Leaseholders deserve justice – but Labour’s reforms could have unintended consequences says HELEN CRANE
Those scrolling through TikTok this week may have been surprised to see the prime minister appear amid the dancing and cat videos to bring good news to his hosts.
Keir Starmer announced on his social media platform that land rents paid by homeowners will be limited to £250 per year, with the aim of reducing them to zero over the next 40 years.
Ground rents are fees paid by leaseholders, who mostly live in flats, to landlords, who are the companies or individuals who own the land and building.
Unlike service fees paid for running the building, ground rents give them nothing other than the ‘right’ to occupy the owner’s land.
This is one of several reasons why the lease system has been denounced as feudal by critics.
According to the latest English Housing Survey, the average ground rent is £304, while in London the average is £412. But some owners pay much more.
Problematic properties: The rental system is often described as feudal and owners of new-build flats are subjected to a particularly unfair deal thanks to ground rents, service charges and occupancies
Where the situation gets really dire is that leases allow ground rent to double every 10 or 20 years, effectively imposing a penalty on flat owners for continuing to live in their own homes.
Flat owners who are subjected to these ugly provisions will breathe a sigh of relief. Or at least the policy will eventually become law when it becomes law, which won’t be until at least 2028.
But for most leaseholders, especially those with newly built flats, ground rent is a drop in the ocean when it comes to the headaches they face.
The real problem is that home ownership has become a dirty word among home buyers. So who can blame them?
The purchase of new-build rental flats was actively encouraged during the years when Help to Buy fueled developments in cities across the country.
It all started with the cladding scandal sparked by the horrific Grenfell Tower tragedy. Overnight, homeowners went from living in apartments where they felt safe to occupying potential death traps that were essentially worthless until any problems were first detected and then fixed at great expense.
The government eventually stepped in and in many cases forced the block developers to pay instead of the residents; but the stain on the apartments’ reputation remained.
Then came the cost of living crisis, when light was shed on the inflated service charges residents of some apartment blocks paid to landlords.
According to The Property Institute, service charges increased by an average of 41 per cent between 2019 and 2024, costing an average of £3,634 each year.
It’s no surprise that those who already own rental units now face an uphill battle selling them.
Owners of new-build flats are six times more likely to sell at a loss than owners of new-build homes, according to estate agent Hamptons’ rigorous analysis of government data.
For some, this means they are trapped in their first home and unable to move on, as one homeowner told us this week.
Some might say leaseholders know what they’re signing up for. But the truth is, if budget It does not extend to a house, you have no choice but to own a house.
The purchase of new-build rental flats was actively encouraged for years during the property boom of the 2010s, when Help to Buy fueled developments in cities across the country.
For young home buyers, this offered the chance to get on the property ladder. But the real winners were the developers, who, backed by taxpayers’ money, had an influx of buyers likely willing to pay sky-high prices.
The government has finally committed to resolving some of the many issues surrounding leasehold and there are numerous changes at various stages of the legal system.
However, there is a big problem standing in the way of change.
Talk this week about ground rents has brought up the fact that capping charges at £250 would require the Government to force landlords to tear up existing legitimate contracts.
Other elements of broader rent reform will require the same.
The Association of British Insurers this week described it as a ‘problematic precedent’ that could discourage firms from investing in property in the UK.
For too long flat dwellers have been comforted by second-class home ownership, and it is right that the needs of the UK’s 5.2 million leaseholders come before those of investors.
But for a Government that wants to build 1.5 million homes by 2030, tackling rent once and for all could have some unintended consequences.
