THE BLOG
07/11/2017 07:00 GMT | Updated 07/11/2017 07:00 GMT

The Broken Leasehold System Needs To Change

Technical questions about property ownership would normally be considered a hot political issue but that has changed in the last 12 months. Leasehold has been described as "the PPI of the house building industry" and even by the Secretary of State as a "feudal" system, and a real scandal has emerged as people have discovered they don't actually own the homes they bought.

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Technical questions about property ownership would normally be considered a hot political issue but that has changed in the last 12 months. Leasehold has been described as "the PPI of the house building industry" and even by the Secretary of State as a "feudal" system, and a real scandal has emerged as people have discovered they don't actually own the homes they bought.

It gets worse; they are tied in to a long lease which require them to pay ground rent on annual basis for the length of the lease. Some of the leases have ground rents that double every ten years, so what starts out as a modest payment of a few hundred pounds becomes an astronomical figure further down the line, rendering some properties unsellable. The leases can contain other onerous clauses- I know of people who have been told they need to pay £3000 to the freeholder in order to obtain their permission to build an extension, and others charge £108 just to ask a question of the freeholder. These leases have been deliberately designed to screw as much money out of the people living in the home for as long as possible.

Only last weekend a story emerged of a retired couple who paid £38,000 to purchase the freehold of their property-original selling price £320,000. Not only were they ripped off through the original purchase which would have saddled them with annual payments of over £9,000 a year for "ground rent" they have had to pay through the nose to rid themselves of this onerous lease because the current system is weighted in favour of the freeholder.

There have always been leasehold properties of one description or another and were normally subject to a "peppercorn" rent , a nominal symbolic charge of no monetary value. Over the last decade or so though a number of developers have sought to monetise this practice by creating leases with the sort of onerous ground rents described above. Not one developer has put forward any convincing argument about what these payments are for. Then there are the ultimate owners of these leases- developers usually sell the leases on to third parties after a couple of years, and they often then get lost in a complicated web of companies with the ultimate ownership often ending up offshore. No doubt some of the names that pop up in the paradise papers will have freehold interests.

The extent of the problem has not been revealed by developers but it is thought hundreds of thousands of houses could have been sold with these onerous leases, reducing their sell on value in some cases and rendering them unsellable in others. The Government have subsidised this racket through the help to buy scheme and nobody knows what exposure they or institutional lenders have. There have been multiple failures across the board; the lenders, the solicitors who say the leases are "standard" and the developers whose sales pitch either played down the impact of leasehold (for example one who told the purchaser it would cost £6000 to buy the freehold who was then later quoted £54,000) or omitted mention of it altogether until contracts were being signed. There needs to be a thorough examination of the failings across the board to ensure something like this never happens again.

To their credit, the Government have realised this practice cannot continue and are currently considering responses to a consultation on the subject. It seems likely that an outright ban on sales of new homes on a leasehold basis will follow but so far there doesn't seem to be any prospect of help for those already trapped in leasehold properties. That is why I am introducing in Parliament what is known as a "ten minute rule bill" to liberate them from this 21st century Rachmanism.

At the moment leaseholders can in theory purchase their freehold but the system is incredibly convoluted and expensive, often the leaseholder will have to pay the freeholders costs of having the price determined by a tribunal, that usually includes surveyors and lawyers whose job it is to maximise the purchase price. This leads to the kind of ridiculous prices referred to above and the injustice of the leaseholder having to pay for the privilege of people working out ways of how they can be charged even more.

Ten minute rule bills very rarely make it onto the statute book but this bill has support from both Government and opposition MPs, showing how widespread the abuses have been and how, in this hung Parliament there is real cross party appetite to end this scandal. After all, as the saying goes, an Englishman's home is his castle and there can be very few people who believe that should mean you are in hock to a secretive offshore investor for the rest of your life. That's the reality for thousands of people and that is why it has to end.