Homeowners Weren’t Meant to Be Feudal Serfs

(Bloomberg Opinion) — For a country that likes to sing that Britons will never be slaves and proclaims an Englishman’s home is his castle, the UK is curious in maintaining a home-ownership structure that locks buyers into a form of servitude. The leasehold system is riddled with abuses and has been condemned for years by both main political parties as unfair and feudal. The Labour government says it will ban the sale of new leasehold apartments. Their demise is long overdue.

Leasehold buyers pay full price but don’t own their homes outright; they merely purchase the right to occupy the property for the term of the lease, often 99 or 125 years, after which it reverts to the landlord, or freeholder. There were about 4.8 million leasehold homes in England as of 2023, accounting for about a fifth of the total housing stock, according to government data. In London, they make up more than a third of the total, the highest proportion in the country. Most are apartments.

The arrangement opens an array of opportunities for price-gouging and scams. The property manager, typically appointed by the landlord, maintains communal areas and buys buildings insurance — which all gets packaged into a monthly service fee paid by the leaseholder. Excessive and opaque service charges are the focus of much outrage and frequent disputes. On top of this, leaseholders get to pay something called “ground rent,” which is, literally, money for nothing. No service is provided in return. (In theory, it’s a fee paid for the right to use the land on which the property is built — but other developed markets seem to manage just fine without this bifurcation of rights.)

The problem, as with many governance issues, is rooted in the separation of ownership and control, compounded by lack of transparency. Decades of public pressure have led to legal tweaks designed to limit the potential for abuse; “right to manage” legislation passed in 2002, for example, gives leaseholders the ability to take over management of communal buildings. But using such mechanisms can be difficult, time-consuming and costly. Horror stories continue to abound.

This correspondent has some experience, having bought a leasehold apartment in the commuter belt outside London more than two decades ago. Service charges were reasonable for the first few years — and then began to escalate rapidly. At the same time, communications from the management company turned hyper-aggressive: Be only a few days late in settling the bill and letters would arrive threatening debt collectors and legal proceedings. It transpired that ownership had changed hands and the new freeholder had, in investment parlance, decided to work the assets harder. Some years later, the landlord tried to push through a 144% increase in the ground rent.

A friend, meanwhile, tried to extend the lease on his London apartment and discovered that this would likely cost him the equivalent of 16% of the property’s current market value — even though leaseholders have a legal right to an extension and the process might be considered a formality. 

Doubtless, many landlords manage properties responsibly and don’t pay themselves lavish hidden commissions for arranging insurance or exorbitant administration fees for permitting a leaseholder to own a pet. But the regularity with which unscrupulous operators are attracted to the sector speaks to the inadequacy of the legal framework. After so many years of only partially successful attempts to mitigate the harm to homeowners, scrapping the whole system may be the better option.

Labour’s solution is commonhold — essentially replicating the system used around the world from the US to Europe to Australia. Buyers will fully own their apartments and have a share in how the building is managed. With no new leasehold properties, the idea is that commonhold will gradually become the standard tenure, accepted by developers, lenders and buyers.

Leaseholder campaign groups may be forgiven some skepticism. Commonhold was introduced back in 2002 but failed to catch on, while previous governments have also promised to curtail leasehold sales. This time may be different. The government says it will put forward legislation later this year to update the commonhold framework. Opposition from the politically influential construction and land-owning lobbies has softened. “For the first time ever, the government has made it clear that this is not an `if’ or a `maybe’; it’s going to happen,” Martin Boyd, chair of the Leasehold Knowledge Partnership, a charity, told me.

One concern is that the change will create a two-tier system, with existing leaseholders trapped on the lower rung. The efficacy of measures to enable leaseholders to convert to commonhold will be important, but the reality is that a two-tier market already exists. The price gap between houses and apartments reached the highest in 30 years in February, according to data from property information company Zoopla. The lagging performance of apartments can be attributed to the extraction of ever greater sums from a captive market. Service charges rose by an average of 11% in 2024, or more than four times the rate of inflation, according to property broker Hamptons.

Commonhold isn’t guaranteed to succeed. Property law is complex, and a centuries-old system isn’t replaced easily. But the doubts are technical and practical rather than fundamental by this stage. The desirability of change is clear. It’s high time England’s castle-dwelling serfs threw off their chains.  More from Bloomberg Opinion:

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Matthew Brooker is a Bloomberg Opinion columnist covering business and infrastructure. Formerly, he was an editor for Bloomberg News and the South China Morning Post.

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