The shameful history of leasehold reform

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Leaseholders were sick and tired of the abuse and were ready to riot. For decades, freeholders had used the legal system of leasehold against them to enrich themselves whilst ruining the lives of thousands of working people. The voices of the leaseholders had risen so loudly that MPs had to investigate these abuses.  For the first time in history they called for a serious debate in parliament on leasehold reform.

The battle lines had been drawn. On one side stood the predominantly working class MPs who had dedicated hundreds of hours compiling evidence that they would present to parliament about freeholders’ abuses of the system.

On the other side stood the unimaginably wealthy land owning freeholders. These were made up of the aristocracy of the day. Dukes, Lords and Viscounts who had inherited their land hundreds of years ago. They were prepared to protect the leasehold system with their dying breath because it was this that made them the wealthiest people in the country.

The year was 1884.

It was always going to be an unfair fight. The leaseholders were struggling to survive in severely challenging economic times. They had no voice. They had no power. They had no vote.

The freeholders on the other hand had ultimate power and a stranglehold on Government in both the House of Commons and the House of Lords. Their political power base was unassailable. It was said of them: “Nearly every one of the principal London landlords is now a peer. No other metropolis is to such an extent in aristocratic hands”. ‘The Old Nobility’ Evans – P160.

These landowners, in stark contrast to the leaseholders, lived lives of unparalleled excess. They would think nothing of holding a masked ball for their fellow aristocrats and royalty, spending the equivalent of a million pounds for just one evening of fun.

It was even more remarkable that to fund this life of excessive opulence they did not have to work a single day. Their wealth was delivered to them through the inequitable leasehold system.

“England is a paradise for those who can live upon the labour of others; or such as can put their hands into the pockets of their fellow men and extract hundreds of thousands for their own use”. ‘Asquith’ R Jenkins’ – P 227-8

The aristocracy had a total monopoly on land and they profited from this greatly. In many cases the value of their land increased by 200%. This was due to a rise in demand in urban areas caused by the industrial revolution, but this wasn’t enough profit for them.

“Freeholders possess the monopoly of a commodity, which cannot be enlarged, and the use of which is essential to the existence of the human race. He dictates his own terms to the house occupier, who is bound to accept them or to go homeless.” MP Henry Broadhurst, parliamentary debate 1884

These landowners reasoned that if they sold a small piece of land to a worker for him to build a home for his family they would make a tidy profit. However, they would lose ultimate ownership of the land. Instead they devised a method to own this land forever and make huge amounts of profit from it over the coming millennia.

They sold the land as leasehold by way of what became known as ‘building leases’. They would sell permission to use the land for a tidy sum as well as receiving a healthy ground rent for the period of the lease.

The leaseholder would then pay for and build himself a home for his family, without fully understanding the implications of this new leasehold system. However, when his lease had run down to zero the land would revert to being owned by the freeholder and with it the house that the worker had paid to build.

The leaseholder would have nothing and the freeholder would gain a house he could sell for a huge profit without spending a single penny on the building of it.

The terms of the leases granted were short or for a macabre period of ‘three lifetimes’. Freeholders knew the mortality rates for the working classes were woefully short due to the hardships they suffered and they saw that they could profit from this.

The three lifetime lease meant a leaseholder would name themselves, their spouse and their eldest child in a building lease. Should any of them die, the next name on the lease would automatically inherit the permission to stay on the land. When all three of them had died the land and house would belong to the freeholder.

The debate

On the day of the fractious leasehold debate in fullsizeoutput_de4Parliament the MPs presented many hundreds of examples of freeholders abusing their leaseholders. They spoke of people literally losing everything they owned as the freeholders rushed to take back possession of houses built and paid for by others.

They spoke of whole villages with many houses, shops and even churches that were paid for and built by the leaseholders reverting back to the hard-hearted freeholders. They would kick them all out and simply sell it on again. There were numerous tales of onerous ground rent terms wrecking lives.

They told stories of leaseholders paying and building a home for their family and then all three of the people named in the ‘three lifetime lease’ died within six years of signing the lease. The surviving family living in the property would find themselves homeless, kicked out of the house by the freeholder who would sell the house which was an unearned windfall. The examples came one after another from many different MPs.

The aristocratic lords simply smirked and denied that there were any problems with the leasehold system at all, but for a handful of anomalous cases. They pointed out that leasehold was law and it was wrong to go against the rule of law. They loftily preached about the sanctity of contracts and how this could never be challenged.

They ignored the fact that it was their own landowning class, who had total control of Parliament, who were the very people who had devised the leasehold system and had made it law. They didn’t mention that they were the ones who had their clever lawyers draft purposely obfuscated leases so they could profit.

They shrugged their shoulders and explained that nobody forced the leaseholders to take these terms and they should have been better advised. They omitted the fact that they had a total monopoly on land.

In the debate MP Henry Broadhurst said “It is a fiction to call that (leasehold) state freedom of contract. The only freedom that existed was for the landlord to impose such terms as he thought proper and those terms are only for the highest price and the most irksome conditions for the use of the land”.

For the working class the choice was leasehold or homelessness.

fullsizeoutput_de1.jpegThe upshot of this debate initiated a Royal Commission enquiry to look into the inequities of the leasehold system and to decide whether the leaseholder should be given the right to buy the freehold of their own homes. The commission took four years to complete. It too found a whole litany of abuses within the leasehold system.

The report ended with these words: “Legislation favourable to the acquisition on equitable terms of the freehold interest on the part of the leaseholder would conduce greatly to the improvement of the dwelling of the people of this country” Law Commission report 1888.

It appeared the first debate had hit the mark and there was hope that legislation change was on the horizon. It was a false hope though, the proposed legislation changes were easily blocked by the powerful landowners in Parliament and the House of Lords. It came to nothing.

This failure didn’t stop the admirable MP Henry Broadhurst from introducing a further 25 bills over the following few years desperately trying to alter leasehold legislation. However well intended this also came to nothing.

The country though had woken up to leasehold abuse. On a swelling tide of anti-landlord feeling there came to power the biggest enemy the aristocratic landowners had ever encountered, Lloyd George.

He waged an open war on the landowning class and the inequities of the leasehold system. He described the ‘Great Estates’ as “Idle land in the hands of idle men”.  Although he weakened their power with new taxes aimed at them he could not break the stranglehold of power the landowning class exerted at Parliament.

In 1912 serious proposed changes to leasehold legislation were tabled by the Liberal government. The changes were radical and would have ended the abuses of leasehold once and for all. The landowners though were saved by the First World War and legislation change was shelved.

Over the next few decades, numerous anti-leasehold bills were put forward and debates took place. They all followed a depressingly similar format. Freeholders called to see actual evidence of leasehold abuses. Once the evidence was seen they would scoff at the veracity of it or label it as a just a handful of anomalies. They would preach about the rule of law and the sanctity of contracts and all attempts at reform pretty much came to nothing.

The first significant leasehold legislation change

In fact, it wasn’t until 1948, some 64 years after it had been presented, that the subject matter of the Royal Commission was revisited. In 1948 a Departmental Committee was set up under Lord Uthwatt to consider whether a leaseholder should be given the right to purchase the freehold compulsorily. In 1950 the report’s finding was released and it rejected enfranchisement rights. Its advice was accepted by the Government in 1953.

The voices of leaseholders however continued to shout about the abuses they were suffering at the hands of their rapacious freeholders. Leasehold was fast becoming a political issue. One that could not be easily ignored.

MPs again began to seriously champion the cause of leasehold reform on behalf of their aggrieved constituents. One Welsh MP even had a market stall in Cardiff where he would try to persuade anyone who would listen about the biased leasehold system.

By 1966 both major political parties were running for election on a leasehold reform ticket.

Harold Wilson’s Labour Government introduced a white paper which asserted that the leasehold system “had worked very unfairly against the occupying leaseholder” and then it was “quite indefensible”.

The great estates and land owners had fought thisfullsizeoutput_dd9 new legislation tooth and nail. They blustered (again) about property theft from them and the sanctity of contract, blah blah blah. They aired the very same arguments used 81 years before.

The following year the ‘Leasehold Reform Act 1967’ became law. This gave some owners of leasehold houses the right to force their freeholder to sell them the freehold of their home or extend their lease by another 50 years’ ‘on fair terms’. It finally seemed that leaseholders had got some justice, but looks can be deceiving.

The Act, though, included frustrating qualification criteria, especially a ‘low rent’ test. This effectively meant only lower value houses could be enfranchised, thus protecting the property interests of the powerful London ‘great’ estates.

The Duke of Westminster, though, still took particular umbrage to the legislation and reputedly spent £500,000 trying a case that claimed that his human rights have been breached as the European Convention states that no citizen “should be deprived of property except in the public’s interest’. He lost.

How successful has the 67 Act been?

The freeholders had done enough to subvert the spirit of the Act to make it nothing much to fear for the great landowners.

They had ensured that the Act predominantly only covered low value houses. Flats were excluded completely. It is a shapeless poorly drafted piece of legislation with no clear timelines. There was no attempt in the Act to stop fresh abuses of leasehold houses being created when new leasehold houses were built.

Freeholders also successful included a formula for calculating the cost of buying the freehold which was indecipherable and open to interpretation. Leaseholders would need to employ, and pay for, a specialist valuer to calculate the costs involved.

The freeholders had added a whole other tier of costs the leaseholders must pay to the already expensive process of enfranchisement: that of legal fees. A leaseholder would have to employ their own solicitor and valuer as well as being legally forced to pay for the ‘reasonable’ legal and valuation fees of their billionaire freeholders.

Freeholders could then employ ‘big hitting valuers, solicitors and barristers’ to contest the price at Tribunal which would act as a huge deterrent for leaseholders wishing to enfranchise.

Although the great landowners wailed loudly that they would lose all their investments with a rush to enfranchise, in the first 12 months after the Act was passed only one case involving the purchase of a freehold was tested in Tribunal.

Even now, some 51 years later, the vast majority of houses that were built as leasehold remain so. In the last few years we have even seen a new leasehold house scandal emerge.

The voices of flat owners ignored by the 67 Act were now heard across the country and many newspapers and MPs championed their cause.

This culminated in the Landlord & Tenant Act 1987.

fullsizeoutput_debThis revision established rights for flat owners to acquire the freehold for their building. With it came the same howl of protests from the multi-millionaire freeholders who blustered about property theft and preached the sanctity of contract.

This new revision included a raft of complex qualifying criteria which unhelpfully allowed freeholders to contest the leaseholder’s legal rights to franchise at every turn.

Flat owners were also given the ‘Right of First Refusal’ should the freeholder wish to sell the freehold of their building.

Leasehold Reform Housing & Urban Development Act 1993

There came a hint of further significant legislation changes that would address the previously ignored group of flat owners. In 1992 both the Labour and Tory Party campaigned on a leasehold ticket promising meaningful reform if they were elected. The Labour Party issued a white paper called “the End of Feudalism”. Surprisingly though it was actually the Conservative Party who were elected and brought in the 1993 Leasehold Reform and Urban Development Act.

The Act gave Leaseholders the right to extend their lease for an additional 90 years and for their ground rent to reduce to a peppercorn (zero).

This was a radical ideological change from the Tory party and the aristocratic landowners hated it. These powerful freeholders had been long term supporters and funders of the Conservatives and they were apoplectic with rage.

Immediately Earl Cadogan, who owns huge swathes of Sloane Square, announced that he was withdrawing financial support from the party.  Lord Howard de Walden, who owns 120 acres of Marylebone, accused the Tories of theft and hinted that he may switch allegiance to Labour. The Earl of Dudley said “I see it as an excuse for people to be able to acquire freehold property at below the market price”. Lord Forbes said “I can’t think it’s right to take away someone’s heritage and let others have it”.

The Duke of Westminster, the richest landlord in Britain and owner of the Grosvenor Estates, dolefully proclaimed “I feel like I’ve been mugged by a friend”. He promptly resigned from the Party. He was still whining about this ‘great injustice’ two years later when he appeared on Desert Island Discs.

It’s very important to make clear at this point that the thing the freeholders were complaining about wasn’t that they were being unfairly compensated for a lease extension. The Act made ample provisions for them to receive the fair market rate for the lease extension. They complained that they were losing the right to continue to make this profit from leaseholders in perpetuity.

The battleground of this new piece of legislation would fullsizeoutput_de8.jpegbe the cost for your lease extension.  The criteria required for the calculation were complex, ill-defined and again open to interpretation. The freeholders wasted no time in ‘defining’ the amount of money they should receive from a lease extension.

The Grosvenor Estate commissioned their own relativity graph by Gerald Eve (GE) and they wasted no time in continually arguing this graph at Tribunal to establish its veracity.  It was called by the judges in the recent Mundy decision “the industry standard relativity graph”. Was this graph created by the wealthiest freeholder in the country a fair one?

Those same judges in the Mundy case went on to assert that “the GE graph was adjusted subjectively” (65,P78) it was “directed to the particular requirements of the Grosvenor Estate” (65, P78) and the “Grosvenor Estate had received relatively favourable settlements” because of it (8, P67).

In any other sector this admission, that a mechanism to extract money from leaseholders had been “adjusted subjectively”, would be scandalous! It would trigger an investigation into how this was allowed to happen. Not so in the nefarious and Kafkaesque world of leasehold, in fact it was barely commented on.

The 93 Act is now in constant use. The issues, however, with all these pieces of legislation is that lawyers acting for the freeholders immediately look for any grey areas or any ill-defined words. They will then challenge it in courts and set precedents in case law. This has been used to successfully subvert the spirit of any legislation that has been made.

Many tens of millions of pounds have been spent in Tribunals by leaseholders trying to defend themselves against the lawyers and valuers of the avaricious freeholders as they push to earn even more from each lease extension.

This one fact alone damns this piece of legislation as an unequivocal failure.

The Commonhold and Leasehold Reform Act 2002

In 2002, with seemingly near perfect timing, came the Commonhold and Leasehold Reform Act. Leaseholders hoped that finally this feudal leasehold system would be ended and the housing market of this country would be dragged kicking and screaming into the 21st century.

Commonhold is used by and large by the rest of the world. Anyone buying a flat there own a share of the building the land it sits on together with their neighbours and have the legal right to manage the upkeep of their own buildings.

However, that optimism quickly turned to dust when it was realised that this legislation was in fact the worst drafted piece of legislation in the history of leasehold reform. It was unusable and virtually impossible to implement.

It gave rise to one of the two jokes the leasehold sector has, which is that there are more books written about commonhold than there are actual blocks of commonhold flats in the country.

It seemed feudalism was here to stay for another thousand years.

Where we are today?

The aim of this article is not simply to explain the pitiful history of leasehold reform. It is to show the previous battles that have been fought and lost by leaseholders looking for justice. It is to show that we are not involved in a fair fight but in fact it is a ‘David and Goliath’ battle.

The Government last year promised to reform leasehold legislation to make it fairer for leaseholders…..again.  But what is actually going to happen? Is it going to be legislation that makes it fairer or just window dressing? There have already been consultation documents issued by the Law Commission and there are more to come.

We find ourselves, in 2018, in the lamentable position of hoping for legislation changes to protect us from the previous legislation changes.

For example, it is the recent ‘leasehold house scandal’ which ignited public condemnation and made this legislation change possible.

How could this have been avoided? By the inclusion of a simple sentence in the 67 Act preventing the creation of future leasehold houses.

Shockingly, 134 years after that first debate in Parliament, the freeholders are still using their tried and tested arguments against legislation reform.

“No one made leaseholders sign the contract. They knew what they were doing.  Leasehold is law and you can’t mess with the law. There is a sanctity of contract that cannot be tampered with or the world will end.  Do not consider altering our human rights to collect our parasitical wealth perpetually from this feudal system or we will sue you”.

The spirit of all the previous leasehold reform acts was to allow enfranchisement or lease extensions ‘on fair terms’ to both parties. On this all leasehold reform has been an unmitigated failure.

For example, our much quoted Grosvenor estates. In 1884 their estate was worth a few million pounds and in 2018 it is guessed to be worth around 11.5 billion. Virtually all of the large professional freeholders today are rich beyond our wildest dreams, handed to them on a plate by leasehold reform not being ‘on fair terms’.

The documents recently issued by the law commission speak of the need to respect these human rights of the freeholder’s in any legislation changes. However, it is obvious to everyone except, the millionaire freeholders and their wealthy lawyers, that it is in fact high time that we put the human rights of the leaseholders to the forefront of their considerations.

Once again leaseholders are being asked to provide evidence of leasehold abuses because freeholders deny them be true or anomalous, even though the evidence that has been submitted to parliament over many decades is mountainous and irrefutable.

However, we have no choice but to play this game. If you are a leaseholder and you are affected by leasehold issues, then please ensure that you fill out the consultation documents being released by the Law Commission. This is the only way we can make our voices be heard.

At the same time lobby your local MP, write to the press and get involved to keep the pressure on Government to act.

We hope with everything we have that this time the legislation changes will be worthwhile and will make this outdated unjust feudal system die, once and for all.

6 Comments

  1. An incredible price Louie! Thank you, leaseholders all need to see this and I’ll do my best to share it. Millions of leaseholders are still living in oblivion , like I was a few years ago until I tried to extend our lease… then I woke up.

    1. Great work, but the sadness is there for all to see. Truth is that the oppression of the “small man” is still going on and I wonder if there will ever be an end to it ? In the meantime people fight on.
      Best of luck with the fight against injustice.

  2. this is a briliant and insightful history lesson; History repeating itself; Perhaps it would be interesting to know how Members of the Commons voted to pass the cynical 1967, 1993 and 2002 Acts; Who drafed these one-sided legislations? I wonder

  3. Earlier, oppressive landlordism was the norm in Ireland. The Irish were driven off their own land and it was given to British colonial settlers. See https://downsurvey.tcd.ie/religion.php). The Irish were allowed to lease what was their own land. The unassuagable greed of the British establishment, as well as it’s contempt for the Irish, led in the end to Ireland’s departure from the union (to which its people had been conscripted by colonial masters). New leasehold tenure is illegal in Ireland today and a simple formula exists for buying out an old lease. It’s a fairer and more equal society with no class system (& no hereditary peers or unelected Lords) and greater social mobility than the UK (8th in the UN Development Index, v 16th for the UK, with parts, like NI comparable with Belarus, 50th). Leasehold is the original have your cake and eat it scam perpetrated by the few at the expense of the many. It’s been abolished everywhere the British exported it and survives only in England and Wales.

  4. Brilliant article explaining the sorry history of leasehold tenure. It is a clever scam for sure. Estate agents, solicitors and conveyancers would do well to read this and reflect on their advice to “buyers”.

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