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The leasehold system is an industrial-scale rip-off

The MP who has launched the Leasehold Reform Bill explains why the UK’s antiquated system is putting homeowners at risk. 

It has been described as “the PPI of the housebuilding industry” and has emerged as one of the biggest industrial-scale rip-offs of recent years. Countless homeowners have discovered, due to a combination of greedy developers, sloppy lawyers and government inertia, that they are not in fact, homeowners at all. They are leaseholders and under the terms of the lease, they are charged an annual ground rent, which in some cases, doubles every five or ten years, which can render the property unsellable. 

The ground rent, it should be pointed out, is separate from and often in addition to a service or maintenance charge, as the person living in the house gets absolutely nothing in return for their annual payments. These charges have been completely exposed as being nothing more than a cash cow for the freeholders.

The government’s recent consultation on ending unfair leasehold practices has recognised the seriousness of the problem by proposing an outright ban on the sale on new homes on a leasehold basis. That is welcome and can’t come soon enough, but it leaves open the situation of the thousands of people currently trapped in their homes because the toxic leases they have signed are unsellable. 

Many, but not all, of the buyers knew that the property was being sold to them on a leasehold basis. However, very few were fully aware of the finer detail of what they were signing up to. Almost all were left with the impression that they would have first refusal on the freehold of the property and that it would be possible to purchase the freehold for a reasonable price. However, the figures that were quoted for the purchase of the freehold by the salespeople working for the developers bear little relation to the costs that people were quoted later on, because shortly after they moved in, the freehold of their property was sold, without their knowledge or consent, to a third party that they had never heard of. In many cases, the freehold to their house was moved offshore, so that what they had thought was their home became the property of a string of shady companies operating from a tax haven.

When those living in their leasehold home enquire whether the new freehold owner is willing to sell them the freehold of their home, they are often told no. Sometimes, they receive no response at all. Such responses are not consistent either: neighbours in almost identical houses in my constituency have been quoted wildly different prices to purchase their freeholds.

When the leaseholder eventually receives a quote for purchasing the freehold, they are often quoted an astronomical sum and are told that it is non-negotiable. These quotes are always many times higher than any figure the developer’s sales staff had told them. The same has been true when residents of a block of flats have collectively sought to purchase their freehold and take responsibility for the shared areas themselves. If the leaseholder does wish to proceed with purchasing the freehold they then enter the convoluted and expensive process called enfranchisement. 

The provisions of the lease often require the person wishing to buy the freehold to pay the freeholder’s costs in dealing with the application. Currently, too many leaseholders are prevented from exercising their rights because they cannot afford to do so. One recent example was of a retired couple paying £38,000 to buy their freehold. Such people are being ripped off when they first buy the house, and then ripped off again when they try to buy the freehold.

The Law Commission have been tasked with coming up with a solution to enable people to buy their freeholds more easily but it may be some time before they respond. That is why I introduced my own Private Members Bill, which contained proposals to assist the thousands of people around the country who feel trapped in their own homes.

The Bill’s first aim is to introduce a simple and fair scheme, with a clear and transparent statutory pricing model, where the amount for a leaseholder to purchase their freehold would be capped at no more than ten times the annual ground rent. Such a system would involve a simple formula for calculating the value of the freehold and this would be set out in statute so that everybody knows at the outset what they are dealing with. 

The Bill’s second provision seeks to rebalance the awarding of costs at leasehold property tribunals. The system as it stands reinforces the existing imbalance of power between the leaseholder and freeholder, and the Bill ensures that a leaseholder will not have to pay the freeholder’s costs just to enforce their own rights under the lease. Whether its through my Bill or government legislation the need for a new system along these lines to be introduced must be a political priority.

When people bought their houses, they thought they were doing just that – buying their home. They never contemplated for a moment that the true owner of their home was actually someone they might never know the identity of, who could then sell on their interest in the property to somebody else without their knowledge or consent. 

We need to give people the chance to escape that trap fairly. Greedy speculators have taken the feudal law of leasehold and applied rocket boosters to it to line their own pockets. Change cannot come soon enough.

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Why wood is making a comeback in housebuilding

Timber-framed houses are lighter, cheaper to build and more energy-efficient.

If the 17th century was the age of stone, the 18th was the peak of brick building, and the 20th was built on concrete, then the 21st century, according to Alex de Rijke, should mark “the time for timber”. The director of London-based architecture firm dRMM, which has been working with the material for over a decade, believes that products such as cross-laminated timber (CLT) – a wood panel product made from gluing layers of solid-sawn lumber together – are on course to disrupt the building industry forever. “Timber,” de Rijke told Dezeen, “has significant advantages over steel, concrete or masonry construction in terms of its environmental credentials, speed, weight, and structure.” And if the rising number of mass timber projects – taller buildings with CLT frames, sometimes called “plyscrapers” – is anything to go by, then it would appear that de Rijke is not alone in his thinking. 

He credits a historical reconstruction project as one of the main reasons for wood making its comeback on the building scene. Shakespeare’s Globein the London borough of Southwark, was rebuilt in 1997. According to de Rijke, it forced architects, engineers and planners to reconsider applying timber framework and helped to instil confidence in its use safely and sustainably for complex public buildings and for future housing developments.

CLT, developed in Austria in the early 1990s, has since steadily achieved mass adoption throughout the international architecture trade. This is partly due to the green building drive and widespread aim to make houses or public spaces more energy-efficient. The material is produced off-site in a factory from sustainably sourced timber. It is also much lighter which allows for reduced slabs. Furthermore, the accuracy with which CLT panels can be cut and routed and the inherent structural properties allow for a huge amount of flexibility.

Andrew Waugh, director of Waugh Thistleton Architects (WTA), is thrilled that wood is making its comeback and says that mass timber buildings weigh “as little as a one-fifth of concrete structures”. As a result, he adds, mass timber buildings are a potential solution for construction in dense urban situations. WTA recently completed work on Dalston Lane, a 121-unit CLT mid-rise block of flats located above a Eurostar tunnel in Hackney. 

Built with timber engineering specialists Ramboll, Dalston Lane is a group of stepped towers, the tallest of which rises ten stories. CLT panels were used for the external, party, and core walls of the building, as well as the stairs and the building’s floors. The architects’ use of CLT resulted in a lighter building that allowed the designers to build further up without extensive foundations. The final building, with its staggered tower sizes, Waugh says, maximises exposure to daylight in each apartment. The added height allowed the architects to add 50 more units to the project than originally permitted, which Waugh notes is “a testament to just how light CLT can be”.

Weight aside, Waugh says that wood is more energy-efficient. “We came to using it at WTA mainly for environmental reasons. Concrete and steel are big polluters.” Waugh adds that wood’s insulating properties also make buildings cheaper and greener to heat. “If you were in the snow and you hugged a tree, it wouldn’t be as cold [if it wasn’t snowing]. If you touched a lamppost in the cold, it’d be freezing. If you do the same thing in the summer, the tree wouldn’t be hot, but the lamppost would be. So you’re looking at wood having a much smoother thermodynamic. It insulates better; you don’t need to heat it up or cool it down as much. If you wanted a machine that soaked up carbon dioxide and released oxygen, that’d be a tree.” 

Timber buildings, Waugh claims, involve much less waste than concrete construction. Dalston Lane was shortlisted for the Architects’ Journal’s Most Sustainable Project Award in 2017 and he says that this is one of the project’s most notable achievements. “It’s a third faster to build [using timber] and the pre-fabricated panels, which can be made to the millimetre, mean that there’s little to no waste. Government figures show about a third of the materials that arrive on a construction site using concrete, for example, tend to get sent to a landfill.” According to the Department for Environment, Food and Rural Affairs, the UK generated 202.8m tonnes of total waste in 2014 – over half of which (59.4 per cent) was owed to construction, demolition and excavation. 

Dalston Lane, as well as saving waste, actually adds to the natural environment. In accordance with regulations set by the Forest Stewardship Council (FSC), it plants five more trees to replace every one used in the project. Waugh continues: “We’ve made sure that we are FSC-compliant. In Austria and parts of Scandinavia where we source the trees from, there were massive pine plantations made for paper. But as the world became more digital, those plantations weren’t being used as much. So we found a way of using and maintaining the forests to help with our CLT building.” 

In Leeds, green housing developer Citu is also embracing timber. Citu’s Climate Innovation District, a planned cluster of low-carbon homes, earmarked for completion in the summer of 2021, is being built, according to the company’s founder Chris Thompson, with the UK government’s Clean Growth Strategy in mind. “Energy-efficient housing,” Thompson says, “is a sector which is set to grow over the coming years if you consider the fact that the UK’s buildings account for almost half of the nation’s greenhouse gas emissions, and the government is looking to reduce emissions by 80 per cent by 2050.” 

The Climate Innovation District, which straddles the River Aire in Hunslet, an inner-city district of Leeds, will feature over 500 low-carbon dwellings, including apartments and houses, alongside leisure facilities and offices, as well as a purpose-built factory for the project. The prefabricated timber-framed Citu Home, developed in partnership with Leeds Beckett University, will be available in a mix of one, two, three and four-bedroom versions.

Like Waugh and de Rijke, Thompson views timber as a super material. “Trees sequester carbon in their growth,” he says, “and by using sustainable timber, we are capturing carbon and locking it into our buildings. This is in contrast to other materials that are heavy in carbon in their production. In addition to the carbon factor, it’s a great material to build with – it’s readily available, cost-effective and easy to use.” 

“The construction industry has struggled,” Thompson says, “with productivity improvements for decades.” This is mainly due to the consistency of product and the lack of investment in processes due to short-term cycles. Industrialising this process changes this and shifts the focus onto designing buildings as systems. It changes the way buildings are detailed long before they see a man with a hammer. “In new prefabricated buildings, Thompson says that “the level of quality control is much greater, with teams dedicated around the product, rather than the process. The obvious area is the absence of adverse weather.” Analysis by insurance provider Direct Line for Business, for example, revealed construction companies across the UK could be collectively losing as much as £265m every year because a lack of light in the winter prevents work.

Still, for all their advantages, the savings of timber-framed houses are not currently being passed on to homebuyers. Waugh admits that while he might be able to build at a discount, he has “little influence over whether clients then sell those buildings at a discounted rate”. Waugh suggests that the issue of the housing crisis lies largely with the stand-off between leasehold and freehold ownerships. A leasehold means owning a property on a fixed term, but not the land on which it stands and continued possession of that property will be subject to the payment of an annual “ground rent”. Freehold ownership, meanwhile, means owning the property outright, including the land on which it stands. Nearly all flats in London are leasehold. “It’s a feudal system,” Waugh laments, “and one that’s fraught with opaque practices.” Waugh says that government intervention is “perhaps the only way” to tackle the problem. 

Prices for the Citu Homes in the Climate Innovation District start from £145,000 for one-bedroom apartments and £335,000 for houses. According to Zoopla, the average price paid for a detached three-bedroom house in Leeds over the past 12 months was £342,554. First-time buyers in the Climate Innovation District will be eligible for just a five per cent deposit as part of the government’s help-to-buy scheme. 

Thompson says homebuyers will see significant long-term savings on maintenance because of the houses’ energy efficiency. “The challenge is how we deliver better quality homes, how we increase the supply and how we reduce the costs. The cheapest housing currently tends to be old and leaky. This often leaves occupiers in fuel poverty, making a choice between heating their home and food. The solution is in upgrading our existing housing stock and also in providing new, energy-efficient, but cost-effective homes.”

Rohan Banerjee is a Special Projects Writer at the New Statesman. He co-hosts the No Country For Brown Men podcast.