How Do You Solve a Problem Like Leasehold?

By Karen Chui

Principal Associate

The Queen’s speech this year seems to herald her government’s intention (in England and Wales at least) to finally address this most thorny of problems that were identified since the consultation first began back in 2018, associated with leasehold ownership.

Why would an ancient mechanism that seems to require residential leaseholders to pay an increasing sum of money regularly to the freeholder, for no apparent reason except for the fact that the lease says so, still persist? Why is it not possible to increase the length of time your lease runs without incurring onerous legal fees and taking exorbitant amounts of time?

Many owners of flats and properties across England and Wales have probably been asking themselves the same thing and why is it a problem that people find this so hard to solve? The reality is that leasehold has been around for centuries and for good reason. It is pervasive, common and popular because it is what people know and widely accept even though it is not without its flaws.

There is and always will be a need for something different to freehold, to maintain responsibilities for different types of properties and ownership. Although it is usually associated with flats, it has wider implications and applies not just to the small number of unfortunate flat owners that the media have identified, importantly it evolved organically based on free market principles. Tweaking one aspect like Ground Rent to ‘fix it’ will inevitably have unintended consequences and there is general acknowledgment that it is not possible to change one thing without changing many others. Previous government interventions such as enfranchisement where people were given rights to extend their leases have often resulted in complex legislation where even a law degree will not necessarily give you an advantage and means that uptake is limited.  

A draft Bill is now making its way through our legislative process and once again brings the spotlight on Leasehold Reform, specifically Ground Rent as a starting point. This will now no doubt open up the many competing strands to public scrutiny and we will be analysing to the nth degree not just whether it should be abolished, but what in fact is Ground Rent, what it should be replaced with (if at all), who should fairly benefit from this change and who should bear the burden. This is an indication at what a mammoth task this is going to be. The fact that it is suggested that the changes should be limited to new leases only on newly built properties shows what a tangled web has been woven. For those who already own properties with problems, it is a lamentable situation that people think it cannot be applied retrospectively but shows how there are many more stakeholders to factor into the equation such as freeholders, investors and lenders.

What it probably needs is a collective appetite and political will for meaningful change to take place and really make a difference. We can only hope that this time there will be fewer distractions and a fresh opportunity for the legislature to review this entire area to ensure that going forward the laws will be fairer, simpler and more coherent.

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