From refusing to cap ground rents, and limited reforms to leaseholds, our anachronistic housing system still won’t change under new proposals, writes Will Prescott
With less than a year to go before a likely general election, the Prime Minister is running out of time to craft a lasting policy legacy.
Described by the housing secretary as “an outdated feudal system that needs to go”, the leasehold system means that England’s nearly 5 million leaseholders do not technically fully own their properties. Instead, they merely have the “right to live in their property for a given period”, typically 99 or 125 years, although they do have the right to extend this. The system has largely been abolished elsewhere in the former British Empire, including in Scotland.
This anachronistic ownership structure creates many problems. If the lease falls below a certain number of years, the property’s value declines and the cost of extending the lease increases dramatically. If leaseholders want to make changes to their properties, or even, in some cases, adopt a pet, they need to obtain the freeholder’s permission. Some ground rents, which freeholders can charge leaseholders without providing anything in return, have increased to the point where properties have become unmortgageable. This in turn makes them extremely difficult to sell.
The government’s proposed Leasehold and Freehold Reform Bill, published last week, goes some way to rectifying these problems. These new proposals build on the modest changes the government has already made. Last year, it passed laws which capped ground rents at a peppercorn for new properties, but not for owners of existing leasehold houses and flats.
The new rules expand the standard lease extension term from 90 to 990 years, abolish the requirement to live in a property for two years before extending the lease or purchasing the freehold
and makes it easier for leasehold flat owners to change the management of their buildings. Unfortunately, the proposals still contain several major omissions.
Most concerningly, despite longstanding Conservative pledges to do so, the Bill includes no commitment to cap ground rents that pre-date the previous laws. The 2019 Conservative manifesto promised to limit ground rents “to a peppercorn”. However, the government now merely pledges to “consult on capping existing ground rents” and only then will it “look to introduce a cap through this Bill”.
Capping existing rents is legally and politically complicated because it effectively amounts to a transfer of wealth from freeholders to leaseholders, but these difficulties have been foreseen for some time. Until it does, many leaseholders will remain lumbered with unsaleable properties.
Proposals also do not ban the sale of new leasehold houses or flats, as was originally intended. Rather embarrassingly, despite saying it bans the sale of new leasehold houses, the government has been forced to admit that the Bill’s drafters “did not have time” to include any such provisions.
While the government will likely try to amend the Bill to correct this, it still has no plans to ban the sale of leasehold flats. This especially matters considering that 70 per cent of England’s existing leasehold dwellings (some 3.m) are flats, whereas sales of new-build leasehold houses have fallen to less than one per cent of total new house sales. As well as disappointing campaigners, it has also upset some of the government’s own MPs, who are threatening to rebel over the issue.
More fundamentally, as the Law Commission argued in 2020, many of the problems with the leasehold are “inherent” to the system itself. Unless the government forbids the sale of new leasehold flats in addition to the sale of new leasehold houses, there is no hope of phasing it out.
More radical leasehold reforms would never have been easy, but it would have made a huge difference to millions of English leaseholders. Instead, there is now a real risk that Keir Starmer’s Labour will beat the Tories to leasehold abolition and prove itself the true home of a property-owning democracy.