Tackling the Housing Crisis – Policy Paper 155 – Motion F31

This policy paper deserves careful study in advance of our Conference in Bournemouth, as it contains many good ideas for tackling the housing crisis, which must be one of the most important priorities of a Liberal Democrat-led Government.

The section on the very important and complex issue of leasehold reform at the end, has been included in the chapter on The Planning System, and says “(we) would fix the flaws in the current planning system by…” and there follow four bullet points, of which the last is “Abolish leasehold for residential properties and cap ground rents to a nominal value.”  The law relating to leaseholds is not, of course, actually part of the planning system, and this subject of leasehold reform would have merited a chapter of its own, or indeed a whole policy paper.

The authors of this policy paper do not seem to be proposing simply to abolish residential leases, so that leaseholders no longer own an estate in land, and can be evicted without a court order.  Reading between the lines it appears to be suggested that leaseholders should automatically be given commonholds instead of their leases.

However, paragraph 11.6.1 suggests “introducing changes to the planning system to curb the worst excesses of England’s leasehold system”. So, it seems it is not intended to change property law, but only planning law. But planning law does not relate to freeholds, leaseholds or commonhold. It is about controlling the use of land, rather than the ownership of land.

The Law Commission recognised in its 2020 paper Reinvigorating commonhold: the alternative to leasehold ownership that the Commonhold and Leasehold Reform Act 2002 failed to provide a workable commonhold system, so commonhold has never taken off.  The Law Commission’s report is 621 pages long, and I must confess that I have not quite managed to plough through it yet, and will not suggest that everyone does so before the Bournemouth Conference. I do suggest that we should not lightly propose the total abolition of leaseholds, before we have carefully considered the Law Commission’s rather less radical proposals for the reform of leasehold law, and whether these are a proper response to criticisms of the leasehold system. As the law stands, it is generally accepted that flats have to be sold either on leases or as commonholds, in order that there are mutually enforceable covenants as to repairs, maintenance and insurance, and controlling the use of the property, for example preventing misuse and nuisance. If commonhold ownership is not workable, leaseholds remain the only viable alternative.

Any such reform would inevitably involve the payment of compensation to landlords, as otherwise it would infringe Article 1 of the First Protocol of the European Convention on Human Rights.

Paragraph 11.6.5 of Policy Paper 155 proposes to “cap ground rents at a nominal fee where they remain”. It should be mentioned that the Leasehold Reform (Ground Rent) Act 2022 restricted ground rents in new leases of residential property to a peppercorn per year (except in the case of shared ownerships or suchlike).

The final paragraph of the Policy Paper 155, (para. 11.6.6) seems to be off the wall, an afterthought, “For commercial or mixed-use property, we would automatically extend leaseholds to 999 years and reduce ground rents to a nominal fee.” This would please many shopkeepers who only hold a short lease and pay a scarcely affordable rack rent to their landlord, but they would have to be prepared to pay massive compensation to their landlord – it is difficult to see how they could afford to do so. This could certainly not be done “automatically”, and it would completely destroy the market in commercial property and the viability of many pension funds that invest in commercial property. This final paragraph is off-topic, and should not have been included in a paper on the housing crisis.

 

 

* Michael Hall is a retired solicitor who specialised in property law and is now the Treasurer of Orpington Liberal Club (www.orpingtonliberalclub.co.uk).

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8 Comments

  • All good points made here.

  • David Garlick 3rd Sep '23 - 10:15am

    The party would do well to coopt Michael to bring some clarity and accuracy to this important issue. Get this wrong and we will have a serious credibility problem as it affects many millions directly. May need to be referred back.

  • Michael Hall 4th Sep '23 - 3:53pm

    Tony – Does this mean that you support the policy working group proposal in paragraph 11.6.6, and why do you say there would only be a short term impact on institutional investors, is it that after 999 years they would be able to start collecting rent from their property again?

  • 11.6.1 We would also introduce changes to the planning system to curb the worst excesses of England’s leasehold system. Under leasehold, owners can be charged extortionate rents and fees by the owner of the land, a relic of feudalism. This means that despite on paper being homeowners they are in fact still in the insecure situation of renters. England, Wales and Australia are the only countries which still operate a leasehold system, with everywhere else abolishing the system and replacing it with commonhold.
    11.6.2 Lloyd George launched a campaign against leasehold in 1909, describing the leasehold system as blackmail, not business. The system remains largely unreformed, although modest improvements were made by the Wilson, Thatcher and Major governments.
    11.6.3 However, in England people are once again moving back into privately owned flats on a large scale, especially in the cities. One in four homes in England and Wales are now leasehold.
    11.6.4 The Conservatives promised leasehold reform in their manifesto and have pledged to abolish it, but this remains another one of their broken promises. Liberal Democrats would abolish leasehold for all residential properties and completely ban them from all new buildings of any type of property.
    11.6.5 We would introduce commonhold systems where appropriate, helping 4.6 million leaseholders move towards the liberal goal of everyone having control over their own lives. We would also cap ground rents at a nominal fee where they remain.
    11.6.6 For commercial or mixed use property, we would automatically extend leaseholds to 999 years and reduce ground rents to a nominal fee.

  • Michael,

    reading 11.6.6 the above this appears to apply to New sales of commercial property rather than existing tenancies.
    In the case of residential properties, I believe there are developing problems with both uncapped service charges in shared ownership and escalating ground rents on leasehold homes.

  • Michael Hall 11th Sep '23 - 11:38am

    I am afraid it is all very confused and contradictory. 11.6.5 says commonhold would be introduced “where appropriate”, but in lines 82-84 of the motion it says we would “abolish residential leaseholds”. I have asked, why? Why should the residents necessarily buy the freehold, if they don’t want to and cannot afford it? A deafening silence from the movers of the motion. 11.6.6 does not say it only applies to new commercial leases, but why should it apply at all? What is wrong with a shopkeeper taking a lease for five years at a rent of £10,000, instead he should get a mortgage and pay for a virtual freehold at a price of £300,000, needing a deposit of say £50,000? What if the owner does not want to sell? Why should he? Does our party not believe in freedom of contract anymore? This policy paper is not supposed to be about commercial leases at all.

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