Election special: Manifesto pledges on leasehold reform


For this special election episode of Good Landlording, Richard Jackson and Suzanne Smith pick apart the pledges that the political parties make in their general election manifestos for leasehold reform in England and Wales. (This episode does not apply to Scotland or Northern Ireland, where the law is different).

This episode is useful for all leaseholders, not just landlords who own leasehold flats and houses.

Suzanne and Richard explain what ground rent is, why it’s become controversial, the reforms to date, and where the various parties stand on capping existing ground rent.

Both Labour and the Conservatives specifically promise to move to commonhold, and Suzanne goes through the differences between commonhold and the existing freehold and leasehold structure. They also discuss plans to end the misuse of forfeiture and so-called “fleecehold” estate charges.

As always, it’s a practical episode, which helps landlords who own leasehold properties, like Richard, understand how the reforms may affect them, whoever wins the general election. It expands many of the issues they discussed in #10: Tips to help landlords self-manage their buy to lets.

>> Submit a question: Click here for question form

leasehold flats along a road

Overview of leasehold reforms to date

According to Official Statistics from 2022-23, there are 4.77 million leasehold properties in England, which is almost 20% of the English housing stock. Of these, 38% (or 1.8 million individual properties) are privately owned and let by landlords in the private rented sector.

As there are 4.6 million properties in the PRS (English Housing Survey 2022-23), 39% of properties in the PRS are leasehold.

Leasehold reforms have been a long time coming. Theresa May’s government consulted on “tackling unfair leasehold practices” in 2017, and the Conservatives’ 2019 manifesto promised to “continue” leasehold reforms including restricting ground rent to a peppercorn and banning the sale of leasehold houses.

“We will continue with our reforms to leasehold including implementing our ban on the sale of new leasehold homes, restricting ground rents to a peppercorn, and providing necessary mechanisms of redress for tenants.”

The Leasehold Reform (Ground Rent) Act 2022 and the Leasehold and Freehold Reform Act 2024 started the reforms in that ground rent for new leases was abolished and the sale of new leasehold homes was banned, but ground rent for existing leases was not restricted.

The Leasehold and Freehold Reform Act, when implemented, will bring in a lot of reforms. It promises to make it easier and cheaper for leaseholds to extend leases up to 990 years, and buy out the freehold in the case of houses and a share of the freehold for flats.

>> Blog post: Practical Guide to the Leasehold and Freehold Reform Act 2024

Capping ground rent

What is ground rent?

Ground rent is a sum of money which the owner of a leasehold property, a flat or a house, pays each year to the owner of the freehold,  and the freeholder, who does nothing in return for it. 

Freeholders don’t provide any services for ground rent. The leaseholder pays for any services and maintenance through service charges, which is a separate mechanism.

What’s the meaning of a peppercorn ground rent?

A peppercorn ground rent does literally mean the payment of a peppercorn, which is a form of valid consideration (payment in legalese). It’s also used as a synonym for a small sum such as £1 or 1 penny.

Ground rent can vary from this sort nominal value to a significant amount that increases over the term of the lease, eg by reference to inflation or to a formula whereby the ground rent doubles every x years.

Ground rent is an obligation under the lease and the leaseholder must pay it on the due date.

Ground rent reform to date

The Leasehold Reform (Ground Rent) Act 2022 abolished ground rent for leases granted on or after 30 June 2022. The only permitted rent is a “peppercorn rent”, which Section 4(3) of the Act states is “one peppercorn”.

However, ground rent remains in place for existing tenancies, although some developers have agreed to cap the clauses after intervention by the Competition and Markets Authority.

Although the 2019 Conservative Party manifesto promised to restrict ground rent to a peppercorn, and Michael Gove published a consultation in December 2023, the restriction of ground rent did not make it into the Leasehold and Freehold Reform Act 2024.

Why is ground rent controversial?

Ground rent has historically been a nominal sum, but from around the turn of the 21st century, developers and freeholders began to see ground rent as an revenue stream. They began to introduce onerous clauses whereby ground rent would double every 10, 20 or 25 years, or link it to the Retail Prices Index.

Onerous ground rent clauses can make it difficult for leaseholders to obtain a mortgage or sell their property.

The Competition and Markets Authority has intervened for some of the worst cases, saying that they were unfair terms and were mis-sold. Many construction companies, for instance Countryside, Crest Nicholson, Redrow, Taylor Wimpey, entered into an undertaking with the CMA to cap them. But a lot of the less egregious ones are still in place.

What do the parties promise about reforming ground rent?

There is political consensus on restricting ground rent, with the following statements in the 2024 general election manifestos on this aspect of leasehold reform:

  • Labour: “We will tackle unregulated and unaffordable ground rent charges”, but they don’t how they would do this.
  • Conservatives: “We will cap ground rents at £250, reducing them to peppercorn over time”. This backpedals from their commitment in 2019 to restrict ground rents to a peppercorn. It also doesn’t explain what “over time” actually means.
  • Liberal Democrats: They commit to ”capping ground rents to a nominal fee”.
  • Reform: “All potential charges for leasehold or freehold residents (sic) must be clearly stated and consented to”, which does not make sense, as ground rent is a contractual term in a lease that the leaseholder and freeholder agree to.

Making commonhold the default tenure

What is commonhold?

Commonhold is a form of ownership for blocks of flats and similar developments. Each unit-holder owns the freehold of their home, and a commonhold or residents’ association owns and manages the common parts of the property.

What the parties say about commonhold in their manifestos

This is what Labour, the Conservatives and the Liberal Democrats say about commonhold as part of leasehold reform in their 2024 election manifestos:

  • Labour: “We will enact the package of Law Commission proposals on leasehold enfranchisement, right to manage and commonhold. We will take further steps to ban new leasehold flats and ensure commonhold is the default tenure”.
  • Conservatives: “We will make it easier to take up commonhold”. They don’t explain how they would do this.
  • Liberal Democrats: They promise to abolish “residential leaseholds […] so that everyone has control over their property”. Their manifesto does not specifically mention commonhold, but that is the implication.
  • Reform: No mention of commonhold.

>> Useful Resource: Law Commission proposals on Residential leasehold and commonhold

Ending the “misuse of forfeiture”

Forfeiture is the legal entitlement of freeholders to “forfeit” (that is, terminate) a lease if the leaseholder breaches a term of the lease, eg unpaid ground rent, service charges or administration charges totalling more than £350.

The freeholder usually needs to take the leaseholder to the First-tier tribunal or an arbitrator, and there must not be an outstanding arbitration appeal about the outstanding charges.

However, unlike repossession by a mortgage company, the freehold takes the entire lease back, and does not offset the sum owed against the value of the lease.

The Conservative manifesto states: “We will end the misuse of forfeiture so leaseholders don’t lose their property and capital unfairly”. The manifesto does not clarify what “misuse” means.

The manifesto of the Labour Party does not mention forfeiture. However, the Shadow Housing Minister, Matthew Pennycook, did table an amendment at the Report Stage in the House of Commons to abolish forfeiture for long leases. See NC5 in the House of Commons Report Stage Decisions.

It is therefore likely that future leasehold reform by a Labour government would include the abolition of forfeiture for long leases.

Abolishing “fleecehold” estate charges and maintenance costs

The Labour Party are the only ones to make a specific commitment about “fleecehold” estate charges (service charges levied on freeholders to maintain a private housing estate) in their election manifesto.

Labour make the following commitment: “We will act to bring the injustice of ‘fleecehold’ private housing estates and unfair maintenance costs to an end”. 

Conclusion

Whichever party wins the 2024 general election, it is clear from the manifestos that leasehold reform will continue.

Credits

Music: “Paradise Found” by Kevin MacLeod of Incompetech. Licensed under Creative Commons: Attribution 4.0 License.

General election: what the manifestos say about leasehold reform with an image of blocks of flats

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