Like most non-renting flat-dwellers, I call myself a home-owner or owner-occupier, but that isn’t quite true. I don’t own my flat; I am a leaseholder. What I bought was the right to occupy it for however many years are left on the lease – and as the lease runs down, the flat is worth less and less. Conversely, this is why, if you were so minded, you could find a prime London flat for a (relative) pittance if the lease has only a few years to run, and why long leases generally come with a premium.
The government describes this system as feudal – in the rights it gives to the owner of the freehold vis-à-vis the leaseholder – and the housing minister Matthew Pennycook has committed to replacing it with commonhold as the default system, which is similar to the way things work in much of the Continent. So I should be cheering. We leaseholding serfs will be liberated. Maybe, but I am not breaking out the sparkling mead quite yet.
One reason for my caution is that, for all Labour’s ingrained hostility towards medieval-style (land)lords, the government has not exactly been quick out of the blocks on this. It inherited a Leasehold Reform Bill from the previous government, some of which was rushed into law before the end of the parliament in the form of the Leasehold and Freehold Reform Act 2024, but most of which was not. Even what was passed in that law awaits the government’s say-so to come into force. So now we start all over again – with a timetable, to boot, that seems very far from urgent. New leaseholds will be banned only by the end of this parliament.
Another reason for caution is that the reform, as so far presented, seems very limited. Only flats in newly built blocks will have to be sold as commonhold – where flat owners essentially share ownership of the freehold and can decide what services to commission and negotiate the price. The idea is that this will eliminate one of the chief complaints of leaseholders – the latitude a freeholder has to decide what services are provided and at what price. But where does this leave the rest of us leaseholders under the existing system?
There are several potential problems here. The first is that, unless commonhold is extended to all flats, the reform will produce an even greater two-tier system than currently exists, where commonhold applies only to a relatively small number of blocks. The second is that abolishing leaseholds could well reduce the incentive for construction companies to build much-needed flats, with higher prices being another likely effect, as builders look for other nice little earners to compensate for those associated with leasehold.
And a third problem is that simply replacing leasehold with commonhold will not of itself reduce service charges or prevent disputes. Something of a myth seems to have taken hold to the effect that the abolition of leasehold means that service charges go too. Alas, no.
There still has to be a common system for the upkeep of the building and shared services. Someone will probably have to be paid to manage it, ensuring that money is collected, services are provided and rules complied with. This can lead to bitter disputes, even in blocks where leaseholders own a share of the freehold – which is possible in the current system. Nor does it exclude spiralling charges, although it might reduce the incidence of outright dishonesty on the part of freeholders who, say, commission unnecessary repairs and take kickbacks from friendly suppliers.
The risk now is that uncertainty and errors start to gain hold
An argument can, in fact, be made that the priority should have been tightening the regulations for freeholders and management companies and eliminating abuses, rather than abolishing new leaseholds altogether. High-profile lawsuits are already in progress, with freeholders trying to protect their asset against leaseholders wanting to exercise their existing right to buy the freehold. As the government doubtless realises, such cases will only proliferate if leasehold were to be phased out altogether, with freeholders claiming something akin to confiscation of their investment by the state.
At any rate, it is probably too late to rescue leasehold. The very term has acquired a bad name, partly as a result of escalating charges, but partly, too, reflecting a more recent practice of builders selling houses on leases rather than freehold (i.e. excluding the land), which left unsuspecting new homeowners facing ground rent and service charges that escalated year by year. This practice is no longer permitted but did as much as anything to condemn the lease.
The rule always was that if you were buying a house, it should be freehold, and a flat should be leasehold (to ensure that common costs were shared). The distinction applies also to mortgages, with few lenders prepared to grant a mortgage on a freehold flat.
The risk now is that uncertainty and errors start to gain hold. And it is a risk I could well be caught up in. A little over a year ago, when buying my current flat, I was told that I could extend the lease for another 50 years, with the seller doing the paperwork and me paying the costs. The alternatives were to do nothing or wait two years before I would qualify to apply for an extension in my own name.
To the conspicuous disappointment of what seemed a veritable posse of lease experts poised to claim their cut, I decided against. The lease length was adequate for the time being; I did not want any excuse for further delay in what had already been a protracted process, and I was aware that the Conservative government’s leasehold reforms had a chance of becoming law, which could make the terms for extending a lease more favourable.
But it is a gamble. I have a small win on my side, in that the present government has just (in January) brought into force the abolition of the two-year qualifying period for a leaseholder to apply for a lease extension, enshrined in the last government’s legislation. Do I take that win, though, or wait in the hope that the next set of reforms slashes the costs, as they might? Who knows.
At least I have somewhere to live. Anyone considering buying a flat in the coming months will face an unenviable choice: wait (several years?) until a clear new system is in place, or take the risk that, as an old-fashioned leaseholder embedded in a ‘feudal’ system, your status as a home-owner will be forever suspended between the medieval and modern worlds.
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