Michael Gove, the Levelling Up Secretary, has announced that legislation will be brought in this year with the bold aim of “abolishing” the leasehold system. He says:
“The fundamental thing is that leasehold is just an unfair form of property ownership. In crude terms, if you buy a flat, that should be yours. You shouldn’t be on the hook for charges which managing agents and other people can land you with.”
The details become rather tricky. If you own a flat you can never be the master of your fate to the same extent as the owner of a house. Even if you own a share of the freehold with the other flat owners in the block, you will still be “on the hook for charges.”
For instance, if the roof leaks everyone is liable to chip in to pay for the repairs – not just those on the top floor. It can still be a quicker and cheaper way to deal with such problems than having to pay management fees and service charges; perhaps extortionate sums for work that might be unwanted or is defective. But reaching an agreement to break free from all that will always be easier in a block of five or ten flats than in one with 50 or 100 flats.
The Law Commission came up with some proposals three years to boost “commonhold” and “leaseholder enfranchisement”. So that may give us an idea of the forthcoming legislative changes.
Another clue comes from Lucy Frazer, the Housing Minister, in November:
“The Government has committed to making enfranchisement cheaper for leaseholders by reforming the process of valuation leaseholders must follow to calculate the cost of extending their lease or buying their freehold.
“The Government has already legislated via the Leasehold Reform (Ground Rent) Act 2022 to protect future leaseholders and we are due to bring forward further leasehold reforms later in this Parliament.”
If the price of buying the freehold is reduced then that will encourage more to buy. But a majority of leaseholders in a building would still need to be willing and able to pay a significant sum. There would need to be somebody to galvanise the process; going to a lot of time and trouble that might come to nothing. So I am sceptical at how dramatic any change might be.
A more straightforward method of becoming a freeholder is to buy a house. I suspect most flat owners would prefer that option. The difficulty, as you may have spotted, is that houses tend to cost more. The most effective way of boosting the number of freeholders in this country would be to build more houses. If supply increased to allow greater choice and reduced prices that would be the likely outcome. Copying and pasting mind-numbingly complicated technical changes from the Law Commission and passing them in Parliament will have less impact.
Where significant reforms could also make a difference is in social housing – especially for those with shared ownership. A group of leaseholders can buy the freehold if at least two-thirds of the number of flats in the block are owned by leaseholders. This tends not to be a problem in the private sector – but that is a high ratio for housing associations and council blocks. It should be reduced to half. Furthermore, those in social housing with shared ownership should be counted as leaseholders in these calculations.
At present those in shared ownership also pay full leaseholder charges. To make shared ownership more attractive they should only be charged a proportion of the leaseholder charges reflecting the level of their equity stake. But they should also be given the right to be counted equally when it comes to buying the freehold. That would make it easier for more blocks to achieve the critical mass to buy the freehold.
I have proposed on this site granting social housing tenants a “right to shared ownership”. I proposed that a small equity stake (ten per cent) be offered for free in return for taking responsibility for minor repairs. The rent and service charges would then be in proportion to the equity stake – changing as any “staircasing up” took place over the years. The Right to Buy discounts would also apply on a proportionate basis. The Government did respond with a “right to shared ownership” – but not on the favourable terms I proposed which are necessary for it to be widely taken up.
Margaret Thatcher said of the right to buy:
“Wherever we can we shall extend the opportunity for personal ownership and the self-respect that goes with it. Three hundred and seventy thousand families have now bought their own homes from councils, new towns and housing associations That’s the result of this Government’s housing policy carried through in the teeth of opposition from the Labour Party. We have fought them all the way, and we won. Half a million more people will now live and grow up as freeholders with a real stake in the country and with something to pass on to their children. There is no prouder word in our history than ‘freeholder’.”
That aspiration to become a freeholder, to have an asset that is really your own and can be passed down the generations, is still strong. We will see what progress is made to help more people fufill it.