Nickie Aiken is the MP for the Cities of London & Westminster.
Every week, I hear from local people across the Cities of London & Westminster who are being held to ransom by the Freeholder of their building.
Often, they are asked to pay huge sums for unexplained services. If they don’t pay, they will lose the whole home. No equity is returned or compensation owed under draconian “forfeiture” rules.
Service charges surge, but the quality of the services doesn’t improve. Windows remain unrepaired; leaks recur and go unaddressed; heating outages in the winter months continue.
These local people often do not feel as if they are ‘homeowners’, but simply income streams for freeholder landlords, many of whom are based overseas.
It’s not just private flats. Leaseholders with homes bought under Right to Buy are also made miserable and impoverished by major works contracts that seem outrageously priced. Leaseholders have no way of knowing whether the services for which they are being charged are of fair value.
The Cities of London and Westminster may well be the spiritual birthplace of leasehold. Its neighbourhoods make up the second highest proportion of leaseholds in the country. Nationwide, there are at least 5 million households who are subject to this fundamentally flawed tenure. I am calling for a Leasehold Reform Bill in the upcoming King’s Speech.
As the party of property-owning democracy, we Conservatives believe that owning a home is perfectly natural to aspire towards and achieve. It should be encouraged and celebrated.
But owners of leaseholds are not homeowners. All they own is a saleable time-limited right to occupy, subject to terms and conditions, fees and charges, This antiquated legal arrangement has no place in a modern, industrialised, services-based consumer economy where a significant proportion of the population live in cities and towns.
Unlike rental tenants who sign contracts to pay set, monthly charges, leaseholders may find themselves subject to unpredictable billing for goods and services. In many cases, no documentation is presented.
Moreover, there is no obligation on the part of managing agents or the freeholders who appoint them to seek ‘value for money’ when choosing providers of goods and services, which ultimately are paid for only by leaseholders. The ‘first-tier tribunal’ only requires that charges and work quality be ‘reasonable’, a standard so vague that nearly anything can fit the bill.
Worse, there is no incentive for freeholders and their managing agents to choose the most cost effective provider. Indeed, nowhere has this become more obvious than in choice of insurance policies for buildings where premiums are skyrocketing, and it turns out that freeholders and their agents often receive hidden ‘brokerage’ commissions.
In April, the Financial Conduct Authority found evidence that in just the past three years, an eyewatering £80 million has been taken from leaseholders because of these kickbacks on buildings insurance contracts paid out to freeholders and managing agents, often without their consent nor knowledge.
This must stop.
Leaseholders must be given the legal ability to choose who acts on their behalf.
The Conservative Party has led the way with beginnings of Leasehold Reform nearly 40 years ago with Margaret Thatcher viewing leasehold law as a hindrance to the productive capacity of our nation. For that reason, ahead of the 1987 General Election, she introduced an effective ‘right to buy’ clause. Leaseholders were to have a ‘right of first refusal’ when freeholders put their building up for sale.
However, loopholes have been found and many leaseholders have not benefited. The same applies to ‘collective enfranchisement’, a no-fault right to compulsorily buy out the residual value held by the investor freeholder, passed by John Major’s government in 1993.
In 2017, the Conservative government asked the Law Commission to draw up a radical reform programme of leasehold law. The Commission concluded that “the landlord and leaseholder have opposing financial interests – generally speaking, any financial gain for the landlord will be at the expense of the leaseholder, and vice versa …consensus will be impossible to achieve.” The UK’s own Competition and Markets Commission concurred, calling leaseholders “captive consumers”.
Leaseholders aren’t commercial businesses. They are families, workers and retirees. They do not want to spend time and resources defending their legal rights against powerful freeholders and their army of lawyers. They want control over whom, and what, they pay.
It is why I cheered earlier this year when Michael Gove, Secretary of State for Levelling-Up, Housing, and Communities, rejected more legislative tinkering and committed to the outright abolition of the deeply unfair and punitive leasehold regime.
Moreover, empowering leaseholders is politically popular. A YouGov poll in January found that almost half of all Britons agree with abolishing leaseholds. Only 8 per cent of Londoners – the region with the highest concentration of leaseholders in the country – were opposed to its abolition.
Liberating leaseholders will encourage more people into genuine home ownership, deepening their commitment to their local communities and the future of our country, while freeing up their capital to invest in genuinely productive businesses, participate in the consumption economy or indeed start a family.
Ending toxic leasehold for security, dignity, autonomy and control in the home captures the zeitgeist of our time and is exactly what voters will be thankful for at the next election. I am keeping my fingers crossed that we will see these sentiments echoed in the forthcoming King’s Speech.