When you buy a London flat, you're not really becoming an owner

The weird reality of leaseholds.

Instead of buying a property, how about renting one? Only this will be a rental deal with a difference: I am going to make you sign a 100-year contract and demand that you pay the vast majority of the rent upfront. If any repairs need doing, of course I’ll arrange them for you. But I’m going to send you the bill. 

You want to argue? If you don’t pay, I am going to rip up the rental contract and you are going to lose all that money you
paid upfront.

Does that sound appealing? It is really just another way of describing leasehold, the form of property "ownership" which is almost universal in apartment buildings in England and yet hardly exists elsewhere on Earth. London boasts some of the world’s highest property prices, and yet many buyers are only vaguely aware that when they buy a flat — whether for £200,000 or £20m — they are not really becoming property owners at all. "But I am the owner," one buyer recently protested to me after seeing himself described as a "tenant" in his deeds. Oh no you’re not, I had to tell him. You’ve got 125 years of happy renting ahead of you. 

Leasehold is the basis of some of the largest private fortunes in Britain. The Duke of Westminster would be just another hard-up English aristocrat had his forbears sold off the freeholds of the properties built on their estate 200 years ago. Selling leases instead enabled the Grosvenor family to take money from the sales and yet continue to retain an interest in hundreds of properties in a prime central London residential district.

Yet leasehold seems increasingly incongruous with the present-day London property market. Billionaires, the representatives of global capitalism, can find themselves the tenants of English aristocrats, or quite possibly the tenants of a fly-by-night company operating from above a chip shop in north London. Freeholds are sometimes worth much less than the value of individual flats, with the result they can end up in the hands of small-time property barons with devious ways of squeezing money from their tenants.

Like all landlord-tenant relationships, that between freeholder and leaseholder is apt to go horribly wrong. And it isn’t just a case of people on the lowest rung of home ownership who find themselves being exploited by unscrupulous landlords. You can find hornets’ nests of anger and resentment in some of the poshest addresses in London.

In one case in Knightsbridge, flat-owners were each sent a demand for £14,000 for "major works" to the roof. If you totted up the contributions which had been asked of all leaseholders, it came to an astronomical sum way beyond anything which might reasonably have been spent on repairing a roof. What the money was really for, the leaseholders later found out, was building an extra two flats on the roof — which the freeholder was then going to sell entirely for his own benefit.

Most disputes between leaseholders and freeholders are for the same reason: excessive service charges. It is all too easy for freeholders to jack up the cost of repairs: add 15 per cent here and 20 per cent there. In some cases the costs end up being ridiculous: the tenant of a one-bedroom flat in Oxford ended up paying £9,300 a year. The value of the flat, as a result of the service charges, had fallen to just £15,000.

But in most cases of excessive charging, fees are pushed up to a level at which the leaseholder might groan yet not be quite moved to complain. Typical is the block of flats where leaseholders found 33 per cent was being added to their building insurance. How would you know you were being overcharged, without shopping around for insurance yourself?

Landlords are not supposed to exploit their leaseholders, and there are provisions in law to prevent them doing so. Leasehold Valuation Tribunals exist in order to settle disputes between the two parties. But in practice few leaseholders get round to challenging excessive charges; indeed, the process of doing so is itself expensive. Most quietly pay up or sell up, knowing that if they kick up a stink it will make it more difficult for them to sell their property.

The Leasehold and Commonhold Reform Act 2002 seemed initially to ring the death knell for leasehold. It enhanced powers that leaseholders already enjoyed: to exercise their collective right to buy the freehold of the buildings in which their flats are situated. In addition, it created a new form of tenure — commonhold — much more like the condominiums common in the US and many other countries. Under commonhold, owners of individual flats would jointly own the entire building. A decade on from the Act, there are still only a dozen commonhold developments in England.

Nor has there been any great uptake of enhanced powers of ‘enfranchisement’ — a term used to describe the joint purchase of a freehold by the leaseholders. One of the reasons for this is that it can take an extraordinary effort to gather the leaseholders and persuade them to agree to exercise their rights. The law requires at least 50 per cent of leaseholders to agree to the action. Knocking on doors is rarely successful: in a typical London block a large number of the leaseholders do not live in their flats. To contact them it may be necessary to trawl through the Land Registry. And even then it is quite likely that you will find flats that are owned by companies registered abroad.

Leaseholders who want to buy their way out of the system have to be prepared for a long and expensive battle: under the rules, leaseholders are liable to pay the landlord’s legal costs as well as their own. In one recent case in east London leaseholders succeeded in buying their freehold for £404,000, after suffering years of exaggerated service charges. The overcharging wasn’t quite finished, though: they found themselves having to pay another £169,000 in legal costs.

It is inertia that keeps leasehold going. Perhaps the London property boom will carry on for so long that buyers won’t worry too much about it. When you expect to make tens if not hundreds of thousands of pounds on the value of your lease, you might not care about a service charge that that is hundreds of pounds too high. It might be a different story if prices began to slide and owners were suddenly faced with the prospect of losing money. They might then begin to see themselves for what they really are: just like other tenants, paying through the nose to keep their landlord in fine wine.

This piece first appeared on Spears magazine.

A hotel in Mayfair. Photograph: Getty Images

Ross Clark is a writer for Spear's Magazine

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Brexiteers want national sovereignty and tighter borders – but they can't have both

The role of the European Court of Justice is a major sticking point in talks.

Why doesn't Theresa May's counter-offer on the rights of European citizens living and working in Britain pass muster among the EU27? It all comes down to one of the biggest sticking points in the Brexit talks: the role of the European Court of Justice.

The European Commission, under direction from the leaders of member states, wants the rights of the three million living here and of the British diaspora in the EU guaranteed by the European Court. Why? Because that way, the status of EU citizens here or that of British nationals in the EU aren't subject to the whims of a simple majority vote in the legislature.

This is where Liam Fox, as crassly he might have put it, has a point about the difference between the UK and the EU27, being that the UK does not "need to bury" its 20th century history. We're one of the few countries in the EU where political elites get away with saying, "Well, what's the worst that could happen?" when it comes to checks on legislative power. For the leaders of member states, a guarantee not backed up by the European Court of Justice is no guarantee at all.

That comes down to the biggest sticking point of the Brexit talks: rules. In terms of the deal that most British voters, Leave or Remain, want – a non-disruptive exit that allows the British government to set immigration policy – UK politicians can get that, provided they concede on money and rules, ie we continue to follow the directions of the European Court while having no power to set them. Britain could even seek its own trade deals and have that arrangement.

But the problem is that deal runs up against the motivations of the Brexit elite, who are in the main unfussed about migration but are concerned about sovereignty – and remaining subject to the rule of the ECJ without being able to set its parameters is, it goes without saying, a significant loss of sovereignty. 

Can a fudge be found? That the Article 50 process goes so heavily in favour of the EU27 and against the leaving member means that the appetite on the EuCo side for a fudge is limited. 

But there is hope, as David Davis has conceded that there will have to be an international guarantor, as of course there will have to be. If you trade across borders, you need a cross-border referee. If a plane goes up in one country and lands in another, then it is, by necessity, regulated across borders. (That arrangement has also been mooted by Sigmar Gabriel, foreign minister in Angela Merkel's government. But that Gabriel's centre-left party looks likely to be expelled from coalition after the next election means that his support isn't as valuable as many Brexiteers seem to think.)

On the Conservative side, a new EU-UK international body would satisfy the words of May's ECJ red line. On the EU27 side, that the body would, inevitably, take its lead from the treaties of the EU sans Britain and the ECJ would mean that in spirit, Britain would be subject to the ECJ by another name.

But it comes back to the Brexit dilemma. You can satisfy the voters' demand for non-disruptive control of British borders. You can satisfy political demand for sovereignty. But you can't have both. May – and whoever replaces her – will face the same question: who do you disappoint?

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.

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