Charles Perez-Storey

The case for leasehold in this article is wrong and predicated on false premises. 1/ leases of new flats or houses are not sold at a “substantial discount” to reflect the fact that they are leasehold and carry ground rents. The ground rent is neither legally nor commercially necessary. Ground rent as part of the price / consideration for the grant is not legally necessary because the leases are made by deed and require no consideration. The ground rent is not a term of the lease any purchaser can negotiate. The same is true of many other terms in leases. It is common to see flats of identical configuration, if not next door to each other, sold for materially different premiums but with the same ground rent. Indeed, in virtually all cases the developer will have agreed to sell the ground rent income before the first flat is built and cannot negotiate even if the flat buyer offers a higher premium for no ground rent. Nor is it uncommon or unusual to see leases that prescribe the ground rent by factors that have nothing to do with the premium paid, for example by the number of bedrooms. Further, when the Competition and Markets Authority investigated leasehold in 2015 it could find no evidence that new houses were sold for less than freehold houses. And where is the constant against which to compare flats because they are generally never sold as freehold? 2/ buying a leasehold flat or house is not the same as buying a sofa on instalments. If a sofa is bought on hire purchase then the buyer owns it outright at the end after making all payments. Not true for a leasehold flat or house, which goes back to the freeholder at the end of the term even after all payments are made. Indeed, modern leases also require the leaseholders to pay all the upkeep and for improvement of the building. 3/ a lease is not a right to occupy. That would be a rental tenancy. A long leasehold is an estate in land carrying the right of exclusive possession for the term. It is this right that makes it saleable and mortgageable. 4/ the myth that leaseholders are incapable of running estates or building places is to be contrasted by experience of right to manage and resident management companies, including at very large sites. Walk round New York or Paris or any other major city and you will see neighbourhoods full of communally owned and managed buildings. It is quintessentially feudal to say the British are too stupid to manage their own buildings without a third party freeholder. 5/ leasehold is not and has never been designed for multi occupancy blocks of flats. It was all that was available at the time large numbers of flats began to be built to ensure that positive covenants could be legally enforceable as owners changed and in multi-storey blocks. Other common law countries (Australia, Canada to name but two) saw the flaws in leasehold and developed a bespoke legal model. That is what Commonhold seeks to achieve for England. 6/ the fundamental flaw in leasehold, which cannot be fixed, is that it creates an adversarial relationship and a principal-agent problem between freeholders and leaseholders. The freeholder has all the power and no responsibility. More than 50 years of Parliament attempting to regulate service charges demonstrates this problem is inherent, a feature not a bug. 7/ as to freeholders’ property being expropriated without market value under the 2024 Leasehold and Freehold Reform Act 2024 this is wrong and the Divisional Court said so last October. We shall see if the Court of Appeal agrees. In any event, the loss of the freeholders’ right to 50% of marriage value when leases below 80 years are extended is unjustifiable in market terms. The freeholder gives nothing in exchange, keeps his freehold interest and is compensated for the loss of ground rent. Ending marriage value stops freeholders extracting ransom from a lease extension or freehold purchase.