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Hopes Rise For Spring Reform Of “Feudal” Leasehold System, But Legal Concerns Remain

(Alamy)

6 min read

Parliamentarians and campaigners are hopeful the Leasehold and Freehold Reform Bill, which seeks to tackle “inequality” in the housing market, could be put into law early next year, after it faced little opposition in the House of Commons.

However, concerns have been raised over the rushed nature of the legislation, and the fact it could generate significant legal challenges and calls for compensation.

The Bill, which had its Second Reading on 11th December, received almost unanimous support across the House on the case for reform. One MP after another – from all sides of the political divide – spoke about the caseload of work they received from constituents concerning leasehold and “fleecehold” (private estates hit with excessive charges from property management companies).

A leaseholder is a tenant who has paid to live in a property for a select period of time, and often includes apparent homeowners. Government data suggests long-term leaseholds usually last between 99-125 years.

Once the agreement ends, the property returns to the landlord, who owns the home and the plot of land. Government data suggests there are almost five million leasehold properties in England, which makes up 20 per cent of the current housing stock. 

Many critics have claimed leasehold is “feudal” and exploitative, and requires Government legislation to overhaul the system.

Reforms to leasehold have long been promised by prime ministers including Margaret Thatcher, John Major, Tony Blair, Theresa May and Boris Johnson but successive Governments have failed to deliver on their promises to alter the system.

Only a handful of Lords, including Conservative peer Lord Moylan, are sympathetic towards the current system. One peer, who is relatively supportive of the leasehold system, told PoliticsHome there was only “so much a backbencher with no support” can do.  

Another told PoliticsHome they believed an amendment is likely to be tabled to improve regulation for managing agents in the Bill. They, likewise, did not expect the Lords to butcher the Bill before sending it back to the House of Commons. 

An industry source told PoliticsHome they believed the bill could be on the statue books by May, despite much of the political oxygen being taken up by its emergency Rwanda legislation. However, it is understood this suggestion may be “too optimistic” with the Government aiming to put the Bill into law by the Summer. 

Rachel Maclean, Conservative MP for Redditch, and the former housing minister who drafted the Leasehold and Freehold Reform Bill, told PoliticsHome she believed the Bill could be passed and put in to law by the Spring. The former minister was confident the Lords will not block or butcher the legislation which was a manifesto commitment.

“I think they will make noises but I've had very little incoming criticism from Their Lordships, even when I had the role of housing minister,” she said. “Usually, they’re not shy in coming forward and expressing their disapproval.

“It is unlikely the Lords [will block] the democratic will of the people. If it’s manifesto commitment, and if we get a good majority in the Commons, they shouldn’t block it.

“We may need to move on a few small details but that’s just the normal parliamentary process,” Maclean added.

A Conservative MP, who was concerned with parts of the Bill, said they would not rebel against the Government and claimed they were saving their energy to amending and potentially voting against the controversial Renters’ (Reform) Bill.

Although a broad consensus has emerged in Parliament to support the Bill, this has not stopped it receiving criticism from some leasehold campaigners and experts.

Leasehold campaigners

It was reported in November that the Bill had caused controversy after it was disclosed the ban will not ban leaseholds on new-build houses, as had been expected. The Times reported the Bill had been written in a “huge hurry” after No 10 were deliberating over including it in the King’s Speech. The paper claimed Government lawyers were not given the time to give the clause of banning new leasehold homes the green light. 

However, not all stakeholders believe the current legislation is the correct or right thing for the housing sector.

Mick Platt, Director of Residential Freehold Association, told PoliticsHome DLUHC’s proposals constitute a “unjustified interference with legitimate property rights” and could cost the taxpayer “billions of pounds in compensation” to freeholders in compensation.

“The Government’s goals could be achieved through regulation of the sector which would ensure pension fund investments are protected, removing the need for compensation, while also avoiding the risk of imposing additional costs and responsibilities onto residents,” Platt said.

The Financial Times reported investors have claimed measures such as capping ground rents to peppercorn rates – which are of no financial value – could leave the Government exposed to being sued by billions of pounds.

The measures proposed would cut off an income stream for freeholders without offering them any compensation.

DLUHC told the FT it would consider the response from the consultation, but claimed it did not think it was fair many leaseholders faced unregulated ground rents without any “guaranteed service” in return.

Sebastian O’Kelly, Director at Leasehold Partnership, told PoliticsHome the Bill has the opportunity to end the leasehold system – and strip it of all of its various income streams. 

“This Bill has the opportunity to finish off the leasehold system by stripping out all its income streams: ground rents, insurance commissions, padded service charges - and remove the landlords’ nuclear weapons advantage of always getting their legal costs in litigation, while leaseholders will never get legal costs even when they repeatedly win disputes in the property tribunal,” they said.

“This inequality of arms has propped up landlordism in the courts, and ensured that flat owners are permanently disadvantaged,” he added.

O’Kelly said his impression was that the rest of the world outside of England and Wales continue not to tolerate the current system, where the irrelevant third-party landlord does not exist.

One element leasehold campaigners are keen to reform is Right to Manage. The clause, which was brought in under Labour in 2002, allows leaseholders to remove the managing agent and gain control of service charges if 50 per cent or more of tenants within a block of flats or an estate voted for it.

So far Government has not committed to liberalising the 50 per cent figure to make it easier for leaseholders to take control of the service charges. Campaigners and housing activists have claimed the figure is too high and has made it impossible for leaseholders to take back control.

Harry Scoffin, founder of campaign group Free Leaseholders, told PoliticsHome Michael Gove has promised the Bill will cause the “effective destruction of the leasehold system”. However, he said the legislation needs tightening to end the current system.

“Keeping leaseholders in the vice-like grip of freeloading freeholders with continued forfeiture to seize the home and tightly drawn qualifying criteria for enfranchisement and Right to Manage won’t achieve that,” he said

“Government changes to the Bill must focus on handing more flat leaseholders rightful control of their homes, fees and service providers. This can be done at no cost to the Treasury,” he added.

A Levelling-up spokesperson said the Bill would make "long-term and necessary changes" to improve homeownership for millions of leaseholders in England and Wales. 

“The Bill is currently progressing through Parliament and we look forward to it becoming law as soon as possible,” they added. 

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