Monday, February 25, 2019
Is it time to abolish Britain's feudal leasehold system?
There was a useful article in the Telegraph a few days ago, in which the author argued that the recent increase in the number of leasehold properties is undermining people's aspirations to home ownership.
The paper says that between July 2017 and 2018, new-build leasehold sales represented 44 per cent of all new-build by value and 38 per cent by number of properties. Leasehold apartment blocks are taking over, especially in London and the southeast. As if to add injury to this trend, by 2020 the government will have presided over the lowest level of housebuilding of any decade since the Second World War.
The case against leasehold properties is set out in stark terms:
Although Britain must boost supply, creating ever more tenancies is hardly the answer to the housing crisis. Young people should not scrimp, save, and sweat to be mortgaged tenants chained to a depreciating asset.
When you “buy” a flat in England and Wales, you’re still bound by a lease. “Owners” are allowed to live in their home only for a set period. Think of it as a long-term rental, but worse. You still pay an arbitrary, sometimes growing, (ground) rent. Uncapped and unregulated service charges are a constant worry.
Your money still flows to a landlord who nominally owns the building under this peculiar, feudal system of land tenure. With draconian forfeiture, the freehold landlord can take back your property and you lose all equity. Although a relatively rare phenomenon, the landlord can threaten it to get you (or your bank) to pay. What’s more, they can whack you with major works bills that can go into the tens of thousands. All these costs come on top of your mortgage.
Part of the appeal of owning a home is leaving the landlord. Unfortunately, flat living in this country means oppressive landlordism. The law may call the occupier a tenant, but they are expected to pay for the maintenance of someone else’s building. Technically, the occupier doesn’t even own their own flat. It’s the lease, not the property, which is your asset.
A landlord’s profit motive, however, will always clash with the occupier's need to protect their investment. High service charges do not affect the landlord. They can “sweat” the asset, let the building become rundown, while padding service charges. Of course, they’re not supposed to do this, but they know their tenants have to have ample stamina, time and funds to keep challenging them at the tribunal. People just shut up or sell up. It’s how leasehold survives.
The English and Welsh Governments need to step up to the plate and protect prospective purchasers by abolishing leasehold altogether and replacing it with commonhold, which the rest of the world uses.
Commonhold is a system of freehold tenure of a unit within a multi-occupancy building, but with shared responsibility for common services. It was established with the Commonhold and Leasehold Reform Act 2002, but that has not stopped developers continuing to build leasehold properties.
Preventing the development of new leasehold properties is the next big housing reform. Will any government be brave enough to actually do it.
The paper says that between July 2017 and 2018, new-build leasehold sales represented 44 per cent of all new-build by value and 38 per cent by number of properties. Leasehold apartment blocks are taking over, especially in London and the southeast. As if to add injury to this trend, by 2020 the government will have presided over the lowest level of housebuilding of any decade since the Second World War.
The case against leasehold properties is set out in stark terms:
Although Britain must boost supply, creating ever more tenancies is hardly the answer to the housing crisis. Young people should not scrimp, save, and sweat to be mortgaged tenants chained to a depreciating asset.
When you “buy” a flat in England and Wales, you’re still bound by a lease. “Owners” are allowed to live in their home only for a set period. Think of it as a long-term rental, but worse. You still pay an arbitrary, sometimes growing, (ground) rent. Uncapped and unregulated service charges are a constant worry.
Your money still flows to a landlord who nominally owns the building under this peculiar, feudal system of land tenure. With draconian forfeiture, the freehold landlord can take back your property and you lose all equity. Although a relatively rare phenomenon, the landlord can threaten it to get you (or your bank) to pay. What’s more, they can whack you with major works bills that can go into the tens of thousands. All these costs come on top of your mortgage.
Part of the appeal of owning a home is leaving the landlord. Unfortunately, flat living in this country means oppressive landlordism. The law may call the occupier a tenant, but they are expected to pay for the maintenance of someone else’s building. Technically, the occupier doesn’t even own their own flat. It’s the lease, not the property, which is your asset.
A landlord’s profit motive, however, will always clash with the occupier's need to protect their investment. High service charges do not affect the landlord. They can “sweat” the asset, let the building become rundown, while padding service charges. Of course, they’re not supposed to do this, but they know their tenants have to have ample stamina, time and funds to keep challenging them at the tribunal. People just shut up or sell up. It’s how leasehold survives.
The English and Welsh Governments need to step up to the plate and protect prospective purchasers by abolishing leasehold altogether and replacing it with commonhold, which the rest of the world uses.
Commonhold is a system of freehold tenure of a unit within a multi-occupancy building, but with shared responsibility for common services. It was established with the Commonhold and Leasehold Reform Act 2002, but that has not stopped developers continuing to build leasehold properties.
Preventing the development of new leasehold properties is the next big housing reform. Will any government be brave enough to actually do it.
