Changes to lease agreements, leading to steeply increasing ground rents over recent years, are an outrage. An estimated 18% of leaseholders in England and Wales – around 1m households – have a so-called “modern ground rent” lease, with escalating charges that make it impossible in many cases to remortgage or sell. Cost-of-living pressures, including food and energy price rises, make it all the more urgent that their situation is addressed. Angela Rayner was right to argue in the Guardian last week that ministers must pick a side.
This market should never have been allowed to develop in the way that it has. An investigation by the Competition and Markets Authority found no evidence that leaseholders get anything for these annual fees – which are separate from service charges that pay for the maintenance of common areas. Campaigners for leasehold abolition are right that the rent-seeking behaviour of freeholders is wrong. Mortgage lenders, as well as politicians, should have put their feet down years ago.
But while the case for reform is clearcut, wealthy freehold investors were never going to let it happen without a fight. In 2024, Matthew Pennycook, then in opposition and now Labour’s housing minister, said that the then Tory government “should be courageous” in pressing ahead with reform, disregarding industry threats. Unfortunately, and despite this week’s announcement of a ban on new leasehold flats and a ground rent cap of £250 on existing leases, Labour, too, is showing signs of timidity.
For the leaseholders with the worst deals, the cap will come as a relief – although it should have been set lower, and is unlikely to be in force before 2028. The 40-year period before ground rent is phased out, in favour of nominal “peppercorn rent”, is also too long. A reasonable grace period would have been much shorter.
But even with the cap, and the overdue abolition of forfeiture – enabling freeholders to seize properties if ground rent is unpaid – plenty of problems remain. The Tories’ Leasehold and Freehold Reform Act took the first step with a ban on new leasehold houses. But the continued sale of leasehold flats was one of many loose ends left hanging. These must be dealt with before existing leaseholders can have confidence that their role as cash cows will end.
One outstanding issue is the right of residents to manage their buildings, which ought to be more easily available as an alternative to freehold purchase. Another is the way that freehold prices are decided. Inflated valuations based on hypothetical development values, introduced by the last government, must be rejected.
October’s victory in the high court, in a challenge to 2024 legislation brought by landowners, ought to have emboldened ministers. But instead of moving confidently to a new commonhold model – already the norm in countries including Scotland – they appear fearful.
Such doubts must now be banished, and next steps set out. This is a matter of politics as well as principle. Labour cannot afford to disappoint voters who were promised improvements in living standards. Since modern ground rent is a recent invention, those affected tend to be younger adults who may have student loans to repay as well as bigger mortgages than their parents. Mr Pennycook was right when he urged the Tories to be brave in standing up to property investors. He and his colleagues should try a dose of the same medicine.
