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

Photo: Getty Images
Show Hide image

Why are boundary changes bad for Labour?

New boundaries, a smaller House of Commons and the shift to individual electoral registration all tilt the electoral battlefield further towards the Conservatives. Why?

The government has confirmed it will push ahead with plans to reduce the House of Commons to 600 seats from 650.  Why is that such bad news for the Labour Party? 

The damage is twofold. The switch to individual electoral registration will hurt Labour more than its rivals. . Constituency boundaries in Britain are drawn on registered electors, not by population - the average seat has around 70,000 voters but a population of 90,000, although there are significant variations within that. On the whole, at present, Labour MPs tend to have seats with fewer voters than their Conservative counterparts. These changes were halted by the Liberal Democrats in the coalition years but are now back on course.

The new, 600-member constituencies will all but eliminate those variations on mainland Britain, although the Isle of Wight, and the Scottish island constituencies will remain special cases. The net effect will be to reduce the number of Labour seats - and to make the remaining seats more marginal. (Of the 50 seats that would have been eradicated had the 2013 review taken place, 35 were held by Labour, including deputy leader Tom Watson's seat of West Bromwich East.)

Why will Labour seats become more marginal? For the most part, as seats expand, they will take on increasing numbers of suburban and rural voters, who tend to vote Conservative. The city of Leicester is a good example: currently the city sends three Labour MPs to Westminster, each with large majorities. Under boundary changes, all three could become more marginal as they take on more wards from the surrounding county. Liz Kendall's Leicester West seat is likely to have a particularly large influx of Tory voters, turning the seat - a Labour stronghold since 1945 - into a marginal. 

The pattern is fairly consistent throughout the United Kingdom - Labour safe seats either vanishing or becoming marginal or even Tory seats. On Merseyside, three seats - Frank Field's Birkenhead, a Labour seat since 1950, and two marginal Labour held seats, Wirral South and Wirral West - will become two: a safe Labour seat, and a safe Conservative seat on the Wirral. Lillian Greenwood, the Shadow Transport Secretary, would see her Nottingham seat take more of the Nottinghamshire countryside, becoming a Conservative-held marginal. 

The traffic - at least in the 2013 review - was not entirely one-way. Jane Ellison, the Tory MP for Battersea, would find herself fighting a seat with a notional Labour majority of just under 3,000, as opposed to her current majority of close to 8,000. 

But the net effect of the boundary review and the shrinking of the size of the House of Commons would be to the advantage of the Conservatives. If the 2015 election had been held using the 2013 boundaries, the Tories would have a majority of 22 – and Labour would have just 216 seats against 232 now.

It may be, however, that Labour dodges a bullet – because while the boundary changes would have given the Conservatives a bigger majority, they would have significantly fewer MPs – down to 311 from 330, a loss of 19 members of Parliament. Although the whips are attempting to steady the nerves of backbenchers about the potential loss of their seats, that the number of Conservative MPs who face involuntary retirement due to boundary changes is bigger than the party’s parliamentary majority may force a U-Turn.

That said, Labour’s relatively weak electoral showing may calm jittery Tory MPs. Two months into Ed Miliband’s leadership, Labour averaged 39 per cent in the polls. They got 31 per cent of the vote in 2015. Two months into Tony Blair’s leadership, Labour were on 53 per cent of the vote. They got 43 per cent of the vote. A month and a half into Jeremy Corbyn’s leadership, Labour is on 31 per cent of the vote.  A Blair-style drop of ten points would see the Tories net 388 seats under the new boundaries, with Labour on 131. A smaller Miliband-style drop would give the Conservatives 364, and leave Labour with 153 MPs.  

On Labour’s current trajectory, Tory MPs who lose out due to boundary changes may feel comfortable in their chances of picking up a seat elsewhere. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog. He usually writes about politics.