Paul Lewis, the influential BBC R4 presenter of MoneyBox, has attacked the Law Commission’s timid report into reforming the enfranchisement racket.
“Once a leaseholder has paid for the right to live for 99 years in 100 cubic metres of air encased in concrete they soon realise it is a milking parlour …” is Mr Lewis’s reasonable throat-clearing opener.
Residential freeholds have been sold on to anonymous hedge funds in offshore jurisdictions and “these wealthy landlords and their £1,000 an hour lawyers” have made enfranchisement – extending leases and buying the freeholds – as expensive and complicated as possible.
The Law Commission began boldly, with talk of helping leaseholders and making enfranchisement easier, quicker and cheaper (later replaced with “more cost-effective”, whatever that means).
And then, in the final report, came heavy and repeated emphasis on the freehold owners’ human rights to get just compensation for their loss (of something that probably should not have been created in the first place).
Mr Lewis writes:
“Article 1 of the Protocol to the Convention [on human rights] says every “person is entitled to the peaceful enjoyment of his possessions”. And taking the freehold without compensation would deprive the freeholder of that right. However, the full sentence reads: “Every natural or legal person is entitled to the peaceful enjoyment of his possessions.
“You and I, reader, are natural persons. Legal persons are those recognised by the law and include a company or other entity that can enter into contracts and sue or be sued. Including hedge funds. These legal persons are not mortal, so the value 99 years hence is worth more to them than to us …”
As well as compo for the lost years of ground rents – the other more lucrative but … ehem … more dubious income streams of residential freehold ownership (loading insurance, fiddling the service charges, fees on sale etc etc) cannot be included – the landlords invented something called “marriage value”.
Most people would accept that a lease with only 20 years on it is of considerable value to the freeholder, to whom it reverts.
Sadly, what the Law Commission did not ask was why on earth was society allowing industrial-scale creation of new leases in the first place – especially when no other jurisdiction organises flats in this way.
What is a human? And what rights do they have? I am not talking about artificial intelligence or robots. I am talking about hedge funds. Are they human and do they have human rights? Leaseholders may by now have guessed that I am discussing the value of a lease when the freeholder extends or sells it.
Marriage value applies if the lease has less than 80 years left to run.
Mr Lewis writes:
“The Law Commission wrote 137,703 words to come up with no clear recommendation on marriage value. It was clear that leaseholders must pay compensation for lost ground rents. It also said leaseholders must pay for the lost value of the flat because hedge funds have human rights. On marriage value it said — erm, well it could be scrapped. Or kept as it is. Or renamed “hope value” which no one will understand either, but would be only about half the marriage value.
“One of the other three Law Commission reports on leasehold due out this year will look at alternatives to this Domesday system [meaning commonhold]. That won’t help the feudal vassals already trapped at their landlord’s pleasure in a property which falls in value every year. Only scrapping it, as they did in Scotland in 2015, will restore human rights to humans. After 1,000 years that would be real help for millennials.”
Paul Lewis presents ‘Money Box’ on BBC Radio 4, on air just after 12 noon on Saturdays, and has been a freelance financial journalist since 1987. Twitter: @paullewismoney