Landlords will cash in as resurgence of leaseholds traps buyers in properties with rocketing ground rents, say campaigners

The worsening “nightmare” of the leasehold system in England and Wales is holding millions of homebuyers hostage to exorbitant bills, according to a report by campaign group HomeOwners Alliance, which estimates that landlords are in line to pocket £4bn from lease extensions.

Leasehold, once seen as a dying relic of the Victorian property market, has returned with a vengeance since the 1990s, according to the report. In 1996 just 22% of new builds in the UK were sold as leasehold, but this has doubled to 43% today. In London, nine out of 10 new builds are now leasehold.

The HomeOwners Alliance said that of the 5m leasehold properties in England and Wales, 1.58m are “owner occupied”. “But in the eyes of the law, they are in fact owned by their freeholder. The UK’s official rate of home ownership was 64.6% in 2014, but this includes the leaseholders who are not their legal owners – subtract them, and the rate falls to just 58.9%,” the alliance said in its Homes Held Hostage report.

New era of housebuilding needs new property laws Read more

It found that four out of 10 leaseholders do not know the length of time remaining on their lease, while of those that do, almost a quarter (equal to 370,000 homes) have less than 80 years to run. “The cost of extending these is likely to exceed £4bn.”

Most leaseholds are flats, but the report highlights the growing number of newly built houses being sold as leasehold by developers, “a practice which was almost unheard of 20 years ago”.

Some buyers of leasehold houses are finding themselves trapped in properties made unsaleable by rocketing ground rents, with many doubling every 10 years. In one case highlighted by the Guardian, the owner of a £100,000 flat bought on a 125-year lease in 2010 found this year it was valued at zero by mortgage companies because of the ground rent clause.

The HomeOwners Alliance is demanding that the government calls a halt to new leaseholds, with developers forced to switch to “commonhold” instead. This is similar to the US-style system used for condominiums, which effectively gives a freehold to every flat buyer alongside a common responsibility for the building. It was introduced in the UK in 2002 but has been a “massive disappointment”, according to Paula Higgins, who runs HomeOwners Alliance.

“The main reason is that housebuilders have a strong financial incentive not to offer commonhold,” said Higgins. “Why would a housebuilder hand over commonhold ownership to flat buyers, when it can retain the freehold and sell that freehold on to investors at a premium a few years down the line, and collect ground rent and administration fees in the meantime?

“Leasehold ownership can be traced back to the Domesday Book and it is a practice that should be relegated to history.”

In its recent white paper on housing, the communities secretary, Sajid Javid, promised an end to “leasehold abuse” by which homebuyers are locked into leases with spiralling ground rents.

But Labour’s housing spokesman, John Healey, said: “This report shines new light on the difficulties faced by some homeowners who own their home on a leasehold basis. Often in the dark about the exact terms of their lease and currently unprotected from punitive terms including huge rises in rip-off ‘ground rents’.

“Labour would start by giving leaseholders security from rip-off ground rents and end the routine use of leasehold ownership in new housing developments.”



Widespread ignorance about leasehold among young flat buyers – made worse by poor quality information from estate agents – is highlighted in the report.

It found that less than half of adverts on popular property websites were clear as to the correct tenure of a property. Only 49% of flat listings specified whether the property was a share of freehold or a leasehold property. Furthermore, only a quarter of the listings (24%) were specific about the length of time left on the lease.

The HomeOwners Alliance’s report calls for new leasehold houses to be outlawed, and mandatory commonhold tenure for all newly built flats. For existing leases, it says lease extensions should always be a minimum of 250 years, with only a peppercorn rent.