Will the UK's feudal system be abolished as a result of leasehold reforms?

The feudal system of property ownership in Britain is being redesigned

According to Simon Wilson, the time is right.

Leasehold: What is it?

Almost all apartments in England and Wales are owned under the leasehold system, which is incredibly rare elsewhere in the world.

In 2000, the closest equivalent in Scotland, called "feuhold," was eliminated. Instead of truly owning the apartment or the land, the "owner" of a leasehold apartment only obtains the right to do so for a predetermined amount of time.

A freeholder (also known as a "landlord") provides a lease (usually for 99 or 125 years, but occasionally for up to 999 years) while keeping ownership.

The leaseholder pays the freeholder an annual service charge to cover insurance and upkeep of common areas, in addition to a "ground-rent" fee. The freeholder regains all ownership of the property after the allotted time has passed.

In reality, this implies that the leaseholder must bargain for lease extensions at a price or risk having their asset's resale value decline.

In what ways is leasehold prevalent?

In England, there are over 40.7 million leasehold homes, making up 19% of the country's total housing stock. Furthermore, that total has been increasing quickly since 2019roughly 100,000 new leasehold properties annuallydespite all of the bad press in recent years and growing apprehension about the entire model.

In general, a higher percentage of leasehold homes are found in areas that are more densely populated and have more apartments than houses.

The north-west of the country has 910,000 homes, or 27% of all dwellings, compared to 11.3 million in London, which makes up 36%.

What is the issue with the system of leasehold?

Large landowners first used leasehold to rent out their land to peasants for farming, and then for building, while keeping freehold ownership.

Because it allows them to potentially profit from recurring ground rent and service fees, developers like it. Additionally, it gives apartment buildings and remodeled homes a means of overseeing common areas and general upkeep.

In that way, it resolves a genuine issue where someone needs to keep the building maintained.

According to Matthew Brooker on Bloomberg, the problem is that the system is vulnerable to exploitation, price gouging, and scams by dishonest freeholders (and their managing agents). "A lot of outrage and frequent disputes center on excessive and opaque service charges. And those "fleecehold" abuses have gotten more obvious and indecent in recent decades.

What issues does leasehold present?

The Financial Times claims that there have been numerous instances of freeholders establishing exorbitant and spiraling "ground-rent" payments that keep leaseholders in their properties by rendering them unsellable, overcharging, and even paying kickbacks on contracts.

Developers have reportedly sold one million brand-new homes under leasehold, frequently with burdensome conditions, just to generate a steady flow of income.

Critical fire safety measures have been delayed in certain buildings due to uncooperative freeholders.

However, the procedure for leaseholders to contest their freeholder or take back control of the building is difficult, costly, and time-consuming.

Due to all of these factors, as buyers weigh the risks, the value of apartments has decreased in recent decades in comparison to the value of homes. Furthermore, the current Labour government and the previous Tory government have both committed to reforming the leasehold system.

What reforms has the government made to leaseholds?

A set of reforms being passed by the government are seen as the "beginning of the end" for the leasehold system. Parliament swiftly passed the Leasehold and Freehold Reform Act just prior to the July 2024 election. However, secondary legislation will be necessary for the majority of its provisions, which have not yet taken effect.

In addition to removing the need to pay marriage valuethe increase in value that results from extending a leasethe act also makes it easier and less expensive for leaseholders to purchase their freehold or extend their lease.

In addition, it will raise the typical lease extension term to 990 years, cap ground rents, eliminate the possibility of forfeiture, and lower ground rent to a peppercorn, or zero monetary value. With a few exceptions, it will also outlaw leaseholds for newly constructed homes.

Additionally, a new leasehold and commonhold reform bill has been announced by the government. It is expected to be completed this autumn and will make commonhold the default tenure for new properties.

Commonhold: what is it?

In a commonhold, each individual owns their apartment outright, but a commonhold association (a unique kind of corporation) owns the common areas of a building or development, such as the roofs, common hallways, and common gardens.

In North America and continental Europe, comparable legal systems are typical.

A commonhold is comparable to the contemporary "shared freehold" scenario, in which two or more building owners jointly own the building's freehold while leasing their individual apartments back to one another as leasehold properties.

But with commonhold, the legal framework governing the arrangements is more clearly defined and regulated.

Will the implementation of leasehold reform resolve the issue?

Not everybody holds that view. Because developers dislike it, they might be less inclined to build.

Because it's an unproven model and they don't know how to price the risks, lenders don't either.

Others who advocate for leasehold reform are also not convinced.

"The governments half-baked intervention risks creating a new two-tier market" if current leaseholders do not have a clear path to commonhold, according to Harry Scoffin of the Free Leaseholders lobby group.

According to Labour's current proposals, current leaseholders would have to purchase the freehold of their buildings from their landlords prior to converting. That's costly, though, frequently amounting to tens of thousands of pounds per leaseholder.

Labour has disregarded the Law Commission's recommendation that they be assisted by government-backed loans.

However, Brooker notes that at this point, the doubts are more practical and technical than fundamental. "It is evident that change is desirable. The serfs who lived in England's castles ought to break free from their bonds.