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The Guardian - UK
The Guardian - UK
Business
Patrick Collinson

It’s time to send the feudal leasehold system crashing

For lease and leased sign on display outside a building.
Red alert … leasehold has become a nightmare for millions. Photograph: ymgerman/Getty Images/iStockphoto

The entire parasitic structure of leasehold in England and Wales is, finally, beginning to wobble – and with a bit more prodding we could see it crash. The long campaign led by Sebastian O’Kelly at the Leasehold Knowledge Partnership has had its first success, with the government proposing a ban on new leasehold houses, while new flats will see ground rents cut to zero. But we need to go much, much further.

We could publish horror stories about leasehold every week in Guardian Money, which have nothing to do with the issue of doubling ground rents. Take the apartment owners held to ransom when their lease starts falling below 80 years. Avaricious freeholders make absurdly inflated demands to award a lease extension, safe in the knowledge they hold all the negotiating cards.

For example, the owner of a flat valued at £200,000 with 50 years left on the lease will be hit with a bill of around £36,500 to extend it by the standard additional 90 years. There are two million leases under 80 years in England and Wales, in properties where around three million people live. How are apartment owners expected to magic up these sums when the average salary is £27,000 – and when even after coughing up the money they still technically won’t own their properties?

“This is the biggest scandal of the leasehold world,” says chartered surveyor James Wyatt of Parthenia Valuations, dwarfing the scandal of leasehold houses. Wyatt is pursuing a case (Mundy v Sloane Stanley Estate) that reaches the court of appeal in January. If successful, it is likely to see the cost of future lease extensions fall by around half. In the case above, where the freeholder is demanding £36,500, if Mundy is successful the cost would fall to £20,500 – a level most would still consider absurd.

Wyatt’s case has made him an enemy of many in the property world. A former head of valuations at blue-chip property firm John D Wood, Wyatt says: “I’m up against entrenched opposition from the legal and surveying world” and that the “industry gravy train” has constantly thwarted any reform.

If the court of appeal case fails, an appeal to the supreme court is next. Others argue that we should simply use statutory intervention to reform leasehold valuation along the Mundy lines. One hope is that Gavin Barwell, when housing minister, was very keen to tackle the scandal of leasehold houses, and he now has much greater authority as Theresa May’s chief of staff.

But in the longer term we need to find ways to make leasehold a thing of the past. Some daft property “experts” insist it has to remain for apartments, ignoring the fact that it has been abolished in almost every part of the world. Happily, we have legislation that allows for “commonhold” where everyone in an apartment block part-owns the land the property is on. The government could simply insist all new flats are sold on a commonhold basis.

But what to do about existing leaseholds? Of course, greedy freeholders who have ruthlessly exploited leaseholders will demand “compensation”. As Sir Peter Bottomley MP says, slave traders used the same arguments when their “assets” were taken away.

One solution, tried in Amsterdam, is to convert all existing leaseholds into perpetual leases, removing the threat of a freeholder grabbing the property back – as the lease will never end. They have also restricted the ground rent to a peppercorn which, if enforced here, would cut off financial speculation in leases.

We should also look at other ways for leaseholders to buy their freeholds at a sensible cost. Ten times ground rent appears reasonable – already in place in Northern Ireland. Meanwhile, in Scotland I love the fact legislation rejecting leasehold doesn’t mince its words – it’s called the Abolition of Feudal Tenure (Scotland) Act 2000. Can we have the same in England and Wales, please?

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