TLDR;
This episode of Reality Check discusses the leasehold system in England and Wales, highlighting its flaws and the need for reform. Harry Scoffen, founder of Free Leaseholders, explains how the system has become a "cash machine" for freeholders, who often exploit leaseholders with excessive fees and service charges. The discussion covers the historical context of leasehold, the impact of the Grenfell Tower tragedy, and the potential for commonhold as a replacement. It also addresses concerns about the financial implications of abolishing ground rents and the political challenges in achieving meaningful reform.
- Leasehold system is exploitative, turning homes into "cash machines" for freeholders.
- Commonhold is proposed as a better alternative, similar to systems used worldwide.
- Powerful vested interests lobby against reform, capturing politicians and media.
- The current system negatively impacts the property market, particularly flats.
- There's a need for political will and action to address this injustice and protect homeowners.
Introduction to the Leasehold System [0:00]
Michael Simmons introduces the topic of leasehold reform, noting that Labour had promised to address the issues in their manifesto. He welcomes Harry Scoffen, founder and campaigner from Free Leaseholders, to explain the problems with the current system, particularly for those trapped in flats. Simmons, being Scottish, admits unfamiliarity with the English feudal property system and asks Scoffen to explain the freehold system and its issues.
The Problems with the Freehold System [0:48]
Harry Scoffen explains that the leasehold system has become a "cash machine" due to offshore property interests buying freeholds and exploiting leaseholders with high ground rents and service charges. Leaseholders, despite making the biggest purchase of their lives, are subjugated to landlords who own a small percentage of the property's capital value. The Grenfell Tower tragedy highlighted the issue of who is responsible for building safety, with freeholders often avoiding their obligations as building owners. Freeholders act as building owners when extracting money from leaseholders but deny responsibility when it comes to paying for building safety.
The Changing Character of Freeholders [3:59]
The nature of freeholders has changed, with many now being large corporations focused on wealth extraction rather than local individuals invested in the community. Politicians have been discussing leasehold reform since the 1880s, with figures like Lord Randolph Churchill advocating for leasehold enfranchisement to empower homeowners and give them voting rights. Margaret Thatcher also proposed a commonhold bill as a replacement for leasehold. Scoffen points out that powerful business interests lobby politicians to maintain the system, impacting millions of people and damaging the property market.
Impact on the Housing Market [6:40]
Leasehold issues are contributing to a decline in the flat market, with a significant percentage of flat owners in London selling at a loss. The price gap between houses and flats is at a 30-year high. Young people and the elderly are particularly affected, as flats are often the most suitable housing option for them. The Grenfell tragedy has exposed the one-sided and exploitative nature of leasehold, deterring people from buying flats. People are better off saving longer to buy a freehold house. The system is so broken that people should stay renting.
The Need for Commonhold [9:18]
It's impossible to conduct due diligence on freehold companies, and exploitation is often realised only after purchase. Housing should be a home first, not an asset that plummets in value. Commonhold operates on a simple majority vote, unlike leasehold where leaseholders have no vote. Those interested in the upkeep of their homes can participate, while others can abstain. The directors of the commonhold association are accountable to the residents. English and Welsh people are capable of managing their properties like people in other countries.
Campaigning for Commonhold and Ground Rents [11:39]
Scoffen's organisation campaigns for a move to commonhold and the abolition of ground rents. Concerns raised by pension firms about the impact on the pension industry are part of a misinformation campaign. The Conservative government previously considered restricting ground rents to a peppercorn (zero financial value) but faced resistance from vested interests. Less than 1% of UK pension holdings are invested in residential property. Ground rents are pure rent extraction, providing no service or value to the end user. Leaseholders risk losing their homes if they don't pay ground rent or excessive service charges.
The Myth of Pension Fund Exposure [14:39]
Pension funds are not significantly exposed to ground rents, and even if they were, they are globally diversified and can absorb the impact. The state should not protect investors who have gambled on a toxic product. Consumer harm is being propagated on a massive scale, potentially dwarfing the subpostmaster scandal. The system has stopped 43% of leaseholders from starting a family, rising to 56% in London. Adam Smith opposed ground rents as unearned income. Ground rent grifters have controlled the media, parliament, and the Treasury. Michael Gove deserves credit for pushing leasehold reform.
Political Capture and Inaction [16:35]
Labour has been captured by the same vested interests that perpetuate the leasehold system. The government prioritises elites over the will of the people. Freeholders lobby extensively, while campaigners like Scoffen work tirelessly for free. Labour's large parliamentary majority has not translated into action on leasehold reform. Other political parties, with the exception of Zack Polanski of the Green Party, have been largely silent on the issue. The Conservatives have an opportunity to appeal to younger voters by addressing leasehold issues.
Personal Responsibility and Misselling [19:56]
The leasehold system is a misselling scandal, with developers and lawyers minimising information and exploiting buyers' trust. Developers sometimes require buyers to use their choice of lawyer, creating a conflict of interest. Young buyers trust the system and expect politicians to address systemic failings. The people ripping off the little guy are funding politicians, think tanks, and all-party groups. Unless you're an investment banker, you're unlikely to ever buy a house without inheritance.
Historical Context and Labour's Blind Spot [23:14]
Lenders were allowing mortgages on leasehold flats with punitive ground rents, then woke up too late. When there's market failure, government should correct distortions. Harold Wilson and Margaret Thatcher both took steps to address leasehold issues, but lobbying efforts have consistently undermined reform. Labour's blind spot is being ruled by lawyers who profit from the system and advise against meaningful change. The Labour manifesto promised to bring forward law commission recommendations on enfranchisement and right to manage, but these are not in the current bill due to lobbying interests.
The European Convention on Human Rights Angle [26:59]
Freeholders are threatening the government with legal challenges based on the European Convention on Human Rights (ECHR), arguing that abolishing leasehold violates their right to property. This argument misinterprets the ECHR's original intent, which was to prevent atrocities, not to protect rent-seekers. A judicial review last summer challenged legislation based on this argument, but the high court ruled in favour of the government, affirming parliament's sovereignty to address injustices like leasehold.
The High Court Decision and Power Politics [29:08]
The high court agreed with the government that parliament has the power to address the injustice of leasehold, as long as it provides fair compensation to freeholders. The barrister for one of the freeholder applicants admitted that reducing ground rents to a peppercorn would not meet their ECHR harmful retrospectivity case. Despite this, the media and politicians continue to express caution about retrospective contracts. Lord Gove understood the issue, but Labour seems to be missing the point.
Hope for the Future [32:37]
Scoffen remains hopeful that the leasehold system will be resolved because it is collapsing the property market and is unsustainable. The rising cost of living will highlight the illegitimacy of the system and the need to protect homeowners. Angela Rayner has been a strong advocate for leasehold reform, and if she becomes prime minister, she may take more decisive action. If not, other parties like the Greens, Reform UK, or a revived Conservative Party may finish the job.
