Incredibly strong backing for leasehold reform, says poll

20 January 2021 | Investment

Slightly more (4%) agreed with the idea that leasehold reform was needed, but commonhold was not the solution.

Meanwhile, polls we ran across our Twitter platforms also showed an overwhelming majority in favour of leasehold reform and a move towards commonhold.

None of this is perhaps surprising – the campaign for leasehold reform and getting rid of leasehold entirely has huge public support. The National Leasehold Campaign (NLC), which was launched in January 2017, has around 20,000 members, while the Leasehold Knowledge Partnership and Leasehold Solutions (led for a long time by the late Louie Burns) are other passionate advocates for the rights of leaseholders.

A petition to abolish leasehold launched a few years ago garnered more than 31,800 signatures (and a government response), while a more recent one calling for a ban on leasehold houses, the setting of ground rents of new-build flats to zero and the enacting of all the Law Commission’s proposals – launched by NLC co-founder and nurse Katie Kendrick – has generated more than 16,000 signatures and a response from government.

On social media, there are a large number of passionate anti-leasehold campaigners seeking to hold the government, developers and housebuilders to account. It’s a highly emotive topic, which is understandable when you consider how many have been affected by the leasehold scandal.

“It is no surprise that there is an overwhelming amount of support for reform and ultimately abolishment of this feudal, abusive system,” Kendrick says.

“The issues with the leasehold system run deep. Leaseholders feel they have become entangled in an unfair system with so many obstacles to navigate. It often feels like playing a game of chess without knowing the rules of the game. The balance of power in existing leases and legislation is so heavily weighted against leaseholders, it really is a David versus Goliath battle.”

She says the fact that leasehold is high up on the political agenda is testament to the relentless hard work of leaseholders in the NLC and the extensive support from the Leasehold Knowledge Partnership, along with one of the biggest All Party Parliamentary Groups in Parliament, with over 160 cross-party MPs.

“Following years of endless consultations, a damning select committee inquiry into these abuses and the investigation into potential mis-selling, leaseholders have produced copious amounts of evidence and we are at the point now where it really is the start of the end of leasehold. In the words of late leasehold legend Louie Burns: ‘The writing is on the wall for this feudal unfair system and the only question remaining around its abolition is when, not if’.”

Kendrick welcomes the government’s commitment and steps to reinvigorate commonhold as the preferred tenure for homeownership. “Commonhold is the way ahead,” she insists. “It is used widely around the world and gives control back to the homeowners. It is not surprising there is strong resistance in the sector for this move. Leasehold produces a very lucrative income stream over many years; they are not going to willingly give up without a fight.”

“The difference being, in a commonhold system, they would work for us. We would have complete transparency and control over our homes,” she concludes.

What’s the history and what are the planned reforms?

The leasehold scandal first really came into the public spotlight in 2017, when it was revealed that many people had been mis-sold leasehold homes and were facing spiralling ground rents (which sometimes doubled every year), high service charges and other costs that they hadn’t been warned about.

It left many with homes too expensive to live in and too difficult to sell, with leases that were difficult, time-consuming and costly to renew. In many cases, too, freeholds were being sold to private companies under the noses of homeowners.

Off the back of this bad press, the government launched a consultation in 2017 to see how unfair practices in the leasehold market could be tackled. As a result of the consultation, it announced plans to tackle abusive and unfair practices, including a ban on nearly all new-build leasehold homes, ground rent on new long lease property being set at zero and proposals to make it simpler and cheaper for existing leaseholders to buy the freehold on their home at reasonable rates.

Although the government’s response was issued in December 2017, there was no concrete action taken in the immediate aftermath. In October 2018, the Law Commission stepped in with proposals for ‘radical’ reforms for leaseholders of houses and flats. The plans included the idea of offering leaseholders the right to buy unlimited longer lease extensions without ground rent, as well as making the right to purchase either a freehold or the lease extension ‘easier, cheaper and quicker’.

In March 2019, the Ministry of Housing, Communities and Local Government published an industry pledge setting out an intention to help existing leaseholders with onerous ground rent terms in their lease agreements, signed by a large number of developers and stakeholders.

Later, on October 31 2019, the-then Housing Minister Esther McVey confirmed in a Written Statement the Boris Johnson government’s intention to take forward the measures. The Conservative manifesto, which helped the party to win an 80-seat majority at the December 2019 election, included a pledge to ‘continue with our reforms to leasehold’.

In January last year, the Law Commission – one of the leading voices for leasehold reform – published its much-anticipated report, laying out the options for the government to cut the price payable by leaseholders to buy the freehold or extend the lease of their homes.

It was expected, with an 80-seat majority and more parliamentary time available as a result of the end to Brexit uncertainty, that the measures would start to make their way through Parliament, but then came coronavirus to replace Brexit as the dominant talking point and issue of the day.

In September 2020, the leasehold scandal came back onto the news agenda with a bang, when it was revealed that the Competition and Markets Authority (CMA) had opened cases against four of the UK’s biggest housebuilders (Barratt Developments, Countryside Properties, Persimmon Homes and Taylor Wimpey).

It opened the cases in relation to possible breaches of consumer protection law in the residential leasehold sector, with the CMA concerned about possible instances of mis-selling and potential unfairness of certain leasehold contract terms. It said at the time it would ‘now engage with relevant businesses to conduct further information gathering and seek to resolve these concerns’.

To bring things right up to date, the most recent announcements were made only a few weeks ago, with the government outlining wide-ranging plans for leasehold reform, which included proposals to scrap the marriage value part of the fee leaseholders must pay to freeholders to extend their lease.

Additionally, millions of leaseholders are set to be given the right to extend their lease by a maximum term of 990 years at zero ground rent. At present, leaseholders of houses can only extend their lease once for 50 years with a ground rent, while leaseholders of flats can extend as often as they wish at a zero ‘peppercorn’ ground rent for 90 years. 

But, as a result of the changes, both house and flat leaseholders would be able to extend their lease to a new standard 990 years with a ground rent set at zero, potentially saving people thousands of pounds.

Furthermore, a cap is set to be introduced on the ground rent payable when a leaseholder chooses to either extend their lease or become the freeholder, while measures are also in place to protect the elderly. The government said it would apply its previous commitment to restricting ground rents to zero for new leases to retirement leasehold properties as well.

Lastly, the government revealed that it is putting together a Commonhold Council – made up of a partnership of leasehold groups, industry and the government – to prepare homeowners and the market as a whole for a planned widespread take-up of commonhold.

The government’s plan is to bring forward legislation in the upcoming session of Parliament to set future ground rents to zero, a promise that has been in the offing for some time now. It is likely that parliamentary time will still be at a premium due to Covid-19 and Brexit.

The government has also pledged to bring forward a response to the remaining Law Commission recommendations, including the greater use of commonhold, ‘in due course’.

“Across the country people are struggling to realise the dream of owning their own home but find the reality of being a leaseholder far too bureaucratic, burdensome and expensive. We want to reinforce the security that home ownership brings by changing forever the way we own homes and end some of the worst practices faced by homeowners,” Housing Secretary Robert Jenrick said.

“These reforms provide fairness for 4.5 million leaseholders and chart a course to a new system altogether.”

Professor Nick Hopkins, commissioner for property law at the Law Commission, added: “We are pleased to see the government taking its first decisive step towards the implementation of the Law Commission’s recommendations to make enfranchisement cheaper and simpler. The creation of the Commonhold Council should help to reinvigorate commonhold, ensuring homeowners will be able to call their homes their own.”

The planned reforms were given a cautious welcome by leasehold campaigners – who feel they have been here before with both the Theresa May and Boris Johnson governments – but it was seen as at the very least a step in the right direction and brought the leasehold debate back into the limelight.

Leashold in numbers – how many are affected?

According to a House of Commons briefing paper on leasehold and commonhold reform, published in late December 2019, there are around 4.3 million leasehold homes in England, of which 69% are flats and 31% are houses. Overall, around 54% of flats are estimated to be leasehold, compared with 7% of houses.

In 2018, nearly a quarter (24%) of residential property transactions in England and Wales were leasehold. Almost all flats are sold as leasehold, which means leasehold transactions are more common in London, where flats are more popular and 57% of transactions were leasehold in 2018.

In addition, the practice is much more common for new-build properties: some 35% of new-build transactions were leasehold in 2018, with leasehold houses much rarer (at around 6%).

Leasehold houses, though, are more common in the North West, where 27% of house sales were leasehold in 2018.

The number of new-build houses sold as leasehold increased from 7% in 1995 to a peak of 15% in 2016, but this has fallen significantly since the leasehold scandal first broke and the government committed to legislating against this practice, down to 1% by June 2019.

Perhaps the most damning research about leasehold as a system was released in September 2018, when a report from NAEA Propertymark revealed that tens of thousands of new-build leasehold homeowners regretted their purchase and felt they were sold the home on false grounds.

The 1,000-strong survey found that 94% wished they’d never purchased a leasehold, while two-thirds of homeowners felt they were mis-sold.

Nearly half said they weren’t aware they were only purchasing the lease until it was too late, while 57% didn’t know what being a leaseholder meant until after they had purchased their home.

What’s more, 15% said they weren’t informed by a professional that they were only buying leasehold, having instead to discover this off their own back by studying the contract themselves.

Similarly, nearly half of those polled were oblivious to escalating ground rents until it was too late, with many stuck in homes they couldn’t shift because of the onerous terms of their lease.

Commonhold – the most touted alternative to leasehold – was introduced in 2002 as part of the Commonhold and Leasehold Reform Act, but there are estimated to have been fewer than 20 commonhold schemes in England and Wales since, while a Sunday Times investigation suggested that only one leasehold scheme has converted in that time.

Under the proposals put forward by the Law Commission, blocks where 50%-75% of leaseholders agree would be able to switch to commonhold, while there are housebuilders such as Stewart Moxon of Hopton Build who focus entirely on commonhold homes.

The government will hope that the Commonhold Council will be able to improve the rollout and conversion of commonhold schemes, because at present the numbers are tiny. Some have claimed the current commonhold system is too inflexible and one size fits all, while others claim developers and lenders are reluctant to embrace commonhold because of lower income streams.  

This post has originally been featured in Property Investor Today.