By Dermot McKibbin
The 1997 Labour Election manifesto described the leasehold housing tenure as not worthy of the 20th century. The leasehold form of ownership is feudal in nature. You pay for a lease and when the lease expires, you revert to a mere tenant unless your lease is extended. It is a wasting asset. If you break the terms of your lease, or fail to pay your ground rent, the freeholder can apply to court for forfeiture of your lease.
Former commonwealth countries such as America and Australia have a communal form of ownership to deal with flats in blocks. Scotland has abolished ground rent.
The 2002 Commonhold and Leasehold Reform Act sought to replace the leasehold tenure with a system of Commonhold. The freeholder interest would be replaced by a Commonhold system of ownership whereby all flat dwellers owned a share of the freehold. The residents could decide how to run the building themselves instead of the freeholder.
Unfortunately the Commonhold system failed. It was only voluntary for new build schemes. For existing leaseholders they would have to obtain the agreement of all other leaseholders in their block to transfer to the Commonhold system. This proved impossible to achieve.
Since the Act became law there has been a large increase in the number of applications to the first tier property tribunal to determine the lawfulness of service charges. The number of applications to the property tribunal has gone up by 400% in 10 years. Unfortunately these tribunals are now too legalistic. Freeholders have deep pockets to pay lawyers who run rings round the average leaseholder.
In August 2014 the Coalition Government published an important technical study into how many leaseholders there were in England. This showed that the number of dwellings owned by leaseholders was 4.1 million. This was much higher than the previous figure of 2.5 millions leaseholder households.
Whether Labour likes it or not the number of housing association leaseholders is likely to increase. Indeed over 40 % of all newly built properties in England are leasehold. In London the comparable figure is over 60%.
The English Housing Survey 2013-14 revealed 7.4 million households who owned outright, 6.9 million households who had a mortgage, 4.9 million private rented households and 3.9 million households who rented either from a local authority or a housing association. Labour cannot ignore the votes of owner-occupied households.
Apart from the Labour commissioned Redfern Review into the decline of home-ownership, there has been little debate within the Party about the housing problems of the dominant tenure such as mortgage repossessions, how to deal with disrepair problems or the fact that under universal credit unemployed home owners will have to wait 9 months before they receive any state help to pay their mortgage.
There has been research into the amount of unlawful service charges or detriment that exists in the leasehold housing market. A 2011 Which survey estimated the annual detriment to be £700 million. This was based on the number of leaseholders being 1.8 million leaseholders.
In December 2014 the Competition and Markets Authority published a much criticised study of the residential property market. No mention was made of the strict forfeiture rules or of the Law Commission’s proposals to abolish these rules. The supreme court decision that seriously undermined the legal rules about how a freeholder consults with leaseholders was not mentioned. There was no review into how successful the 2002 Act had been.
The report did cautiously estimate that the annual detriment could range between £34 million and £98 million a year. It is likely that the actual figure is considerably higher.
The study concluded that there was little need for statutory regulation. Most problems could be resolved by voluntary measures. Unsurprisingly the Tories endorsed this approach.
The Guardian has recently exposed how volume builders such as Taylor Wimpey are making money out of the building and selling of leasehold houses. The freehold is sold to developers who have the right to increase the ground rent by 200% every 10 years. This makes the property virtually unsellable.
This practice has been condemned by John Healey MP the Shadow Housing spokesperson. Unfortunately there is no evidence that the Party as a whole is aware of the need for leasehold reform. Labour cannot afford to ignore the plight of the growing number of leaseholders.
Many freeholders such as the Duke of Westminster have close links to the Conservative Party. Labour needs to develop a clear position on leasehold reform and to expose the links between freeholders and their political allies if they wish to win the political support of leaseholders at the next election.
Dermot Mckibbin is a retired housing lawyer who until recently worked for Greenwich Housing Rights. He is interested in leasehold reform.