UK is a country hidebound by tradition. You only need to look at the number of legal concepts and laws which date back centuries to conclude this. It’s not always a bad thing, but leasehold property is an extreme example.
The first leasehold estates appeared in the tenth and eleventh centuries, around the time of the Doomsday Book. That’s nearly 1,000 years of tradition in the way land is managed in the UK to overcome. And, if the intervening centuries have taught us anything, it’s that land reform in Britain tends to move at a glacial pace, if at all.
Second, is a question of interest. The UK’s political class has plenty of wealthy landowners within its ranks, many of whom do quite well out of the current leasehold system. Without sounding too conspiratorial about it all, some questions need to be asked about the lack of incentive within parliament for any reform.
Finally, despite their unpopularity, homebuyers continue to purchase leasehold properties. Even with their flaws, leasehold properties continue to represent better value and security than renting. Of course, few people really choose to purchase a leasehold, it tends to be a decision of financial necessity, but as long as homebuyers don’t vote with their money the system will continue to be propped up. After all, those who would oppose reform can always point to healthy demand.
To conclude, it’s clear that appetite is growing for the abolition of leasehold property. However, the weight of history continues to slow and water down any reform. It would be unwise to predict that the system will never be abolished, but for now, it looks as though abolition may have to wait a little while longer.
