In London, there are 1.4 million leasehold flats. Two years ago, leasehold constituted 99 per cent of all new-build sales in the capital. Leaseholds make up 36 per cent of its housing stock and are often the only properties ordinary buyers have a hope of ever affording.
The typical leaseholder in London is highly likely to have a mortgage and be a first-time buyer, according to the Office for National Statistics. The ONS also says that the average service charge in London is around £2,000 a year, while Hamptons finds that 20 per cent of leaseholders in the capital pay over double that. These costs are in addition to mortgage, utility and ground rent payments. Just eight per cent of Londoners are opposed to abolishing leasehold.
In recent years, a consensus has emerged that leasehold tenure is an inefficient, iniquitous and unnecessarily expensive way of organising flats. Beyond England and Wales, most countries, including Scotland, have democratic, resident-controlled systems of flat living, which go by names like “tenement”, “condominium”, “co-operative” and “strata title”. There are no feudal-style overlord freeholders calling the shots in a block of flats and dictating the charges that flat owners must pay in order to keep their homes.
Our equivalent, called “commonhold”, introduced in 2002, was meant to be reinvigorated by the government after years of reform work and an expert Commonhold Council working group. Curiously, commonhold is absent from the Leasehold and Freehold Reform Bill brought before Parliament last week.
In 2020, the Competition and Markets Authority flagged leasehold as “a real concern”, noting that leaseholders are “captive consumers”. That same year, the Law Commission concluded that freeholder and leaseholder interests are “diametrically opposed” and that “any financial gain for the landlord will be at the expense of the leaseholder” as part of its proposed package of reforms that would mean far greater controls on existing leaseholds and the widespread adoption of commonhold.
The London Assembly’s housing committee has also urged a move away from the “archaic feudal hangover” of leasehold. “The sooner Londoners can benefit from a more modern and equitable system of commonhold the better, bringing us in line with homeowners the world over,” it concluded.
The House of Commons housing select committee “found a system which stacked the odds in the favour of developers, freeholders and managing agents …Leaseholders were too often treated not as homeowners or customers, but as a source of steady profit.” Crucially, the cross-party group added that “there is little evidence that professional freeholders provide a better level of service than can be provided by leaseholders themselves.”
A report put out earlier this year by the London School of Economics tall residential buildings research group also refused to endorse the sector lobby line that commercial freeholders provide economies of scale and value for money to leaseholders.
If you want to know why the obscure-sounding Leasehold and Freehold Reform Bill is so important for Londoners and why we are campaigning vigorously to toughen it up, here are the stories of just two London flat-buyers. They illustrate why, if this rotten system isn’t drastically reformed or, better still, abolished, then generations of the capital’s hardworking people will never have a decent home to call their own.
JAMIE: THE FIRST-TIME BUYER
A young programmer we know made an offer on a lovely first-floor flat in a converted Victorian house in Peckham. He was shocked by what he received from his solicitor. “I don’t understand,” he said. “Why are they calling me a tenant? Why do I have a landlord, if I’m buying a flat? And look at this!” He pointed to a clause that said if he didn’t pay his service charges or ground rent within 14 days, his lease could be forfeit. “What does it even mean?”
Jamie is one of many young first-time buyers to plunge into his “purchase” with little idea of what is involved. Leasehold is the only way to get a flat and everyone else is doing it, so it must be OK, right? Wrong!
Jamie wasn’t actually buying the flat, we had to explain. He wouldn’t own a single brick or pane of glass. With leasehold, the flat “buyer” is only purchasing a saleable right to occupy property. When they outgrow the flat, they can sell what time is left on the lease to someone else. But legally, they are only ever a tenant.
The value of their investment therefore is largely dependent on the choices made by someone else: their landlord, or freeholder. If the landlord brings up the service charges to eye-watering levels, that will erode the value of the leaseholder’s interest. If the landlord chooses to scrimp on maintenance to “sweat the asset”, that can also put downward pressure on the most important purchase of your life.
As for forfeiture, it’s another word for cancellation. If you don’t pay your bills within a set time, the landlord can apply to cancel your lease and the flat becomes his again. “So it’s like if I don’t pay the mortgage,” Jamie asked. “They sell the flat, take the debt and give me what’s left over?”
Wrong again! If your lease is ever forfeited, you don’t get a penny in compensation. Any more than you would, if a short-term landlord kicked you out. Every penny you paid for the flat is gone, but you still owe the mortgage. Forfeiture is rare. A landlord now has to go through quite a court process to be allowed to do it, but the threat of forfeiture hangs over every leaseholder when facing another inflated set of service charge demands.
Jamie was even more shocked when we explained that he and the other leasehold tenants would have to pay for any repairs his building needed. With short-term rentals, repair and maintenance are a landlord’s responsibility. With leasehold, the tenants pay for everything. Not only that, they have no say over how much those repairs cost, which contractors are used, or what work is done. They have to pay to insure the building, but the landlord places that insurance and can take kickbacks from insurance companies that leaseholders have no right to know about.
But at least Jamie can afford a leasehold flat in a well-built period property. He is avoiding the far worse situation of buying into one of the sprawling “milking parlour” developments where the opportunities for leaseholder abuse are legion.
PAMELA: FIGHTING BACK IN A “MILKING PARLOUR” DEVELOPMENT
But aren’t there legal remedies? Ways to fight bad freeholders? Everyone we know who has turned to the law for help wishes they hadn’t bothered. Cases drag on for years. They take a terrible toll on physical and mental health. The property tribunal can’t award costs, so litigating eats through your finances and is too easily swayed by the firepower of rich freeholders.
To add insult to injury, most leases currently allow landlords to put their legal expenses onto the service charge, so leaseholders pay the costs of both sides. And after decades of the tinkering that passes for reform, the law is now so complicated and so contradictory that a win under one piece of legislation can be overturned by another. The fight is never-ending.
Pamela is an accountant and a magistrate. If anyone has the knowledge and experience to fight high charges and poor maintenance, it’s her. A decade ago, her estate’s residents association began the process of applying to the tribunal for a court-appointed manager to take over the running of it. And five years ago, she claimed that secret commissions had been incorrectly paid to a landlord-related company out of the insurance costs she and her neighbours had been charged.
She won both cases. But that was far from the end of it. Her freeholder challenged the management order multiple times, forcing her back in front of a judge over and over. Like the rest of the court system, first-tier tribunals are overloaded. Months, even years, can go by before hearings are scheduled. Panels don’t always have the expertise or the commercial nous needed. And what was supposed to be a simple people’s court, where leaseholders could safely represent themselves in a low cost forum, has been overwhelmed by armies of King’s Counsels acting for freeholders. For our side, it’s like going up against guided missiles with bows and arrows.
Pamela and her fellow residents are now trying for a third time to renew its court-appointed manager. But since their first application, made nearly a decade ago, we’ve had the Building Safety Act. This may wipe out the tribunal’s right to take over the management of any estate, leaving leaseholders with no protection at all against a rapacious freeholder. A right Pamela fought so hard for for over a decade has potentially been cruelly snatched away.
She now faces two separate hearings, scheduled to take place between undergoing surgeries for a major illness. And as for the insurance case, begun five years ago, leaseholders haven’t seen a penny of the £1.5 million in commissions they thought they’d won back. The freeholder is appealing – of course – and it could end up at the highest court in the land, which would take many more years.
This is no way to live and it’s certainly not homeownership. The answer to the problem isn’t to create more toxic leaseholds. That is why there is one major change, which the new Bill must enact.
If this government, for whatever reason, will not bring in commonhold, we have a compromise. It utilises the leasehold structure but, crucially, would give future flat buyers joint control of their new-build homes and charges from day one. Developers couldn’t complain, as many of them have been using the arrangement for decades. It would be simple to draft in legislative terms, too, and wouldn’t cost the Treasury a penny.
It’s called “share of freehold”. So, please, if you have a vote, write and tell your MP today to back any amendments that require all new leasehold flats be sold with a “share of freehold” and leaseholder-controlled “resident management company”.
Jane Hewland and Harry Scoffin are members of the Free Leaseholders campaign, which can be followed on X/Twitter. If you value On London and its coverage of the capital, become a supporter or a paying subscriber to Dave Hill’s personal Substack for just £5 a month or £50 a year. In return, you’ll get a big, weekly London newsletter and offers of free tickets to top London events.