Government estimates that about £4 billion will be transferred from freeholders to leaseholders as a result of the Leasehold and Freehold Reform Act, writes Sebastian O’Kelly. So, it is not altogether surprising that freeholders are fighting to keep it and launched their Judicial Review.
One aim of the Act is to make it cheaper and easier for leaseholders in houses and flats to extend their leases – also the means to remove the wealth erosion of ground rent – and buy the freehold. Without these measures the path to commonhold conversion of older sites is a non-starter.
The government estimated ending marriage value as a transfer to leaseholders of about £1.9 billion and the 0.1% cap on ground rents in the calculations at about £1.2 billion. Added to that is freeholders having to pay their own legal and professional fees, of another £600 million.
That such measures are in the Act is acknowledgement by Parliament that this sector has been systematically gamed, and that leaseholders have been ripped off in a rigged system by freehold owners for years.
We await the ruling of the Judicial Review. Until it is made, housing minister Matthew Pennycook has said (housing select committee, July 15) that he will delay consultation on setting deferment and capitalisation rates.
These are the rates that will be decided by the Secretary of State and used in all enfranchisement calculations, and reviewed every 10 years.
Mr Pennycook is certainly right to delay this element of LAFRA: after all, the government might not decisively win on all points contested in the Judicial Review.
Even if the government does win, small changes to the deferment and capitalisation rates could have huge financial implications for leaseholders, as Dr Hamilton demonstrates below.
Deferment rates are presently 5%, on which the £1.9 billion wealth transfer stated above is based. But if the deferment rate were reduced to 3.5% – as freeholders have argued in the courts that it should be – then the figure evaporates to £74 million.
There is muttering on social media within the sector that rates will become more aggressive, ie lower, to ‘cushion the blow’ of ending marriage value: which would mean benefiting the few at the expense of the many.
Dr Hamilton argues that average leaseholders (52% of the total) with longish leases and non-aggressive ground rents could be financially worse off under LAFRA if the rates are unfavourable.
Only 14% of leaseholders have leases under 80 years, who will be the beneficiaries of ending marriage value, and only 20% have escalating ground rents, who would benefit the most from a 0.1% cap.
The article below by Dr Hamilton expands on points about deferment and capitalisation rates that he made in May:
By Dr Alexander Hamilton
Dr. Alexander Hamilton is an economic adviser and development economist at the UK’s FCDO, where he specialises in the economies of the Middle East and North Africa. He writes on the economics of leasehold in a private capacity. The views in this article are his own, and do not necessarily reflect those of the FCDO or the UK government. His scholarly work can be found here: Alexander Hamilton – Google Scholar.
Key Points
- The main objective of the Leasehold and Freehold Reform Act 2024 (hereafter LAFRA) is to ‘make it cheaper and easier for leaseholders in houses and flats to extend their lease or buy their freehold.’
- The LAFRA Impact Assessment (as amended by its Addendum) estimates that the cost of commencing LAFRA is approximately £4bn. The bulk of this amount, approximately £3.6bn, is estimated to be transfers from freeholders to leaseholders designed to achieve the objective of making it ‘cheaper to extend their lease or buy their freehold’. The key provisions that would make the extension of a lease or the purchase of a freehold cheaper, include the abolition of marriage value (£1.9bn), the capping of ground rents at 0.1% of the value of a property for the purposes of a lease extension enfranchisement (£1.2bn), and freeholders having to meet their own legal and valuation costs in most instances of a lease extension or enfranchisement claim (£0.6bn).
- However, the Impact Assessment does not consider the effect that LAFRA will have on these lease extension and enfranchisement costs with respect to any reduction in the capitalisation and deferment rates that will, according to the Act, be prescribed by the Secretary of State and reviewed every 10 years. The capitalisation rate determines the present value of ground rents, and the deferment rate the present value of a property. Therefore, a reduction in these rates would result in a transfer from leaseholders to freeholders, making a lease extension or enfranchisement claim more expensive, all other things considered and, if this effect is sufficiently large, negating the impact of the other provisions in LAFRA designed to make these processes cheaper for at least a majority of leaseholders.
- A lowering of the deferment and/or capitalisation rates would result in a redistribution FROM leaseholders to freeholders. It is well-documented that a deferment rate of 3.5% would almost negate the impact of the abolition of marriage value, while the lowering of the capitalisation rate would increase the cost of buying out ground rents even with the commencement of the 0.1% cap; see for example here, here, and here.
- In order to assess whether LAFRA meets its main objective, namely, to make it cheaper for leaseholders to extend their lease or buy their freehold, it is, therefore, necessary to consider the effect of the lowering of one or both of these rates in addition to the other reforms enumerated in the Act. Adopting a methodology that reasonably approximates, although does not fully replicate LAFRA’s Impact Assessment methodology (as modified in its Addendum), we try to answer this question.
- Our results show that, because of the large impact of the lowering of these rates, especially the deferment rate, the implementation of LAFRA in this manner could, perversely, result in a net transfer from leaseholders to freeholders despite the other elements of the Act designed to make it cheaper for leaseholders to extend their lease or enfranchise.
- Our results indicate that, because the majority of leaseholders, conservatively estimated to constitute about 53% of the total, have current leases of between 80-150 years and traditional ground rents, any lowering of the deferment or capitalisation rates would make a lease extension or buying the freehold more expensive for most leaseholders. Thus, perversely, the implementation of LAFRA in this particular manner would result in the Act making it more expensive for the average leaseholder to extend their lease extension or enfranchise even if all other elements of the Act were commenced.
Detail
According to the LAFRA’s original Impact Assessment, as amended by its Addendum, the total value of the ‘key estimated monetised benefits,’ to leaseholders of implementing the provisions of LAFRA designed specifically to make it cheaper for leaseholders to extend their lease or enfranchise, is £3.6bn (2019 prices in 2025 present value over a 10 year period). The vast majority, but not all, of these benefits are in the form of transfers from freeholders to leaseholders. Specifically, three major reforms contained in LAFRA: (1) the abolition of marriage value (£1.9bn), (2) the capping of ground rents at 0.1% of value for the purposes of a lease extension or enfranchisement (£1.2bn), and (3) the need for freeholders to meet all or most of their legal and conveyancing costs (£0.6bn), represent the bulk of these transfers from freeholders to leaseholders.
Table 1 below summarises these key monetised benefits as set out in the Impact Assessment (p.5) and modified by the Addendum (p.6), that are identified as specifically making it easier and cheaper to extend a lease or buy a freehold (Impact Assessment p.33/p.101). It is important to note that LAFRA’s commencement should also result in several other benefits to leaseholders that do not pertain to making it cheaper to extend their lease or buy their freehold. These include: (1) an increased ability to hold freeholders and managing agents to account through greater transparency of service charges; (2) cheaper access to courts; (3) increased access to redress; (4) changes to the Right to Manage (£8.3m) or (5) the provision of information for the purchase and selling of properties (£81m). These additional benefits of LAFRA should not be forgotten. However, as one of the core objectives of LAFRA is to make it cheaper to extend a lease or purchase a freehold they are not considered further here.
However, as Table 1 indicates, one important determinant of the cost of a lease extension or enfranchisement claim, which was not quantified in the Impact Assessment is the potential effect of changes in the prescribed rates. As LAFRA empowers the Secretary of State to vary both the deferment rate (which determines the present value of a property) and the capitalisation rate (which determines the present value of ground rents) this is an important consideration that needs to be quantified to determine how, if at all, the implementation of LAFRA actually reduces the cost of a lease extension or an enfranchisement claim for the majority of leaseholders. The Impact Assessment (footnote 85 p.87) notes that it does not seek to quantify the effect of a change in rates because: ‘the direction of the transfer is not certain at this stage.’ Furthermore, because in practise the capitalisation rates may vary, with lease extensions with non-escalating ground rents attracting a higher rate (between 6%-8%) and lease extensions with rapidly escalating ground rents attracting a lower rate (as low as 3.5%), the Impact Assessment does not seek to quantify the impact of a lower rate (Impact Assessment, p.116).
However, even when considering these important caveats, given some of the other simplifying assumptions made in the Impact Assessment (e.g. such as the nature of escalating ground rent clauses), failure to account for the fact that these rates may be reduced can generate very partial estimations of the net welfare to leaseholders of commencing all the reforms in LAFRA.
For example, if the deferment rate were to be set at 3.5%, something which some freeholders actively lobbied for when LAFRA was being drafted, this would almost completely eliminate the effect of the abolition of marriage value. In such a scenario, the net benefit to leaseholders of abolishing marriage value, but setting the deferment rate at 3.5% would be approximately £74m, not £1.9bn (as suggested in Table1, below), a 94% net reduction in benefits; see here or here.
Furthermore, even this calculation is misleading, because the vast majority of leaseholders would not benefit from the abolition of marriage value (only 14% of leaseholders have lease length under 80 years – see here), but the lowering of deferment rates would make it much more expensive for almost two-thirds of leaseholders with more than 80 years but less than 150 years to extend their lease.
Considered together, these impacts transform what initially appears to be a £1.9bn transfer from freeholders to leaseholders into a potentially multi-billion transfer from leaseholders to freeholders.
Thus, it is essential to try and calculate how the lowering of the deferment and capitalisation rates could affect the net welfare of leaseholders in the context of LAFRA’s implementation.
Table 1: Reforms in LAFRA designed to make it cheaper and easier for leaseholders to extend their lease or buy their freehold – from the Impact Assessment p.33/p.100
Source: Table 3.2 of the LAFRA Impact Assessment and LAFRA Addendum. Note this Table includes transfers that affect the cost of a lease extension or enfranchisement claim and not all the monetised and non-monetised benefits of LAFRA.
Methodology
The best way to assess the impact of the lowering of deferment and capitalisation rates would be exactly to replicate the methodology of the Impact Assessment as modified by the Addendum. However, because all the specific calculations used to construct the analysis in the Impact Assessment are not available we cannot do this. Instead, our second best approach, is to try to follow the methodology of the LAFRA Impact Assessment as closely as possible to produce a reasonable estimation of these costs. Specifically, consistent with the Impact Assessment we:
- Adopt the 10-year time horizon to quantity benefits and costs, realised via actual lease extension and enfranchisement claims, as well as a 3.5% annual discount rate for the time period in question (2025-2035).
- Assume that the number of lease extensions are 38,900 per annum, that there are 3,500 units involved in collective enfranchisement, and 15,700 leasehold houses purchase their freehold.
- Assume that 10,310 lease extensions are for properties with leases below 80 years remaining and no property with more than 110 years remaining extends their lease.
- Assume 80% of properties undergoing lease extension have a fixed ground rent, and 20% have an escalating ground rent, with the latter increasing by RPI every 10 years.
- For the baseline case assume the deferment rate is 5.0% for flats and 4.75% for houses, and the capitalisation rate is 6.0%.
However, our methodology does not replicate all parameters of the Impact, partly because whiles the principals are documented the specific values and calculations are not always available. Specifically, unlike the Impact Assessment we:
- Cannot replicate the regional prices used in the Impact Assessment. Instead, we use national average (for England and Wales) prices for flats and houses in 2025.
- We do not assume any ‘high value’ properties in central London; as such, our methodology underestimates the cost to leaseholders of a reduction in deferment rates vis-à-vis the estimated benefits of the abolition of marriage value.
- As we do not have the distribution of lease lengths used in the analysis we use the average lease length in the two analytical categories, being 95 years for leases 80-100 years and 70 years for leases under 80 years.
Our estimates should be considered a reasonable approximation of what the impact of a change in the prescribed rates might be, rather than a point estimate that is perfectly comparable to the other calculations in the Impact Assessment. While this inevitably means that we should treat our results with caution, our approach draws attention to the desirability to complement LAFRA’s Impact Assessment to incorporate the potential impact of a change in the deferment and capitalisation rates in concert with the other estimated benefits.
Results
Table 2 below shows the welfare implications for leaseholders of the commencement of all of LAFRA’s provisions that are purported to make it ‘easier and cheaper’ to extend a lease or buy a freehold using different deferment and capitalisation rates.
Using the LAFRA Impact Assessment’s assumed rates (4.75%/5.00% deferment rate for houses and flats respectively) as well as a capitalisation rate of 6.0% as a baseline of comparison would yield a net welfare gain for leaseholders of £3.6bn (the same as in Table 1 above).
– last row and column in Table 2.
However, these gains are quickly negated by lower deferment and to a lesser extent capitalisation rates.
Specifically, if the preferred deferment rate of 3.5% that freeholders have lobbied government to introduce as part of the commencement of LAFRA (see: Hansard) were used, the net welfare effect for leaseholders would be a loss of between £1.6-£3.8bn (see second column of Table 2).
This means that it would become much more expensive for leaseholders to extend their lease or buy their freehold, despite the abolition of marriage value, the capping of ground rents at 0.1% of the value of the property, and freeholders having to pay their own legal and other costs.
In other words, the effect of LAFRA would be a net redistribution from leaseholders to freeholders. Only in the case where (1) the deferment rate was not reduced but the capitalisation rate was reduced (last column of Table 2) or (2) the deferment rate was reduced to 4.0% but the capitalisation rate stayed at 6% (column 3, last row) would leaseholders still be better off after the commencement of LAFRA.
Are these results realistic?
While these results need to be treated with care because our methodology is: (1) only a reasonable approximation of the methodology used in LAFRA’s Impact Assessment, and (2) they do not include other reforms in LAFRA (e.g. RTM reforms, the need for all freeholders to belong to a redress scheme etc.) that would also generate benefits for leaseholders, they are nonetheless significant.
They show that with a deferment rate of 3.5%, the benefits of the abolition of marriage value (£1.9bn) would almost completely be negated for leaseholders with less than 80 years remaining on their lease. Furthermore, the majority of leaseholders (63% of leaseholders have between 80-150 years left on their ;ease, see Impact Assessment, p.127) would see the cost of s lease extension or enfranchisement become significantly more expensive. These results are consistent with micro-level calculations of the costs of a lease extension with different deferment and capitalisation rates (see: here or here).
What would the welfare effect be for most leaseholders?
It is also worth considering the impact of the commencement of LAFRA’s provisions on the majority of leaseholders. After all, while it might be reasonable for LAFRA to have a heterogeneous effect on different leaseholders (e.g. those with onerous ground rents or marriage value vs. those without these provisions in their lease), if the objective of the act is to ‘make it cheaper and easier for leaseholders in houses and flats to extend their lease or buy their freehold’ it is not unreasonable to expect that a majority of leaseholders should experience a reduction in the premium payable for a lease extension or the purchase of the freehold.
According to LAFRA’s own Impact Assessment, pp.75-76, only a minority of lease extensions (10,310 of 38,900) are for leases below 80 years (affected by Marriage Value), and only a minority (18%) of leaseholders have ‘modern’ (escalating ground rents- Impact Assessment, p.210- and therefore most likely to benefit from the 0.1% cap).
This means that, for the majority of leaseholders extending their lease or enfranchising (assumed to be capped at 110 years in LAFRA’s Impact Assessment, p.76 ) the key benefit of LAFRA that should make this process cheaper is that freeholders have to meet their own legal and valuation costs (£0.6bn).
Table 3 below shows the net welfare effect to leaseholders who have over 80 years and traditional ground rent clauses (assumed here to not benefit from the 0.1% cap) if LAFRA was commenced with different deferment and capitalisation rates.
In virtually all cases, bar a slight reduction in the capitalisation rate but no change in the deferment rate, those extending their lease with more than 80 years and traditional ground rents would be worse off with the commencement of LAFRA. Specifically, as shown in Table 3 for this sub-group any reduction in the deferment rate would lead to higher costs for a lease extension or enfranchisement, resulting in a net transfer from leaseholders to freeholders of between £2.9bn-£0.5bn.
The results in Table 3.A are overestimating the benefits that accrue to leaseholders with a term over 80 years and traditional ground rents, because it assumes that all the benefits of making freeholders pay their own costs (£0.6bn) accrues only to this group. In reality, some of these benefits accrue to leaseholders with less than 80 years on their lease and/or those with modern ground rent clauses and terms of over 80 years.
Therefore, Table 3.B (below) replicates the analysis of Table 3.A, but pro-rates the benefits to this group of leaseholders in proportion to the number of lease extension and enfranchisement claims that we assume this sub-set of leaseholders undertakes over the 10-year assessment period.
Table 3.B shows that any lowering of the deferment or capitalisation rate results in a leaseholder in this subgroup always being worse off, despite the commencement of all the provisions in LAFRA designed to make the process cheaper.
Why is it significant if leaseholders with a term over 80 years and traditional ground rents do not benefit from LAFRA’s objective to make it cheaper to extend a lease and/or enfranchise?
The majority of leaseholders (63%) have a lease of 80-150 years. Therefore, they do not benefit from the abolition of marriage value, and the remaining lease term is too short to mitigate the impact of a reduced deferment rate.
Furthermore, as 82% of leaseholders have traditional ground rent clauses, a majority of leaseholders are unlikely to benefit from the 0.1% cap.
If we conservatively assume that 52% of leaseholders (82% of 63%) have a lease of between 80-150 years and non-escalating ground rents (this figure is likely to be an underestimate because at least some of the 8.2% of leaseholds with an unknown lease length are likely to fall into this category), then if deferment and capitalisation rates are reduced it is reasonable to expect an Act of Parliament whose objective is to “make it cheaper and easier for leaseholders in houses and flats to extend their lease or buy their freehold” will have the reverse effect for the majority of leaseholders.
This would be specially perverse considering that there are good reasons to raise the deferment and capitalisation rates to reflect market values (see: here).
Summary
One of LAFRA’s key objectives is to “make it cheaper and easier for leaseholders in houses and flats to extend their lease or buy their freehold.” Accordingly, LAFRA’s Impact Assessment and its Addendum estimate that the provision in the Act designed to achieve this aim (p. 101) are:
(1) removing marriage value.
(2) enabling the Secretary of State to prescribe the capitalisation and deferment rates used in the valuation calculation, which will be reviewed on a 10-yearly basis.
(3) capping the treatment of ground rent in the premium calculation.
(4) increasing the statutory lease extension to 990 years for both houses and flats.
(5) giving leaseholders with at least 150 years left on their lease a new right to buy out their ground rent without having to extend their lease.
(6) removing the requirement for a leaseholder to have owned their property for two years before they can enfranchise.
However, while identifying that the majority of LAFRA’s monetised benefit for leaseholders come from provisions trying to make the cost of lease extension cheaper, LAFRA’s Impact Assessment did not consider what the effect of reducing the deferment and capitalisation rates would be.
This is significant because, as we have shown above, by adopting a methodology similar to the one in the Impact Assessment, a reduction in either of these rates is likely to see LAFRA result in a net transfer from leaseholders to freeholders despite the other provisions in the Act.
While we need to be cautious with our results, it is almost certain that, for the majority of leaseholders (those with between 80-150 years lease remaining and traditional ground rent clauses) any reduction in the deferment and/or capitalisation rates would likely lead to a lease extensions or enfranchisement claim becoming more expensive. As this group constitute the majority of actual leaseholders, any lowering of the prescribed rates this would mean that the Act would fail in its central objective.
Related posts:
Ending marriage value would benefit short-lease owners. But leaseholders with 80-150 years left could face a considerable hike in extension costs over the current unreformed regime
Why it is going to be so important to shout in 2025 – and loudly – when government sets the leasehold Deferment Rate
Judicial Review Day 3: Freeholders incur judge’s wrath as government opens its case
Taylor Wimpey’s snake oil ground rent review scheme makes toxic leases even worse: in my case, £25m worse!
Judicial Review Day 2: Heat is on and the wigs come off in sweltering courtroom 76
Leaseholders should be told service charges for first 10 years of ownership, says London Assembly
While your numerical prediction may prove correct, it is vital that the Government asserts its right to make rules in the interests of the majority—not just wealthy freeholders. For decades, and even centuries, the balance has tipped increasingly towards freeholders’ interests, while successive governments have looked the other way.
From my perspective as a leaseholder, the absolute low point was the 1993 Reform. The formula for lease extension costs effectively equates a 99-year lease with a 10,000-year lease, as the extension cost depends on years remaining, not years elapsed. This defies common sense and, in my view, clearly reflects government deference to powerful vested interests.
To make matters worse, “marriage value” was introduced, amplifying profits further. The supposedly “simple formula” for lease extension was so complex that it went well beyond what a 1993 pocket calculator could compute.
The result: tens of billions of pounds in leaseholder payments line the pockets of freeholders, pension companies, and even charities—simply so we can keep our own homes. When reform is discussed, these groups defend their “investments,” but the reality is they have risked little and gained much by exploiting this system. It’s time to end this gamble.
If the Government is able to establish its legal right to govern in this sphere, its first act should be to enact the long-missing part of the 1993 reforms: to properly quantify leasehold value. At present, the lease’s value depends entirely on the arbitrary number of years a freeholder chooses to write into it. Why should it be down to luck? If you get 990 years, you’re fine; if 99, you face major expenses.
The current formula is based on actuarial principles similar to those used in insurance—so why not use these to value the leasehold itself? My calculations suggest that a 99-year lease is worth about 60–66% of a 990-year lease. If the Government wins the right to make reforms in the public interest, enacting such a change would make the numbers begin to add up.
Mr Harrison,
I read your artiicle with a great deal of interest and make the below suggestion.
Does Mr Pennycook, Minister of State for Housing and Planning, possess the authority to establish two seperate deferment and capitalisation rates if he deems it appropriate – one applicable to properties with leases of eighty years of less, and another for those with leases exceeding eighty years? these distinct rates could be set at optimised levels with the intention of offering advantageous outcomes for all leaseholders.
Thank you for your interest Mr Burns.
Over the past year, I’ve spent a substantial amount of time reviewing the Leasehold Dataset made available by the Land Registry. This dataset—covering some 7.5 million leaseholds across England and Wales—is notoriously difficult to work with. It lacks a meaningful data structure, but I’ve persevered in trying to extract useful insights.
Here are a few of my observations so far:
1. Data limitations put leaseholders at a disadvantage. It’s costly and technically challenging to get a complete picture and even comparing neighbouring properties is difficult. This creates a barrier to collective action by leaseholders.
2. Within the same development, lease terms can vary. As an example, one block can have 99-year leases, while another has 125-year leases. This seemingly small difference can lead to significant future costs, which most leaseholders won’t even be aware of.
3. Lease extension terms are inconsistent and arbitrary. There is no obvious logic. Person A might receive a 90-year extension, person B gets 990 years, and person C 125—all in the same development.
4. Some lease extensions are backdated to a fixed date. For example, an extension might run for 150 years from 1 January 1990. The first person to extend gets the full 150 years, but someone extending 20 years later receives just 130 years at a much higher cost—simply due to timing.
5. Lease Extensions are mainly for properties with an initial Lease duration of 99 years. The remainder are almost entirely for those with 125 years. All of the costs of Lease Extensions are paid by an unfortunate subgroup of Leaseholders.
These patterns suggest a “cottage industry” where each freeholder applies their own ad hoc rules, and no reliable system is in place to identify or correct inconsistencies.
Policy Recommendation
One major improvement that could bring better clarity and consistency is to go further in implementing the key principles of the Leasehold Reform Act 1993. The Act provides a formula to value:
• Depreciating assets (the remaining years on a lease),
• Assets with future value (annual ground rent income).
But notably, it omits one crucial element: a formula for valuing the actual Lease as an asset.
We’re left in the absurd position where the market treats a 99-year lease as having the same intrinsic value as a 990-year lease. This runs contrary to all economic logic and opens the system to manipulation. To me, that is a clear example of political influence overriding fairness and consistency.
In my view the 1993 Reforms could be used to value Leaseholds as a future asset giving a meaningful weighting to Leaseholds of any length…..
Very interesting points from Paul Harrison.
I am afraid the enfranchisement racket does not stand up to close scrutiny. There are absurdities to it which favour both sides. For example, the principle of enfranchisement in the first place, whereby a private citizen can compulsorily purchase the property of another. Such divisions of property cannot be found elsewhere in law, outside family courts dealing with divorce and inheritance disputes.
Stephen Burns asks whether a distinction could be made between short and long leases. It is certainly possible, but not in LAFRA.
It was a point made on day 2 of the Judicial Review by Mr Maurici KC, acting for the Cadogan and Grovesnor Estates, who addressing ‘grandfather’ rights (a new one on me).
“He said LAFRA should have allowed leases with 80 years or less to run at a particular point in time to continue under the pre-LAFRA system. He claimed that this would only exempt 8% of leases, all of which were in Prime Central London. [There are many short leases all over the country, although obviously the big money is in prime London property.]
“Mr. Maurici said that the government’s reference to marriage value being “removed” was incorrect because LAFRA allowed the leaseholder to keep all of that value without compensating the freeholder.”
About para 14:
https://www.leaseholdknowledge.com/judicial-review-day-2-heat-is-on-and-the-wigs-come-off-in-sweltering-courtroom-76/
Thanks LKP for that interesting and informative article, unfortunately it seems we still have a long way to go.
For those of us who are very elderly in Retirement accommodation , particularly with those who supply extra care, it probably means we shall live out our lives under the current Leasehold system. The changeover to Commonhold for us could be complicated and impracticable.
Whilst we can probably accept that, especially those in Social Housing, one of our main objectives has been the better regulation of Managers/Landlords.
Although extremely important this appears to have been put onto the backburner.
I would like to thank LKP, NLC and others for their efforts on getting us this far.
It is unfortunate that there are some who try to belittle their efforts. What we need is a united front.
Michael ,
Who are you referring to? I believe In freedom of speech in this United Kingdom.
Stephen Burns
Veteran
The Parachute Regiment
Stephen,
I appreciate all the efforts you have been putting in on behalf of all Leaseholders.
I first got involved in 2010, when at 70 years of age I was looking to downsize from my house to a retirement flat. At that time Peverel managed M&S cornered the market and there was little alternative. . And they had a very poor reputation..
In 2010 we had high hopes of reform but following the 2010 General Election Grant Shapps the Housing Minister put an end to that.
1 At thst time I had a lot of correspondence with Grant Shapps, his Department and everyone in the Government from the PM downwards.
2 I had meetings with the M&S Midlands manager, the Chairman and Deputy Chairman of the ARHM, and the notorious Customer Relations Director of Peverel.
3 I had mountains of correspondence with ARMA and different COEs of Peverel/Firstport.
4 I was also a contributor to the two main then existing campaignin* groups one solely Peverel/Firstport, the other a general.
5 Around 2015 the problem of fleecehold arose and Taylor Wimpey were one of the main offenders, Having worked 25 years for Taylor Woodrow I was very concerned and had many communications with them. I also supported the new campaigning organisation which was formed to challenge this.new situation.
6 Eventually in 2015 I purchased a Leaseholf retirement flat within the Socisl Housing Sector, which proved somewhat better than a Firstport managed property but still with problems, which I continue to campaign against.
7 After many years commenting on these websites one of them started to become abusive towards me, firstly because they regarded me as stupid for even thinking of buying a flat with the conditions that were attached. The abuse became nasty and hostile and is all on record for you to see. This abuse then extended to other orgsnisations which I supported, and by trying to defend them I was subjected to more and even accused of being planted by them.to cause trouble. My defending myself caused me to be banned from commenting on their website, yet they still continue to refer to me within it.
They need to remember that the majority of us suffering from the leasehold system are not living under Firstport and we we,come the efforts of those who are trying to improve our situation.
Whilst I welcome free speech I am not in favour of abusive criticism which seeks to destroy those efforts.
Mike Hollands
53 years a Notts County Season Ticket Holder
A member of the Black and White Army.
Michael,
I would be more impressed if you had a Blue Peter badge for origami rather than a season ticket to your local football club..
Stephen. I think one of my greatest achievements was to get banned from that alternative campaigning site., I still get a mention there.
My fatherly advice to their main contributor did get her to tone down her language a bit.
Thanks for your kind words. And your very useful correspondence to us, to property managers and to MPs: you raised matters with Ken Clarke, which was handy.
In my view the abolition of marriage value is and was a mistake.
In my view the problems have always been that –
– us surveyors have been arguing about the same things again and again, when government could have prescribed.
– freeholders have gamed the system to inflate marriage value (which could have been addressed by the creation of a government approved relativity graph that reflects the reality before freeholders gamed the system, and would have lead to much reduced premiums on sub-80 year leases). Abolishing marriage value makes little more sense than abolisiong the term or reversion.
– buyers have not been told EVERY SINGLE TIME THEY GO TO BUY A LEASEHOLD PROPERTY, to take specialist advice as to the discount they should demand from “freehold flat value” to reflect the sub-infinite lease term and the over-zero ground rent. Had every single leaseholder been properly advised (including to extend their lease ASAP after purchase and not to buy a wasting asset whose lease they can;t afford to extend) then it wouldn’t matter if leasehold was a rip off because flat buyers bids would have been rational. But buyers were let down by conveyancers who do not demand specialist valuation advice is taken, and banks who allow people to borrow money without evidence that the borrower is fullyu informed of the valuation impacts of leasehold
Before 1993, marriage value made sense — it was agreed compensation because landlords didn’t have to offer lease extensions. If we’re now saying marriage value should go, then we really need to look again at how much the 1993 changes interfered with freeholders’ rights.
For leases granted after 1993, the case for keeping marriage value is much weaker. Landlords got higher premiums because buyers knew they had the right to extend their lease — that was priced in.
So by the same logic, if someone bought the freehold after 1993, they knew what they were getting into. Lease extensions and enfranchisement were already on the table, and those can deliver windfalls to leaseholders. It seems fair that those landlords should cover their own costs.
A lot of the problems we see now — especially with toxic ground rents — might have been avoided if the net present value of the rent had just been shown next to the premium when the lease was first sold. That would’ve made it clear what buyers were really signing up for. Then the focus of leasehold reform might have stayed where it arguably belongs: service charges and giving unhappy leaseholders more control, like through Right to Manage (RTM).
As for ground rent reform, here’s a simple idea: on every rent review, it should go up by either the amount in the lease or RPI — whichever is lower. That would deal with those 10- or 15-year doubling clauses, which are the real problem, while still keeping things palatable for institutional investors. It also means we’re not undermining the basic idea of sticking to contracts.
Trying to argue that contracts made decades ago — by people who are long gone — gave landlords too much is messy territory. And capping the starting rent seems odd too. Any buyer with legal advice would’ve seen what the rent was before signing. If we start capping rents now, some leaseholders might want a refund on part of their premium and just keep their current rent. And once that argument’s been had, the next battle will be over the idea that a 99-year lease was meant to mean “forever,” and we’ll end up with another row about people not being told their lease would eventually need renewing.
Stephen,
During my tenure at our current residence, I have frequesntly been approached by new resdients with similar enquiries: 1. Why do we have to pay ground rent? (2) What constitutes a service charge? (3) Why must a service charge be paid, and what are the consequences of non-payment? (4) Some have mentioned being informed by third parties that utilities such as electricity and water bills for theit flats would be covered by another entity.
I have endeavoured to clarify these matters: service charges cover communal services and maintenance, while ground rent is payment that does not correspond to any specific goods or sevices received. Additional questions and assumptions have also been addressed as they arise.
It is notable that all individuals seeking clarification were over sixty years of age and appeared to possess average or above-average intelligence. Nevertheless, it is not surprising that approximately 15% or more of apartment block residents seemed unfamiliar with those concepts upon purchasing a leasehold property. I invite contributors to this knowledgeable forum to share their perspectives on why this lack of awareness persists despite its mutiple decade long existence.
Stephen
Before I purchased our Social Housing retirement flat which has a 999 year lease, I looked at some local M&S complexes managed by Firstport.
In one complex there was a suitable flat so I began asking questions about the lease which was not disclosed in the Estate Agents sales brochures.
The Estate Agent said seek advice from your solicitor, at that early stage I had not appointed one. Further investigations.reveal it was a 99 year lease with only around 83 years remaining. I asked the Estate Agent if anyresident had extended the lease, he could not tell me.
Upon visiting the complex I asked similar questions of the Resident Manager but got no further.
The Residents Lounge was full of very elderly people, I asked a question of them all.
“ Have any of you extended the Lease as it is down to a dangerous 83 years.
Some had not a clue of what I meant and others said they were not bothered as at their age they would be dead long before it expired.
I think this situation will now apply in many of the old M&S complexes with 99 year leases.
It will give their dependants who inherit a very difficult time.
Michael,
I believe that you are absolutely correct in respect to the beneficiarys of an estate.
Since we appointed the managing agent of our choice not one apartment has been sold despite one seller receiving two cash offers. Another property was removed by the agent from the for sale site.
Both can now look forward to allegedly paying Council Tax + 100 on the anniversarry of their respective dearly departed untimely deaths.
Stephen,
You asked why there remains such a lack of understanding around how leasehold works. I’d like to share my personal experience—purely as an ordinary homeowner, not a legal or property professional. I’m a Chartered Engineer in Telecommunications and had no background in property law at the time we purchased.
Our Leasehold Journey: A Case Study in Systemic Failure
1. In 2005, during a booming seller’s market, my wife and I found a flat we wanted to buy. The estate agent’s listing said “Apartment for Sale” — not “Lease for Sale”.
2. The sellers were trying to extend their lease, but it was taking too long, so they verbally offered a discount of £12,500—the amount they said the lease extension would have cost.
3. We arranged the mortgage with our bank over the phone, while driving. At no point were there cautions or questions about the lease, despite it being the primary legal asset we were buying.
4. The survey raised no concerns about the leasehold nature of the property.
5. Our solicitor provided no warnings, advice, or explanation of how leasehold works. The transaction went ahead as if we were buying a standard freehold property.
6. Upon completion, we received four sheets of poorly presented legal text—the lease. It was written in archaic language with handwritten amendments. There were no formal terms and conditions and no space to sign.
We later understood it covered things like:
• We pay to repair anything under the ground floor, upstairs residents cover the roof.
• We must give upstairs access through our garden for external works.
And of course we must paint it every few years – to keep it nice for when we give it back!
7. A letter then arrived from the Land Registry confirming that our “purchase” had gone through—with no additional explanation or guidance.
8. Months later, our landlord contacted us, demanding payment of the £14 ground rent and insisting we use their chosen home insurance provider. This has repeated every year—for 20 years—with no other contact or reminder that we were in a leased home.
9. I meet with a financial advisor regularly, and yet leasehold has never come up. It’s not considered a financial product—but I didn’t know that. How can the second biggest financial spend of my lifetime not be regulated as a Financial Product? This is truly shocking to me.
Nine opportunities for someone—anyone—to explain what leasehold really means.
And not a single one of those institutions provided clarity. Not the agent, bank, solicitor, surveyor, government, or even the legal paperwork. Each is a potential safety net—and every one failed.
The first hint something was wrong came from a neighbour, in a casual conversation, about 18 months ago. That was the spark… followed by the horrible realisation that there were tens of thousands of pounds of future costs we hadn’t planned for—just to stay in our own home.
Since then, I’ve immersed myself in understanding leasehold. I’ve researched data, spoken out in the media, and lobbied my MP. I got on BBC Berkshire, who headlined the piece: “The system’s a disgrace.”
https://www.bbc.co.uk/news/articles/c80xkpddr0no
I also met my local MP, Joshua Reynolds, who himself lived in a leasehold flat at the time. He’s since joined the Leasehold APPG and actively raised the issue in Parliament.
https://www.parallelparliament.co.uk/APPG/leasehold-and-commonhold-reform
What I now understand is damningly simple:
There is no system FOR Leaseholders.
There’s no structured, end-to-end process to ensure leaseholders are properly informed.
There’s no financial advisory oversight or product governance to flag it as a liability.
Is it really any wonder that millions of people still don’t understand leasehold, or discover too late that they’re trapped in a one-sided financial and legal setup?
Awareness isn’t lacking because people aren’t paying attention.
It’s lacking because no part of the system has been focused on ensuring Leaseholder understanding.
Voluntary groups like Leasehold Knowledge Partnership. National Leasehold Campaign and LEASE do a great job when you realise you need help. But how do you know you need help with that trivial looking piece of paper lying in the drawer?
Imagine if the Land Registry sent out a letter/email to every Leaseholder each year with a non-binding estimate of the the Lease Extension cost and links/leaflets on how to find out more…….
Paul,
My Wife and I had a similar experience to yours with buying a long lease rather than a property which we only realised some years after the transaction was completed.
We downsized in 2018 after our Daughters moved out and chose a modest apartment with a nice view of Blackpool Tower. The purchase process was quick – about ten to fifteen minutes over the phone – and we didn’t realise any issues at first.
However, service charges kept rising, and answers to our inquiries were vague or unhelpful. Eventually, I realised we were being unfairly charged. With my background in logistics and facilities management, I researched leasehold and freehold, shared information with neighbours, and helped us switch to Right to Manage. this change has saved each apartment about £3,500 (cumulative).
In my view, the current Freehold – Leasehold sector is the “WILD WEST” of British Industry due to minimal regluation and minimal understanding of what Freehold – Leasehold is in reality, and what the real financial consequences are for nearly all Leaseholders from day one till the end of days, then it may well become the beneficiary’s own problem which I am witnessing first hand, again.
I have campaigned for the abolition of Leasehold – freehold and to be replaced with Commonhold but haven’t yet achieved your reach in raising awareness.
At the turn of the 20th century, ground rents were much more significant compared to today. For example, a property renting for £80 a year might have had a ground rent of £5 annually. That same property might now rent for around £12,000 a year—so a ground rent of £1,000 would be in similar proportion. Over time, especially through the 20th century, ground rents tended to shrink in real terms. But in the last 25 years, we’ve seen them start to creep up again.
Ground rent forms part of the overall return a developer expects when selling a property. For instance, if a flat sells for £250,000 and includes a ground rent of £350 a year linked to inflation (RPI), that rent could be worth about £10,000 to the developer if they sell the income stream to an investor. In effect, the developer makes £260,000 from the sale. Often, that ground rent income is where a portion—or all—of their profit comes from. Since it’s a profit stream and not tied to any service being provided, it’s seen as money for nothing.
Campaigners argue that the property price—say, £250,000 in this case—should already cover the developer’s profit and that adding a ground rent feels excessive. They see it as a case of greed and want contracts amended, even though all parties were legally represented at the time of sale. Their stance is quite firm, but it is devoid of a case-by-case analysis to check whether profits were indeed excessive or what a fair rate of return should be.
Rising ground rents can come as a shock to homeowners, especially when they find out how much it would cost to buy out the rent. That’s why I have always argued the point that it’s essential to disclose the Net Present Value (NPV) of the ground rent upfront—it would help buyers make better-informed decisions. If that had been standard practice, controversial arrangements like “ten-year doublers” likely wouldn’t have been accepted.
To protect homeowners and still respect the UK’s strong tradition of contract law, one balanced solution might be to cap rent increases. Ground rents could rise by either the amount stated in the lease or in line with RPI—whichever is lower. This would ensure that ground rents don’t grow faster than inflation, keeping them fair and predictable over the life of the lease.
To answer your question, the core issue dates back to the inflation of the 1970s. At the time, ground rents were designed to double every 25 or 33 years to keep up with inflation. Later on, ground rents began to be used as a way to defer some of the initial costs for leaseholders. This led to higher starting rents and more frequent, significant rent reviews.
Developers realized that the Net Present Value of the rent didn’t have to be disclosed, and in some cases, they took advantage of this. Nowadays, using fixed doubling clauses to account for inflation isn’t really appropriate anymore. With tools like the Retail Price Index (RPI) readily available online, we can now apply a more accurate and fair measure of inflation.
Stephen,
This profit stream has disappeared since the 2022 act came into force. While you say the sales were what allowed the developers to make a profit it might also be argued it paid the money to create huge directors bonuses we’ve seen from some developers.. It was perhaps also used as a means to help ensure the people buying the freeholds did not check that the buildings they were buying were safe -as has become all too obvious at some developments
Dr. Hamilton,
I concur with your analysis regarding Capitalisation and Deferment rates, but I believe there’s value in a closer look at the impact of scrapping Marriage Value—particularly for Leaseholders with fewer years remaining, for example, a 40-year lease scenario, as outlined in Table 1, “The potential impact of LAFRA on the ‘typical’ leaseholder.”
https://www.leaseholdknowledge.com/if-every-leaseholder-extended-their-lease-under-the-lafra-reforms-today-they-would-in-total-pay-3-14-billion-more-than-under-the-existing-regime-including-freeholders-detested-marriage-value/
1/ Current Regime (with Marriage Value):
• Base Property Value: £253,000 (£160,000 without Extension)
Lease Extension Costs:
• Term: £4,514
• Reversion: £35,511
• Marriage Value: £27,976
• Legal Fees: ~£5,000
• Total Cost: ~£73,000
A leaseholder needing to raise £73,000 would most likely consider equity release. At a 6.5% annual interest rate (interest-only), this would mean outgoings of £4,745/year, totalling almost £190,000 over 40 years.
Outcomes:
• New property value increases by £93,000 (reflecting the lease extension).
• The leaseholder’s true equity increases to £180,000 after deducting the £73,000 equity released, but with a substantial liability of £190,000 over 40 years.
• If the market falls by 5% (a £12,650 drop), the leaseholder’s net asset gain shrinks to just £7,350.
• The freeholder receives £68,000 for doing nothing.
2/ If Marriage Value is Scrapped and Ground Rent Capped:
Lease Extension Costs:
• Term: £3,762
• Reversion: £35,511
• Legal Fees: ~£2,500
• Total Cost: ~£42,000
With equity release at 6.5% interest-only, the cost is £2,715/year, totalling roughly £110,000 over 40 years.
Outcomes:
• Property value still rises by £93,000.
• Equity drops by £42,000 instead of £73,000, leaving the leaseholder with £211,000 equity (less the liability of ~£110,000 over 40 years).
• After a 5% market drop, the leaseholder’s net gain is £38,350—a much improved, but still not ideal, position. They would, however, secure a 990-year lease and peppercorn ground rent.
• The freeholder receives £42,000 for doing nothing.
Conclusion:
While scrapping Marriage Value and capping ground rent improves the leaseholder’s position considerably, the financial commitment remains substantial. There’s still little direct incentive for most leaseholders to pursue an extension under current circumstances, particularly when factoring in market risk.
I welcome your feedback on these calculations and the underlying assumptions
apologies if this is an old post. As an unfortunate leaseholder of a shared ownership flat, with a deferred ground rent (capped), I now face, or my children face – as they will be beneficiaries – the spectre of Ground 8 – if in the event. they cannot pay the rent until the property is sold. Cash capital. No backstop with a lender, and very vulnerable. Ground 8 is venal as well as pernicious.
In regard to freeholders’ claim of human rights to protect them so they may assume more wealth from a non service tax. If that remains a worthy angle, could leaseholders also pursue their human rights, backdated, of course? The cost of marriage values, lease extensions doubling GR over these decades. If nothing else, a threat, negotiating leverage. I expect I’m whistling in an ill wind.