The home front

  • The feudal laws that still govern a fifth of homes in England and Wales could be about to change, thanks to a nurse’s campaign to banish leasehold property
  • But powerful freeholders have threatened legal action and the government could face compensation bills running into billions of pounds if the law is changed
  • It is a tipping point for the leasehold system that dates back almost 1,000 years

By Martina Lees

Katie Kendrick doesn’t like “just moaning”. So when the right to own her family’s brand new leasehold house was sold from underneath them, the Cheshire nurse started a Facebook campaign to abolish the system that made this legal. Their freehold, she found, now belonged to a £1.4bn fund run by William Waldorf Astor IV, former Prime Minister David Cameron’s brother-in-law – and its price had rocketed threefold to £13,350. “If something’s wrong, it needs to be fixed,” says Kendrick, 37. “But I didn’t quite realise that it would be me fixing it. I didn’t realise how big it was going to get.”

Two years and almost 13,000 members later, her National Leasehold Campaign group on Facebook is galvanising record responses to a raft of official consultations that could finally reform leasehold law. Yet powerful freeholders have already threatened judicial review to the government, which risks facing compensation claims of billions of pounds. It is a pivotal moment for the feudal practices that still control at least a fifth of homes in England and Wales.

Chris J. Ratcliffe/Bloomberg via Getty Images

Muswell Hill's view of Canary Wharf

These two countries, along with a handful of former British colonies including Hong Kong and Singapore, are among the last in the world allowing a property owner, or “freeholder”, to grant a “leaseholder” the right to live there for a set period of, say, 99 years. Yet the freeholder remains the real owner. That idea dates back almost 1,000 years, to when William the Conqueror claimed all of England for the crown, then leased estates to his lords on strict conditions – and they, likewise, leased land to tenants.

Today, it entitles freeholders to levy high prices for lease extensions, service charges for upkeep, consent fees for any changes and annual “ground rents” that buy nothing at all. “Why do we have ground rents? The answer is greed,” says Sir Peter Bottomley, a Tory MP and co-chair of the all-party parliamentary group on leasehold. The group has grown to 161 MPs and peers as developers were exposed countrywide for selling homes with ground rents that double every decade. Bottomley, 74, sitting on a secure majority in a south coast seat which he has represented for more than 20 years, is not a natural revolutionary. But speaking in his book-strewn Westminster office overlooking the Thames, he reveals his passion for a fight which may be polite, but goes to deep questions of liberty.  “In a way, it’s residential slavery, where in effect you have to buy your freedom or go on being exploited … People ought to be shouting out, ‘No more exploitation, end it now’.”

“People ought to be shouting.” It is a peculiarly mild battlecry for a very English civil war, with echoes of age-old inequities in the relationships between an elite landed gentry and ordinary citizens.

The government has vastly underestimated the scale of the problem, calculating that there were only 2.5m leasehold homes in England as recently as 2014. Thanks to research by the Leasehold Knowledge Partnership (LKP), a charity founded by the veteran property journalist Sebastian O’Kelly, ministers have upped the number to 4.3m. After further study, LKP now puts the figure at 6.6m for England, plus 200,000 leasehold flats in Wales.

Separate analysis of all leasehold titles registered on the Land Registry, compiled exclusively for Tortoise by the search app Land Insight, confirms there are at least 5.3m such homes in England and Wales – meaning the current official figure is still 23 per cent short. “Why should this nonsense continue? The rest of the world does not sell communal homes – flats – as tenancies,” O’Kelly says.

The Erin Brockovich of Ellesmere Port

It is fair to say, the fight has taken over Kendrick’s life. A paediatric nurse, who puts in 13-hour shifts caring for sick children, she comes across as an instinctively warm and practical person, who cares deeply about the impact on the health and well-being of people caught in the leasehold trap.

“Every second I’m not working, I’m doing this,” she says, of the campaign she runs from the £214,000 terrace in Ellesmere Port, Cheshire, she bought with her husband in 2014. (When their son, Jack, 7, heard George Michael sing “Freedom!” on the car radio, he enthusiastically mistook it for “Freehold! You’ve gotta give for what you take…”)

Paul Cooper

Joanne Darbyshire says she was mis-sold her home

With two other working mothers who also bought new leasehold houses in the northwest – Joanne Darbyshire, a company director, and Cath Williams, a university lecturer – Kendrick has helped prompt the government to ban selling most new houses as leasehold and pledge nominal “peppercorn” ground rents for all new leases. But that won’t free the millions of families already affected. “We’re up against these incredibly rich and powerful people,” says Darbyshire, 48. “It’s a bit Erin Brockovich.”

Their planning over pots of tea at the kitchen table has inspired a campaign that has seen a near-record 6,000 responses to a government consultation on unfair leasehold practices; 2,600 submissions to the first of three lengthy leasehold reform consultations by the Law Commission, which advises parliament; and 700 pieces of evidence to an inquiry by the housing select committee of MPs into whether the state should intervene. When these MPs asked a packed roundtable of leaseholders what should be done, one answered: “Abolish leasehold.” “An absolute roar came from everyone in the meeting. It is not very often that ministers get that sort of acclamation,” Clive Betts, the select committee’s chair, recalled during its inquiry. Their report, due this month, is expected to be highly critical of the leasehold system.

“We’ve seen an increasing number of bad practices by freeholders using the leasehold scheme,” says Nicholas Hopkins, the law commissioner for property. “Looking across the whole of leasehold law, it’s not fit for purpose.”

Courtesy of Katie Kendrick

The National Leasehold Campaign out in force

However, freeholders are shaping up for battle. The Law Commission’s plan to reform how you buy or extend your lease, called “enfranchisement”, has more than 60 mentions of freeholders’ human rights. Why? Flanked by five colleagues in Westminster, Hopkins tells me he understands why leaseholders find it hard to hear them talk about “the human rights of offshore companies that own a freehold”. But if they don’t comply with human rights law, “the legislation would be struck down and … the government could be required to compensate freeholders for that interference”.

“For that compensation, we’re talking tens if not hundreds of billions of pounds,” says James Wyatt, a surveyor who has brought a landmark case to challenge the maths behind lease extension prices. He estimates consumers overpay £480m a year to enfranchise. “The government is effectively looking at altering contractual law,” adds Louie Burns, the chief executive of Leasehold Solutions. “The last time that happened at this scale was when they abolished slavery.”

It’s too early to sue, but a freedom of information request shows that lawyers acting for at least two major groups of freeholders have already threatened the Law Commission with “judicial review” if it did not delay its enfranchisement consultation deadline. “There is a risk that the consultation will be subject to judicial review on the grounds of procedural impropriety,” according to a letter by Winkworth Sherwood, which says it acts for institutional freeholders, freehold management companies and developers. “We reserve the right to commence judicial review proceedings,” wrote the Alan Mattey Group, which owns about 25,000 freeholds. Earl Cadogan’s Knightsbridge estate and William Astor’s Long Harbour group – but no leaseholders – were also among those writing to ask for more time. The deadline was indeed extended.

Glossary

  • Leaseholder Tenant who owns the right to live in a property for a set period, typically 99 or 125 years, after which the home goes back to the freeholder
  • Freeholder Third-party landlord who owns the property itself but leases the right to live there to a tenant, or leaseholder, under strict conditions for a set time, for example 125 years
  • Lease extension Renews the leaseholder’s right to live in a property, usually for another 90 years
  • Service charges Annual fee for upkeep, buildings insurance and onsite services such as a concierge or gym
  • Consent fees Fees paid to a freeholder to permit any changes, such as home improvements, renting out the property, getting a pet or changing mortgage provider
  • Ground rent Annual charge that does not pay for anything at all but only signals that the property belongs to the freeholder.
  • Commonhold Property system where you own your flat or house outright and indefinitely, and the development of which it forms part jointly with neighbours
  • Erin Brockovich Legal clerk and mother, played by Julia Roberts in an Oscar-winning film, who won a $333bn settlement against an energy giant over contaminated drinking water

 

For Burns, the fight can’t come soon enough. He travels the country to rally leaseholders at roadshows, then carries his worn leather satchel back to his rented family home in Folkestone. While most leasehold valuers and lawyers rely on ongoing business from freeholders, his three firms only act for leaseholders. “I started to listen to their stories: people whose marriages split up, people who have killed themselves because of the stress of doing this. Eventually you just get filled with a white hot fury. This is so iniquitous that rich people are able to parasitically survive off a system that was put in place by rich people for rich people and they trade on the fact that this is so complex, no one could ever understand it. I want it to be abolished – that’s my life’s goal.”

Kendrick says she has received some harrowing phone calls from people driven to despair by leasehold. One of them was Louise O’Riordan, 42, who discovered that the freehold of her family’s new leasehold house in Bedfordshire could be sold on – exposing them to high future charges, just like Kendrick’s. She says sales staff had claimed their freehold would always belong to the nearby college, but then found out that Linden Homes had in fact bought it.

Tom Pilston

Louise O Riordan in Bedfordshire, UK

“I wanted to end my life over this,” O’Riordan says. Having grown up in care, she had overcome alcoholism and sexual abuse by her foster father, who was jailed after she spoke out. The £267,950 terrace was meant to be her family’s new start. But the “pressure of having to fight to be heard” by their freeholder drove her husband, 43, to a breakdown and their marriage to the brink of divorce.

“I’d built up this life. I’ve been sober for years, I met my husband, I’ve got a lovely 11-year-old stepdaughter whom I adore and I felt I was doing well. And I was about to lose her and him over that,” O’Riordan tells me, wiping away tears. “We were absolutely great before we went there. I thought, it was the first stable home I’ve ever had, the first I’d ever owned… It was the closest I had ever come to ending it. The only thing that kept me going was Katie saying, ‘You’re stronger than this, you’ve been through a lot and you can keep going.’”

Linden Homes offered O’Riordan her freehold for £6,250; the couple eventually bought it for £3,100. They are back together, seeing a therapist. “Even now that we’ve got the freehold, we don’t really own it,” O’Riordan says. Restrictions in their 499-year lease were carried over to the freehold title, meaning they still have to pay the estate’s managing agent for consent just to paint their front door.

Linden Homes says its sales procedure follows the required industry standards. “All customers were aware that properties at [this] development were leasehold at the time of reservation and full title ownership was disclosed to buyers’ conveyancing solicitors … prior to exchange of contracts. We deem the estate management charges to be reasonable and appropriate.”

Antony Jones/UK Press via Getty Images

William Astor runs Long Harbour

Despite national success, Kendrick’s two-year campaign has not changed her own situation. Her freehold still belongs to Adriatic Land 4 (GR1) Limited, part of the £1.4bn Long Harbour ground rent fund run by William Astor. Its £13,350 price is three times what she says the developer’s sales staff had promised them in 2014. Kendrick has declined the fund’s “informal” offer to sell her the freehold, because she would still have to pay fees to the estate for permitting changes to her home. She is now teaming up with neighbours to legally force the sale of the freehold, but estimates that it will take a year and a “very large chunk of money”.

HomeGround, Long Harbour’s freehold management arm, says it is “not in a position to comment on discussions that took place at the point of sale” between Kendrick and the original developer. Once a leaseholder has bought their freehold, “HomeGround would not levy any charges whatsoever”.

In an interview, Richard Silva, executive director of Long Harbour, says institutional freeholders like them act as “a professional steward that takes a long-term view” of increasingly complex developments mixing flats, shops and hotels with complicated lift and energy systems. “We think it’s well overdue for a refreshment and a bringing up to date of the existing leasehold structure. Do we think it’s time to throw it out and do something completely different? No, we don’t.” The group says it has suggested an online calculator to help simplify the process of buying your freehold, and supports the government’s proposed ban on onerous ground rents and leasehold houses.

But Kendrick won’t rest until leasehold is abolished altogether. “All the abuses of leaseholds with flats have been going on for years. What’s tipped the balance now is the fact that they’ve got so greedy they’ve gone over to houses. It was the icing on the cake that alerted to people how unjust this leasehold system actually is.”

The sticking plasters are falling off leasehold, says Nicholas Hopkins, the law commissioner charged by the government to make the system fairer. “We need wholesale reform.”

His team of 19, with a budget of £2m – the biggest the government has ever given the Law Commission to advise on any legal reform – are in the midst of three lengthy consultations on leasehold. One will simplify how you extend or buy your lease; another how you can take over management of your building. But it is the third, on commonhold as an alternative form of ownership, that could transform the property market long term. This key consultation closes on Sunday 10 March.

“There are two big issues with leasehold,” Hopkins tells me at his Westminster offices. “You have a wasting asset: as soon as you buy your lease, the clock is ticking. At some point, either that property goes back to the landlord or you have to enfranchise, which is expensive.” The second concern is the relationship with a third-party landlord, “so you don’t have the control people expect when they buy their home … Reform of leasehold can mitigate the effect of those, but it can’t remove them. The only way to remove those concerns is to move to a different form of ownership.”

The rest of the world has adopted a commonhold system where there is no time limit and no landlord. Instead of “us and them” ownership, it’s “us and ourselves”: you own your home outright and the development jointly with neighbours. Even Scotland, Northern Ireland and Britain’s former colonies have converted – Australia calls it strata titles, and America condominiums. But even though commonhold law was introduced in England and Wales in 2002, they have seen more books on it than actual buildings. Fewer than 20 have been built, and only one is thought to have converted from leasehold.

To convert, the current law requires consent from everyone with an in interest in the building: all the leaseholders, all the lenders and the freeholder. “It is almost impossible to obtain,” the Law Commission reports. It proposes to lower the barrier to 50 or 75 per cent of leaseholders to transfer lenders’ charges automatically and give leaseholders the right to buy out the freeholder’s interests as part of the deal.

Peter Matthews/Construction Photography/Avalon/Getty Images

Canary Wharf, Docklands, London

Yet 50 per cent is too high to help leaseholders in large schemes such as Canary Riverside, where they paid up to £3.5m for their flats only to endure a decade-long war with their billionaire freeholder over unfair service charges. “Brexit was triggered by 37 per cent of the electorate,” says one resident, noting that decisions of national significance can be passed based on smaller representations. “There seems to be a higher threshold in leasehold than in any other form of democracy.”

Though commonhold will help leaseholders who can afford to convert in the long term, the Law Commission has no answers for many struggling now. Its current proposals does not cover those who have spiralling ground rents, excessive service charges and punitive consent fees to make any changes to their homes – and, should they fight it in court, will usually be liable for the freeholder’s far higher legal costs even if they win.

“I hope that what we do now is a start of a bigger process … of reform that would enable us to look at the other concerns,” Hopkins says. “We’re talking about the basis of how people own their homes, which is a very fundamental thing – so fundamental that the law should be as clear as it can be.”

So will the government abolish leasehold for all newbuild, in favour of commonhold? I ask James Brokenshire, the housing secretary in person. “I can’t go that far at this point because I need to look at the commonhold proposals,” he tells me. Brokenshire condemns “some of the frankly appalling behaviour we have seen in the sector” and says he is awaiting detail on “how we give that sense of redress to people who frankly have been taken advantage of”.

Getty Images

At least a fifth of homes in the UK are leasehold

The Law Commission will hand its proposals to the government before the end of the year, but they won’t be legally binding. Ministers will decide what to do. If they legislate to reduce ground rents to nil or prescribe cheaper lease extensions, the government risks having to compensate freeholders for their loss of contractual income.

“We’re halfway between sticking plasters and significant reform,” says Sir Peter Bottomley, the avuncular Westminster standard-bearer for leasehold reform. To bring wholesale change, the government should “declare that the commonhold system is going to replace the leasehold system on new homes within a certain period”. It should also use “strong declaratory policy” to encourage the transfer of existing leases, “so that perhaps over the next 40 years, two thirds of leasehold blocks will become commonhold”. Ministers could, for example, announce that ground rents will diminish over the coming decades so freeholders “have a diminishing capital asset, not an increasing one. You give them an incentive to do a deal with their leaseholders and get out.”

Further reading

  • This parliamentary briefing summarises what the government is doing to reform leasehold and details official statistics on the property system’s extent in England and Wales. A parliamentary select committee inquiry into whether the reforms go far enough is due to announce is findings this month.
  • The Leasehold Knowledge Partnership (leaseholdknowledge.com), founded by the veteran property journalist Sebastian O’Kelly, doesn’t mince its words in campaigning to abolish the “feudal” leasehold system and offers hands-on advice for leaseholders. Its chairman, Martin Boyd, has wrested control over luxury flats in Kingston, southwest London, away from Britain’s biggest freeholder, Vincent Tchenguiz, in favour of residents and now regularly represents leaseholders at tribunals.
  • Katie Kendrick’s National Leasehold Campaign (nationalleaseholdcampaign.org) has a Facebook group with about 13,000 members, supporting owners of leasehold houses and flats.

 

Key dates

  • Parliamentary inquiry: The housing select committee is due to publish findings of their inquiry into leasehold reform in the week beginning 18 March. Likely to be highly critical of the law
  • Law Commission: consultation on commonhold (the big solution) closes 10 March
  • Law Commission: consultation on leaseholders’ right to manage their own blocks closes 30 April. That’s the last of the three big legal reviews on leasehold to close
  • Government: the housing ministry will publish the outcome of its second big leasehold consultation soon. This will say whether or not ground rents on all new and extended leases will really go to zero, which would be a crucial step