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Leasehold is the ultimate symbol of our broken economic model

To challenge rentier capitalism, the next Labour government should end the great leasehold con.

By Harry Scoffin

There are around 5.3 million households across England and Wales that have “bought” their homes but do not own them. The government’s latest legislation on leasehold – the Leasehold and Freehold Reform Bill – promised major reform to the current system, and will ban new leasehold houses. But the legislation doesn’t go far enough. Flats are exempt, and so new leaseholds will still be rife in the larger blocks that make up most leasehold properties.

There is a real opportunity here for Labour to confront a system of property ownership that has its origins in the rule of ancient aristocracies, serfdom and manorialism – and to win the support of swathes of people living under a property-governance regime that the Housing Secretary, Michael Gove, has himself acknowledged is inherently unfair. The system was never designed for multi-occupancy buildings, and has been ruthlessly commercialised and utilised by developers and agents since the early-21st-century property boom.

Long-term leaseholding sees people “buying” properties, often flats, in which they don’t own either the bricks and mortar or the freehold on the land underneath their feet. Leasehold is a tenancy mis-sold as an outright purchase. The homebuyer can be subject to unfair charges and is unable to make decisions affecting their part of the building and shared spaces. Residential freeholds and ground rents are an asset class. Third-party investors use this arcane aspect of our property laws to make themselves owners of other people’s homes by proxy and extract excess rents and fees from the leaseholders, or “tenants”. The estate agent Hamptons says that in 2023 England’s flat leaseholders will be paying a crippling £7.6bn in service charges. This money could have been better spent on building businesses, starting families or everyday consumption.

Few other countries in the world maintain systems like this. Commonhold, in which groups of residents in large multi-home properties own their flats outright, collectively own the freehold and manage shared spaces through a managing agent that they appoint, finds equivalents in condominium, strata title and cooperative. While Scottish law facilitates commonhold, in England and Wales owners of flats are denied the kind of self-rule they might enjoy north of the border.

The system in England and Wales has led to gross distortions and unfair practices. Imagine having paid a large premium towards the biggest investment of your life (which also happens to be the place you live), yet the ultimate ownership of the building, and authority over it, is still entrusted to a landlord, or freeholder. Through service charges, this landlord can destroy the value of your home by making it difficult to sell. The landlord can dictate how much you pay for works and decide what maintenance does and doesn’t need doing. In an infamous example, after the Grenfell fire disaster, when flammable cladding had to be removed from blocks across the country, many freeholders charged astronomical sums to the leaseholders, the tenants, to replace dangerous materials that had been installed without residents having had any say in the matter. Freeholder landlords will probably be faceless, even based offshore, and will make decisions favouring their own economic interest. But, unlike in a well-functioning rental market, you cannot just leave a bad landlord behind with your capital intact.

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[See also: Michael Gove’s Renters Reform Bill is “unenforceable”]

“The more a person’s home is used as a financial asset to benefit their landlord, the less it is an investment for the individual,” says Professor Nick Hopkins, who led the Law Commission’s leasehold and commonhold reform programme.

On the left, a strong, consistent narrative has formed around a broken economic model based on asset owners engaging in wealth extraction rather than productive investment. There can be no clearer example of this than the leasehold system. Dismantling the kind of exploitative regime governing a fifth of England’s homes, concentrating wealth in the hands of the few, and disincentivising flat-based living and urban densification will be an easy win for an opposition that has made strenuous efforts to promote itself as the new party of home ownership.

Watch: Will Dunn and Ellen Peirson-Hagger join the New Statesman podcast to explain how Britain’s landlord problem is only getting worse from here.

The burgeoning Yimby movement calls for wholesale planning reform to encourage development, promote efficient land use, and foster vertical villages and Manhattan-style upward building. But as long as toxic leasehold practices persist, the pro-development crowd are unlikely to get their way. The pro-housebuilding campaign group PricedOut, which has campaigned loudly for planning reform, recently issued its manifesto deploring the leasehold system for “encompassing several inherently exploitative elements”, including “responsibility for home maintenance fall[ing] upon a disinterested third party… lead[ing] to negligence”. It concluded that the answer to leasehold is commonhold.

And yet, after six years of Law Commission policy work worth millions in taxpayer money, fact-finding missions overseas, and the establishment of a Commonhold Council, the Leasehold and Freehold Reform Bill omits provisions for the second-generation commonhold tenure that everyone was expecting.

This is in spite of a consensus that has formed both around the iniquity of leaseholding and the need for wholesale reform. The leading centre-right think tank Policy Exchange has pointed out that asking developers to voluntarily adopt commonhold is unlikely to solve the problem, arguing that “given a choice between selling leaseholds or commonholds, they will choose the former because it will always yield them greater dividends”. Ending leasehold via a mass shift to commonhold could have been the next project for creating a new hegemonic bloc of new aspirational voters for the ruling Conservatives, the self-styled party of property-owning democracy. Instead, Labour has put its tanks on the Tory lawn by committing to ban future leasehold flats.

Labour has pledged to bring forward its own legislation on leasehold and commonhold in its first King’s Speech should it take power next year. The party has a proud record in this area. The Wilson government empowered house leaseholders to compulsorily buy their freeholds. After years of Tory dither and delay through the 1980s and 1990s, the Blair government introduced commonhold and also Right to Manage, which allowed leaseholders to take control of their shared services and spaces without the cost and hassle of freehold purchase.

A future Labour government could do worse than to follow in these footsteps.

[See also: The great leaseholders’ revolt]

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