Leaseholders left hanging as Tories break promises due to lobbying

  • Post last modified:March 28, 2024
  • Reading time:6 mins read

The Conservative Party does like breaking promises, it seems – especially when it comes to housing. So, in a week which has already seen one key pledge broken – it begs the question what’s going to be next? Leaseholders will be wondering.

Leaseholders – broken promises and debates in the Lords

As the Evening Standard reported, on Wednesday 27 March the Leasehold and Freehold Reform Bill was debated in the House of Lords. As the Canary previously reported, controversy had already haunted the bill – as Michael Gove was accused of stripping out a key pledge thanks to “shadowy lobbying” from the private sector, the Treasury, and even Downing Street.

The debate in the Lords did little to persuade leaseholders that the situation would improve any time soon. As the Evening Standard wrote:

The Bill includes an automatic 990-year lease extension, with ground reduced to “peppercorn” rates – on payment of a premium – of 0.1 per cent of the freehold value.

It was these “peppercorn rates” that had caused such controversy. The Tories promised they would ditch them altogether. But then, after said lobbying, Gove backtracked and said that ground rents would be a nominal rate. However, as the Canary previously pointed out it still leaves leaseholders with a highly unfair deal.

Meanwhile, as the Evening Standard reported the bill:

would also ban the creation of future leasehold houses – but not flats. In London, 63 per cent of flats are owned on a leasehold basis.

Currently there is no provision in the draft legislation for the issue of forfeiture, where homeowners can have their leasehold property taken away if they owe money on these extra charges.

So, the Tories have hardly delivered revolutionary reforms for leaseholders. The Evening Standard noted that:

Baroness Taylor of Stevenage (Labour) said it was “not the Bill beleaguered legions of leaseholders wanted”.

“What we have before us today is a virtually eviscerated shell of the bill,” she said, referencing Secretary of State for Housing Michael Gove’s original plans to scrap the leasehold system entirely.

But what do industry experts think of the bill?

What promise will the Tories break next?

Linz Darlington, MD of lease extension specialists Homehold, told the Canary:

It’s been less than a year since Michael Gove rolled back on the promise to “Abolish Leasehold”. It’s been less than a week since it was reported that a second promise to “Abolish Ground Rent” on existing leases had been quietly axed.

While the Second Reading of the Leasehold and Freehold Reform Bill in the House of Lords was not devoid of positivity for leaseholders, their debate and recent experience simply begs the question: what promise will be broken next?

Darlington explained of the leaseholders bill:

A first key promise of the Bill is to abolish a concept called “Marriage Value”.

When a leaseholder extends their lease, they pay a sum of money to buy the extra years and buy out the ground rent. It’s likely that the value of their flat will jump up following the lease extension. Under the current law, if the lease is below 80 years, they must also share this hypothetical profit – known as Marriage Value – with their freeholder.

Several of the Lords across the house are clearly advocating for the Government’s promise to abolish Marriage Value to be watered down or removed. Lord Palmer wanted the abolition of Marriage Value only to apply to leases that have not yet fallen below 80 years. Lord Moylan appeared to want it canned entirely.

There seems to be a lack of understanding by legislators of why short leases sell for such depressed prices and Marriage Value exists in the first place. These flats sell at a discount because the buyer knows when they extend the lease they will be lumbered with the cost, the unfairness of the process and both sets of professional fees. Sharing the discount with the freeholder adds insult to injury.

Two, three?

Then, he went on to say that:

A second key promise is to make it cheaper to extend your lease or purchase your freehold.

Whether or not lease extensions are made cheaper will entirely come down to complex rates – which are missing from the Bill.

Labour insist these rates should be included in the legislation itself – to avoid a situation where these can be set behind closed doors and after lobbying from interested parties. Baroness Scott – representing the Government during summing up – insisted the Secretary of State must have flexibility to set these.

Finally, as Darlington summed up:

The third key promise is simply timing.

Leasehold Reform has been promised since a consultation in 2017, and it was included in the 2019 Conservative manifesto.

Thousands of leaseholders have been waiting for years for clarity on these changes before they decide to extend their leases – and all the time their leases are getting shorter and extensions are getting more expensive.

As Lord Kennedy pointed out, no clarity has been provided on when changes to lease extensions would come into effect. This means the Bill could be passed, but leaseholders could potentially have to wait for years into the future none the wiser on when the benefit of the promises might materialise.

To avoid this legislation becoming an “eviscerated bill” (to use the terminology of Baroness Taylor), pressure needs to be maintained to ensure no more promises are broken.

Leaseholders: left hanging (again)

So, what promise to leaseholders will the Tories break next? It’s hard to tell – but currently, their track record of caving into apparent vested interests is dire. The bill still has some way to go before it gets anywhere near being law – so, anything could still happen.

Featured image via Mint_Images – Envato Elements and UK Parliament/Maria Unger

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