Six arguments of freeholders in search of an economic justification (and failing to find one)

In the evidence session to the Housing and Communities Select Committee, I told MPs on March 17 that leasehold reform is a battle for control of people’s homes,writes Sebastian O’Kelly. You can read that Q171 here

By this I meant that flat owners doing the paying and owning the overwhelming majority financial stake in a block of flats should be in charge of its management, and above all the money.

We could already be well advanced in achieving this transfer of control, both via secondary legislation and via leverage by government on house builders to constitute their developments with share of freehold or resident management companies.

Instead, we appear paralysed by the decision to cap ground rents at £250 – which will certainly result in years of litigation – and the same thing is very likely over the setting of deferment and capitalisation rates in the enfranchisement process .

To kill off leasehold these measures are necessary, but meanwhile we could deal with control of the service charges: the people who pay them should be in charge. This is blatantly obvious, and runs no litigation risk to bring about, but government is being painfully slow. Meanwhile, managing agents are racking up the costs way above inflation because … well, they can do so with impunity in the vast majority of cases.

Below Dr Hamilton provides an economic analysis of the arguments expressed to the Select Committee, and debunks six key arguments used by freeholders to resist reforms. Leaseholders will find many of their suspicions confirmed here. But the methodology used in Dr Hamilton’s argument may well be a novelty. It is a long read, but a rewarding one if you make the effort.

By 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.

Summary

This paper evaluates key economic claims made in recent parliamentary evidence on leasehold reform. Drawing on established economic theory and new empirical analysis, it assesses whether the current leasehold system delivers efficient outcomes—and whether reform poses risks to investment, property rights, or economic growth.

The central finding is that many of the arguments used to defend the leasehold system are not supported by either theory or evidence. Specifically:

1. First, the leasehold model exhibits virtually all the attributes of a dysfunctional principal–agent relationship. Those who control building management (freeholders and their agents) do not bear the costs, while those who pay (leaseholders) lack effective control. This creates predictable incentives for overcharging, weak accountability, and inefficient outcomes. Evidence from Right to Manage disputes supports the view that control over service charges has economic value, and that freeholders have incentives to retain it.

2. Second, ground rents do not provide any benefits for leaseholders or improve affordability. While they may reduce upfront purchase prices, they increase total lifetime costs. Behavioural biases and opaque contract terms mean these costs are often not fully understood or priced in by buyers, leading to worse consumer outcomes.

3. Third, concerns about redistribution are overstated. Most leaseholders are ordinary owner-occupiers, while only a small minority of freeholds are owned by charities. Reform primarily shifts value away from rent-extracting structures and towards ordinary households.

4. Fourth, claims that reform would damage property rights, investment, or growth are not supported by empirical evidence. Using a synthetic control method, we examine Ireland’s far more radical leasehold reform in 1978. The results show no evidence of deterioration in property rights, investment, or growth. If anything, Ireland’s far more radical leasehold reform is associated with higher investment and growth.

5. Fifth, given limited legislative capacity, reform should focus on measures that materially shift control and reduce structural inefficiencies. The most impactful changes are those that make enfranchisement viable, lower costs, and expand leaseholder control over management.

6. Finally, describing leasehold as ‘feudal’ is a useful heuristic for understanding risk in this market. The term captures a structural feature in which control is separated from responsibility, and income can be extracted without corresponding obligations. In a context of opaque contracts and asymmetric information this term helps buyers appreciate the risk inherent in making a leasehold purchase.

The broader conclusion is clear: the question is not whether leasehold sometimes works, but whether it is a system that predictably delivers efficient outcomes. On that standard, the evidence points strongly toward the need for structural reform.

Introduction

Recent evidence sessions before the Housing, Communities and Local Government Select Committee, regarding the pre-legislative scrutiny of the Commonhold and Leasehold Reform Bill, have brought renewed attention to the economic case for leasehold reform. A range of claims were made in defence of the current system, covering everything from service charges and affordability to property rights, investment, and growth.

Below we examine those claims through the lens of economic theory and empirical evidence. The aim is simple: to distinguish arguments that are supported by evidence from those that are not.

We focus on six key questions:

1. Are service charges likely to be higher when controlled by freeholders rather than leaseholders?
2. Do ground rents improve affordability or incentivise better outcomes?
3. Does leasehold reform result in undesirable redistribution?
4. Could leasehold reform undermine property rights, deter investment, and harm economic growth?
5. Given limited legislative time, which reforms matter most?
6. Is it reasonable to characterise leasehold as a ‘feudal’ system?

Across each of these questions, a consistent theme emerges: the core issue is not isolated problems, but the perverse incentives the leasehold system generates.

1. Leasehold creates predictable inefficiency: why an identical repair may cost more money with a freeholder

In many areas of our busy lives we may wish to delegate a task to an expert in exchange for payment. Not all of us can know how to fix a car, or a roof, and it would not be logical for us to do so. Specialization and trade are often very sensible strategies.

One of the arguments made at the hearing was that there was a risk that a shift to commonhold would not necessarily produce lower costs/better value for flat owners, because the costs of repairs does not vary by the governance type of the building. As one witness at the hearing noted:

“… I think there is a danger of over-promise, in the sense that you can change the tenure of a building, but at the end of the day it is a building with flats in it and if the roof leaks it costs exactly the same to fix the roof on a commonhold building as it does on a leasehold building. I hope there will not be an over-promise of lower charges for everyone. They may be, because of better democratic control, but if something goes wrong with the building it will cost the same to fix, because the contractor will not care what the tenure is.”

Economists have long analysed relationships in which one party delegates authority to another through the lens of principal–agent theory, a framework that identifies the conditions under which such arrangements succeed—namely aligned incentives, transparency, and effective oversight—or fail due to conflicts of interest and informational imbalances.

As set out in the seminal review of this framework by Eisenhardt (1989), where these conditions are absent, agency relationships tend systematically toward inefficiency and dispute.

The structure of leasehold tenure, in many respects, embeds precisely those failure conditions rather than mitigating them —not as a matter of bad actors, but as a predictable outcome of the underlying incentive structure it creates.

This is the key point: the system does not occasionally fail—it is structured in a way that makes such failures likely.

Specifically, the leasehold–freehold relationship exhibits nearly all the classic failure conditions identified in agency theory: opaque information, misaligned incentives, weak accountability, and asymmetric risk allocation—predictably resulting in persistent disputes and inefficient outcomes. The Table below summarizes all the prerequisites that agency theory suggests would be required for a successful principal-agent relationship and then compares each of these parameters against the reality of the leasehold-freehold system.

While, a well-functioning principal–agent relationship depends on a combination of aligned incentives, transparency, monitoring, and efficient risk allocation, not all parameters are of equal practical importance.

In the leasehold context, the most consequential deficiency is the absence of effective control by those who bear the costs—namely, the inability of leaseholders to appoint and, crucially, dismiss the managing agent.

This lack of power amplifies all other agency problems. In theory, increased transparency and monitoring could mitigate information asymmetry; in practice, however, these remedies are costly.

Leaseholders must expend significant time and resources to obtain information, organize collectively, and pursue challenges through the Tribunal system.

At the time of writing, the general inability of leaseholders to ordinarily recover their costs further deters such action; even if the relevant provisions of the Leasehold and Freehold Reform Act 2024 are commenced and cost recovery becomes more accessible, a system that relies on continual scrutiny and repeated legal challenge is inherently inefficient.

By contrast, a structure in which leaseholders can replace an under-performing managing agent reduces reliance on constant monitoring and enforcement. While oversight would still be required, the ability to switch provider introduces a credible threat that disciplines performance at lower overall cost, particularly in terms of time and coordination.

Under the current system, leaseholders face a monopolistic counter-party in the freeholder (and an agent effectively appointed by and accountable to that freeholder), and must repeatedly incur costs to challenge individual decisions.

Moreover, even where individual leaseholders successfully contest charges, Tribunal decisions do not compensate the wider body of leaseholders who have not brought the claim, weakening the deterrent effect on overcharging and leaving incentives to inflate costs largely intact. In this context, it is difficult to justify the assumption that leaseholders would fail to scrutinize an agent of their own choosing, while expecting better outcomes from a legally entrenched, profit-maximizing monopolist operating with limited accountability.

The misalignment of incentives inherent in the traditional leasehold–freehold structure imposes a direct additional cost on leaseholders.

When the freeholder controls the management agent and retains monopoly power, service charges and other costs reflect not only the actual expense of repairs and maintenance but also the opportunity for the freeholder to extract surplus income through inflated charges taking advantage of the high cost and difficulty of monitoring and enforcement by leaseholders.

This creates both a private cost to leaseholders and, more broadly, an economic inefficiency: resources are diverted into scrutiny, rent-seeking, and legal processes aimed at policing a monopolistic provider rather than productive activities.

For example, in two identical buildings subject to a general service-charge obligation for maintenance, a building managed by a leaseholder-controlled RTM or share-of-freehold agent will incur the actual repair costs plus the administrative and funding costs necessary to manage the project.

In contrast, a building under a traditional freeholder-managed system faces the same base costs but with an additional premium: the freeholder can exploit its monopoly power, constrained only by the possibility—rare and costly—that leaseholders could organize monitoring, challenge unreasonable charges through tribunals, and absorb potential legal costs. As a result, the total cost of repairs in the leasehold–freehold system is systematically higher, reflecting both misaligned incentives and the inefficiencies induced by the asymmetric power structure.

What evidence is there that freeholders’ profit from service charges?

The Law Commission recognized the right to manage (RTM) as a mechanism to address the principal–agent problem in leasehold buildings, giving leaseholders control over management and service charges to improve transparency and accountability.

In principle, if freeholders earned no profit from managing a building – after all these costs need to be ‘reasonable’ or they can legally be challenged- they would logically encourage RTM as a way to offload the growing statutory duties and risks of repairs and administration onto leaseholders, with an ability to claim damages in the case of mismanagement, while retaining their ‘nominal’ profit sources (ground rents, and lease extension premia).

The fact that many freeholders actively resist RTM, is consistent with classical principal–agent theory: it suggests they profit from retaining control over service charges and that these don’t just represent ‘reasonable’ costs but also a profitable income stream. Notable examples of such RTM battles include Triplerose Ltd v 90 Broomfield Road RTM Co Ltd, Assethold Ltd v 63 Holmes Road (London) RTM Co Ltd, and Avon Freeholds Ltd v Cresta Court E RTM Company Ltd.

1. Ground rents as a way of incentivizing freeholders to provide quality services as custodians of a building and ensuring affordability

It is well established that, by definition, ground rents are a payment that does not correspond to any ongoing service provision or productive economic activity. Thus, it is difficult to see how they might incentivize a freeholder to behave differently. As the Competition and Market Authority noted this in its response on ground rents:

“Our conclusion was that ground rent was neither legally nor commercially necessary, and we saw no persuasive evidence that consumers receive anything in return.”

As ground rents need to be paid to the freeholder regardless of whether the freeholder: (a) is performing their duties to use the service charges levied on leaseholders wisely, or (b) affecting the need for leaseholders to extend their lease in order to preserve the value of their (wasting) leasehold asset; it is not clear how the existence of ground rents incentivizes any kind of change in behaviour on the part of the freeholder. Unsurprisingly, when pressed by MPs, during the March 2026 hearings, on what ground rents are actually for, the freeholder representative pointed to their role in an investment model but did not identify any direct benefit to leaseholders:

1^st MP: “Ground rent has been in place for quite a long time, so I am asking what people receive in exchange for their ground rent, because the Competition and Markets Authority could not find any persuasive evidence that it was commercially necessary or that consumers received anything in return. What, in your view, do you receive in exchange for your ground rent?

Witness: “What leaseholders are getting is the competence of a professional freeholder—they are getting their expertise and teams of people who are committed to making sure that people are safe in their homes.”

2^nd MP: “As MPs, our inboxes would say something very different.”

Do ground rents make housing more affordable?

The argument that ground rents improve affordability rests on the idea that lowering the upfront purchase price makes housing more accessible.

However, this relies on well-documented behavioural effects that can distort consumer decision-making. One is present bias, where buyers place disproportionate weight on immediate costs (such as the purchase price) and undervalue future liabilities (such as ground rents).

Another is shrouded attributes, where long-term costs are complex, uncertain, or insufficiently transparent, meaning they are not fully incorporated into purchasing decisions.

Ground rents fit this pattern: they reduce the visible upfront price but introduce a long stream of future payments that are difficult to value and compare for most consumers.

As a result, what appears to be improved affordability is in fact a reallocation of costs over time, often in a way that increases the total economic burden.

It is important to reiterate, that there is little evidence that most leaseholders understood the implications of modern ground rent clauses, and therefore were able to negotiate a price that truly reflects this lower premium (see for example: Bright 2025), or as the CMA notes, there is ‘troubling evidence’ that many leaseholders were systematically not given the information needed to make informed decisions and that buyers may not have understood the implications of escalating ground rent terms.

2. Could leasehold reform results in undesirable redistribution?

As part of the hearings anecdotal and/or hypothetical evidence was given that leasehold reform would, essentially redistribute income from domestic freehold owning charities’ (desirable) to foreign, wealthy, buy-to-let landlords (undesirable). As one of the witnesses at the hearings noted:

“Can I give you an example of the winners and losers? These are real world examples. Example one is expensive flats in London valued at £4 million, Hanover Terrace. The ground rent is £5,000. The ground rent cap will mean that is reduced to £250. The leaseholder who owns that flat will gain £420,000 over the transition period. Example two: an RFA member holds a 125-year head lease of a trade union building. The ground rent is £12,000 per annum. The ground rent will be capped at £250. The trade union will lose approximately £3.8 million over the life of the lease. That is what this Bill will do.”

Of course, it is important to consider the distributional impact of a policy intervention. However, doing so requires a systematic approach rather than invoking potentially unrepresentative hypothetical or anecdotal examples. Unfortunately, there is no consolidated database on the beneficial ownership of freeholds. Data on freehold ownership is available in a fragmented and partial form via HM Land Registry, Companies House, and the Register of Overseas Entities. However, we can use data regarding the characteristics of leaseholders and some attributes of freeholders to explore these distributional issues (especially LAFRA’s Impact Assessment (2024) and data from the English House Survey 2023/24).

The first important thing to note is that only 7% of freeholds of flats are owned by charities, church commissions, or similar organisations (English House Survey 2023/24).

More importantly, even for these organisations, it is not clear that owning a freehold should exempt them from reforms if we accept that leaseholders have rights that should not vary depending on who owns the freehold of their property.

The second important issue to note is the attempt to create a distinction between ‘owner-occupier’, who some representatives of freeholders in the evidence session claimed only constitute 59% of leaseholders, and ‘buy-to-let’ leasehold owners (41%).

This distinction is problematic for several reasons. Firstly, even if we accept this distinction, it is important to note that the existence of buy-to-let leaseholder owners in a building could impair the ability of owner-occupiers to exercise collective enfranchisement and/or right to manage – if these rights became dependent on having a critical threshold of owner-occupiers in a building.

So, even if we accepted this analytical distinction in theory, in practice such a distinction could still harm owner-occupier leaseholders by limiting the options they can effectively exercise to take control of their homes.

Furthermore, a subset of leaseholders who are renting out their leasehold properties are doing so because they cannot sell the property due to problems created by the leasehold-freehold system (such as onerous ground rents, escalating service charges etc.).

It would be perverse to diminish the right of such leaseholders, who have become accidental landlords because they cannot sell their leasehold property, to lose the ability to participate in collective enfranchisement or right to manage.

Moreover, re-introducing this distinction between owner-occupier and investor (which was largely abolished by the Commonhold and Leasehold Reform Act 2002), was rejected by the Law Commission which argued that such a distinctions based on the identity of the leaseholder, such as owner-occupier or investors, would add complexity and undermine the objective of a simpler and more certain enfranchisement regime.

Finally, it is perhaps useful to try and understand what the ‘typical’ leaseholder actually looks like as a means of informing the debate on the distributional effects of leasehold reform. The Table below tries to provide an approximation of the typical leaseholder in England (in 2024):

The ‘typical leaseholder’ is an owner-occupier whose leasehold flat is worth below the average property in England (£305,000 in 2024), and whose freeholder is more than four times more likely to be a company than a charity. This illustrates how unrepresentative discussions about the distributional impact of leasehold reform are when they relate to discussions about millionaire leaseholders and freeholder charities.

To see how unrepresentative some of the narratives about ‘rich leaseholders and worthy freeholders’ are, consider that in 2024, approximately 2.4% of homes in Great Britain were worth more than £1m (see: Savills).

If we assume—generously—that all such properties are leasehold, so approximately 13% of leasehold properties are assumed to be worth more than £1m, that charities are twice as likely to own the freeholds of such properties (14% versus 7%), and that over 60% are buy-to-let (vs. 41%); then this implies that only around 1% of leasehold properties would meet all three criteria of the ‘rich leaseholder and worthy freeholder’ narrative.

1. Property rights, investment, and, economic growth: evidence from Ireland

When LAFRA and now the Commonhold and Leasehold Reform Bill were first published, one of the arguments that was quickly made was that the reforms they embodied could adversely impact the UK’s pension industry.

Once, it was pointed out that less than 1% of UK pension assets were invested in UK residential property, and therefore an even smaller subset might be impacted by the capping of ground rents, the argument shifted to more difficult to measure ‘secondary’ effects on the economy.

Specifically, the argument begun to be focused on the notion that leasehold reform, by retrospectively altering contracts, would raise questions about the UK’s respect of property rights and therefore, diminish the attractiveness of the UK as a place to invest- with deleterious effects on the UK economy and growth. As one witness to the March hearings stated:

“…There are also longer-term consequences for investment decisions in the UK. Once you take a decision that has retrospective impact, it weakens the overall position and the perspective that investors have about the UK as a place to invest. We know that as a country, we need a lot of investment in our infrastructure and housing.”

Unlike the initial arguments about the impact on pensions, were it is possible to quantify how small UK residential investments are, this argument appears more difficult to dismiss because it is invoking a much more difficult-to-quantify future impact of leasehold reform.

Yet, even hypothetically this argument is weak. The proposed capping of ground rents is often characterised as ‘retrospective interference’ with property rights, but that framing is overstated.

It is not retrospective compensation—freeholders are not being required to reimburse leaseholders for past payments—but rather a prospective adjustment of rights, altering the income that can be extracted from leases going forward.

In that sense, it is closer to a regulatory reset than a confiscation of accrued property. More broadly, advanced economies routinely embed consumer protection frameworks not only to prevent exploitation but to address information asymmetries, where buyers cannot fully assess the quality or fairness of complex products such as leasehold contracts.

These protections underpin market confidence by assuring participants that they will have recourse if misled or supplied with defective goods or services.

A clear UK example is the Payment Protection Insurance (PPI) mis-selling scandal, where banks were required to compensate consumers on a large scale for past misconduct. Despite pay-outs exceeding £50 billion, the financial sector did not collapse; instead, the episode reinforced the credibility of the UK’s regulatory system and the principle that markets function best when participants trust that unfair outcomes can be corrected.

Despite the fact that this argument does not appear so strong when we consider the fact that consumer rights are embedded into the workings of the economy, we would still want to ground this debate in real-world evidence—specifically, whether the proposed leasehold reforms have any measurable impact on UK property rights, investment levels, and ultimately economic growth.

The difficulty is timing: until the reforms are actually implemented and markets have time to respond, it is inherently hard to quantify these effects with precision. That is important to acknowledge, because many of the stronger claims about damage to property rights or investment are, at this stage, forward-looking assertions rather than empirically verified outcomes. Their purpose is often to encourage caution in policymaking, but they should not be mistaken for established fact.

That said, the absence of UK-specific post-reform data does not leave us without evidence altogether. A productive approach is to look at comparable international cases – countries that have undertaken forms of leasehold reform or analogous changes to property rights- and examine what actually happened to investment patterns, market confidence, and growth. This kind of comparative analysis provides a more concrete basis for assessing risk, helping to distinguish between theoretical concerns and outcomes observed in practice.

Ireland provides a particularly useful case study for assessing the potential impact of leasehold reform because its historical system of leasehold tenure was much closer to that of England and Wales than alternatives such as Scotland.

This makes Ireland a more meaningful comparator when thinking about how reforms might play out in a legal and market structure familiar to UK policymakers and investors. At the same time, Ireland represents something of a ‘stress test’ scenario – any adverse effects on property rights, investment, or market confidence would arguably be more visible there, given both the country’s smaller size and economy and the far more radical nature of its reforms.

The key legislation, the Landlord and Tenant (Ground Rents) (No. 2) Act 1978, allowed leaseholders to acquire the freehold for as little as 8–10 times their annual ground rent, excluding elements such as reversion value, marriage value, or future ground rent streams.

This goes significantly further than anything currently proposed in the UK, whether under LAFRA, the draft Commonhold and Leasehold Reform Bill, or even the full set of Law Commission recommendations. As a result, if leasehold reform were inherently damaging to property rights, investment, or growth Ireland is a case where such effects should be especially pronounced—making it a strong empirical benchmark against which to test those concerns.

So, how can we assess the impact of Ireland’s much more ‘radical’ leasehold reform on the economy?

Simply, comparing headline indicators—such as property rights measures, investment levels, or GDP per capita—before and after leasehold reform is not enough on its own to identify the true effects of the policy.

As these outcomes of interest are shaped by a wide range of other factors, including macroeconomic conditions, interest rates, global capital flows, demographic change, and broader legal or institutional reforms. As a result, any changes observed in the data could easily reflect these overlapping influences rather than the impact of leasehold reform itself.

That said, this kind of comparison is not entirely without value: if the adverse effects of leasehold reform were very large, we might still expect to see a noticeable shift in the data around the time of implementation. The absence of such a clear break can therefore be informative, even if it is not conclusive.

To get closer to identifying causality, a more structured strategy is needed. One widely used approach is the use of Synthetic Control Method, which constructs a ‘synthetic’ version of the country undergoing reform by combining data from similar countries that did not implement the policy of interest.

This synthetic comparison acts as a counterfactual—an estimate of what would likely have happened in the absence of reform—allowing researchers to isolate the effect of the policy from other confounding factors. While no method is perfect, synthetic control provides a structured way to approximate the counterfactual—what would likely have happened in the absence of reform.

In order to operationalize our test, we use data measuring: (1) property rights from V-Dem (Index of Property Rights); (2) gross capital formation (% of GDP)- commonly used as an aggregate proxy for ‘investment’ in the economy, encompassing fixed capital investment and changes in inventories (compiled by the IMF but available on the World Bank’s data portal), and (3) GDP per capita (in current USD) as a measure of overall prosperity (also available on the World Bank data portal). Leasehold reform was commenced on 1 August 1978. We can now state two alternative hypotheses to test:

The Freeholder Hypothesis: Radical leasehold reform will damage property rights (Property Rights Index decreases), reducing investment (gross capital formation decreases/growth decelerates) and ultimately make us all poorer (GDP per capita decreases/growth decelerates).

The Pro-Reform Hypothesis: Radical leasehold reform will not damage property rights (because consumer protection is embedded in economic decision-making), it will remove distortions to the economy (gross capital formation increases), and ultimately make us all richer (GDP per capita increases).

What does the evidence show? The first diagram below shows that Ireland’s radical leasehold reform was not associated with any change in its Property Rights Index score. Again, given that consumer protection is embedded in advanced economies, this should not be surprising. As discussed above, businesses in advanced economies operate under the assumption that if they mis-sell a product/abuse their customers they may not only see their contract terminated or modified but have to pay compensation. Leasehold reform that prospectively ends exploitative practices without providing compensation is hardly a revolutionary act in modern economies.

(Technical note: Given that the Index comes with measurement error we implement a Bayesian reduction approach that incorporates measurement uncertainty in the point estimate if the indicator).

What about ‘investment?’ As the diagram below shows leasehold reform was not associated with a deceleration of gross capital formation. In fact, this peaked after leasehold reform was enacted (in 1979). Even more interestingly, the synthetic control reported generally lower levels of gross-capital formation after 1978 than Ireland- certainly not consistent with the notion that radical leasehold reform would result in Ireland receiving less investment than its peer economies that did not undertake such radical reform.

Finally, what happened to economic growth after Ireland’s radical leasehold reform? The diagram below shows that the strong upward trend in GDP per capita in Ireland that begun in 1976 was unaffected by the commencement of the leasehold reform in August 1978. In fact, the post-reform period is associated with higher growth in Ireland than we would expect based on the synthetic control comparator.

So overall, the evidence from Ireland’s far more radical leasehold reform is that there is no evidence consistent with the claim that leasehold reform caused economic harm.

In fact, the evidence suggests that leasehold reform was associated with increased levels of investment and an acceleration of economic growth. However, this is not enough to suggest that leasehold reform caused this acceleration. This is because other policy-changes that occurred in 1978, such as the momentous decision to end the Irish pound’s fixed exchange rate to the pound sterling, cannot be disentangled from the effect of leasehold reform. However, we can say that there is no evidence to suggest that radical leasehold reform appears to cause economic harm and, there is certainly some evidence to suggest that it might actually accelerate investment and growth. Although, this later point requires further investigation.

1. What amendments could make the Commonhold and Leasehold Reform bill most impactful?

Minister Pennycook, in his evidence before the Housing Committee, noted that “the bill is already very large” and warned against further unnecessary expansion of its provisions.

That observation matters. A lengthy and complex bill is not just a drafting inconvenience—it creates a binding constraint on legislative capacity, parliamentary time, attention, and finite political capital. If the objective of the bill is to help ensure that leasehold “wither(s) on the vine” it makes it all the more important that any amendments to the bill ultimately included are those with the highest impact for leaseholders, rather than those that are merely desirable in isolation.

Identifying the most impactful leasehold reforms is not straightforward and requires us to consider both the absolute return of a reform as well as its opportunity cost.

The system is fiendishly complex, with overlapping legal, economic, and institutional dimensions spanning valuation rules, enfranchisement rights, service charge regulation, and management structures.

In this context, prioritisation must begin with a simple but powerful principle: reforms should be ranked according to whether their benefits to leaseholders exceed their costs in a meaningful and durable way.

However, this is only the first dimension and an exercise we have already undertaken (see: here). A second and equally important consideration is opportunity cost—what other reforms are displaced when limited parliamentary time and legislative space are used up by any given provision. Given the constraint highlighted by Minister Pennycook, this second dimension becomes decisive in determining which reforms are truly essential.

Using these two criteria together—net benefit to leaseholders and opportunity cost of legislative space—the most impactful reforms become clearer.

First is the incorporation of the Law Commission’s recommendations on development value in relation to enfranchisement valuation. Without reform in this area there is now a risk that a majority of leaseholders would find enfranchisement and conversion to commonhold financially impossible.

This is especially important because if development value remains embedded in valuation methodology, it could offset much of the intended cost reduction from commencing the relevant parts of LAFRA (see: here). In effect, leaseholders could find themselves in a situation where nominal legal rights exist, but are practically inaccessible. This creates a structural risk: even if the bill successfully expands commonhold for future flats, failure to address development value for existing leaseholders would entrench a dual system in which a large share of current leaseholders remains trapped in the leasehold model the reforms are intended to phase out.

Second, and particularly important in light of the Government’s commitment to use the current bill to ‘fix’ a number of issues in LAFRA, is the incorporation of the Minister’s own amendment to LAFRA relating to the setting of the deferment rate.

Setting a higher deferment rate would materially affect the valuation of lease extensions and enfranchisement claims, reducing the price all leaseholders must pay to gain control of their properties.

This is not a marginal adjustment: it has cascading effects across the system. A lower deferment rate would reintroduce upward pressure on premiums, potentially neutralizing the cost savings achieved through other parts of the commencement of LAFRA. By contrast, a higher rate would reinforce the affordability of enfranchisement and accelerate the transfer of control away from freeholders.

Third, expanding the Right to Manage (RTM)— by allowing individual houses and entire estates to exercise RTM—is likely to be among the most powerful structural changes available.

This is because this reform directly shift control over management decisions to leaseholders, enabling them to hire and fire managing agents collectively. Compared with reliance on regulatory oversight, this represents a more direct and effective mechanism for correcting misaligned incentives (see Section 1 above). Even a well-designed regulator cannot fully resolve the principal-agent problems inherent in leasehold, where freeholders or third-party managers may have incentives that diverge from those of leaseholders.

The common feature of these priority reforms is that they fundamentally alter the power relationship between leaseholders and freeholders. They do not merely adjust prices or improve oversight; they shift control.

They make it cheaper, easier, and more realistic for leaseholders to exercise effective ownership rights over their homes.

By contrast, downstream reforms—while not necessarily without merit—tend to operate at the margins of this structural imbalance.

For example, the creation of a regulator may impose useful discipline on managing agents, and Lord Best has estimated its costs at just £3 per leasehold property.

However, its impact is ultimately indirect. It does not resolve the core incentive misalignment between monopoly-style control of property management and dispersed leaseholder interests. This is where opportunity cost becomes decisive. Even if one assumes, optimistically, that a regulator yields £9 of benefit for every £3 of cost—a strong return in absolute terms—it does not follow that it is the best use of scarce legislative capacity. If parliamentary time spent on establishing a regulator displaces reforms such as expanded RTM that might yield £100 of benefit for the same legislative “space,” then the net effect is negative.

The regulator may still be welfare-enhancing in isolation, but once opportunity cost is accounted for, it represents a net loss of £94 relative to alternative uses of that same legislative capacity.

Ultimately, the implication is clear. In a constrained legislative environment, the question is not simply whether a reform is good, but whether it is the best use of scarce reform space. Prioritizing reforms that transfer control, reduce structural valuation barriers, and lower enfranchisement costs is therefore essential if the Ministerial objective—that leasehold will “wither on the vine”—is to be achieved in practice rather than merely in principle.

2. The market for lemons- why is it rationale to characterize leasehold as a ‘feudal’ system.

One of the arguments heard again and again was that using the term ‘feudalism’ to characterise leasehold is hyperbole that is distorting market outcomes. As one commentator, writing before the hearings, noted:

“Leasehold is often framed in emotive terms – ‘feudal’, ‘fleecehold’, and ‘unfair’. Such rhetoric, repeated by ministers themselves, risks flattening nuance into slogan. In reality, leasehold is not beyond saving. It is complex, technical and in need of reform, but it remains the legal framework that underpins the majority of flats in England and Wales.”

Whether it makes sense to describe leasehold as feudal depends on what one takes feudalism to mean and how literally the analogy is intended. In academic usage, feudalism is not simply a historical label but a system characterized by hierarchical property relations and asymmetries of power. For example, Marc Bloch’s classical definition of feudal society as one structured around ‘a hierarchy of dependent relationships’ in which control over land conferred power over others; a definition that appears to aptly describe the leasehold-freehold relationship.

Susan Reynolds who critiqued traditional definitions of feudalism – argued that the concept of feudalism is not a fixed historical reality but a retrospective construct used to describe systems of lordship and dependent tenure— these relationships nonetheless are marked by significant asymmetries of power. Again, this appears to be a pertinent definition for model leasehold tenure. Thus, while modern leasehold clearly operates within a very different legal and economic context to historic feudal relations, the idea of a structural imbalance of control over land remains a prominent feature of both systems.

Critics of the ‘feudal’ label argue that it is exaggerated and potentially harmful. They claim that many leaseholders experience few day-to-day problems. From this perspective, leasehold is a functional tenure system that works adequately for a large share of homeowners. To describe it as feudal risks unfairly tarnishing the value of millions of properties and could generate unnecessary alarm in the housing market. If the majority of leaseholders do not actively experience abuse or dysfunction, then applying such a loaded historical term may seem disproportionate and economically counterproductive.

However, this argument ignores the misaligned incentives and power dynamics structurally embedded in this system of tenure. It is certainly true that the lived experience of leaseholders varies dramatically.

A leaseholder with a very long lease, peppercorn ground rent, and effective management control via an RMC or an RTM occupies a very different position from one with a short-lease, aggressively escalating ground rents, and a managing agent appointed by the freeholder. Yet these cases differ in degree, not in kind. In both situations, a third party with minimal financial stake retains residual control rights over what is often the leaseholder’s most valuable asset. That underlying legal architecture is constant.

This is where the analogy with feudalism gains traction. Even where the system appears benign, the latent power imbalance remains. Changes in law or circumstance—such as cladding liabilities or new rooftop development rights—can suddenly expose leaseholders to decisions made by a freeholder whose incentives may not align with theirs. A leaseholder who previously felt secure can find themselves subject to costs, risks, or constraints imposed by an external party. In this sense, the ‘feudal’ label is not merely rhetorical flourish but a shorthand for a structural vulnerability embedded in the tenure itself.

Seen this way, the term can function as a useful heuristic, particularly in a market characterised by information asymmetries. Buyers cannot easily predict whether, or in what way, a freeholder or managing agent may harm their investment in the future. This uncertainty aligns with the classic ‘market for lemons’ problem described by Nobel Prize winning economist George Akerlof.

When consumers cannot distinguish between ‘good’ and ‘bad’ leasehold arrangements ex ante, they discount the value of all such properties, leading to adverse selection and potential market deterioration. The concentration of losses in certain segments of the housing market—such as flats (virtually all leasehold) in London accounting for 60% of sales but 90% of homes sold at a loss (see: here) in 2025 may partly reflect this dynamic. Information about leasehold risks has become more widely understood since the 2010s but effective remedies have not been made proportionately easier.

Importantly, the idea that only a small minority of leaseholder’s experience problems is not strongly supported by available evidence. Survey data suggest that dissatisfaction is widespread: 1 in 4 leaseholders (24%) considered making a complaint to a management agent or freeholder in the last twelve months (rising to 1 in 3 -34%- leaseholders in flats)- see: English House Survey 2023/24. 4 in 10 leaseholders (43%) said that their leasehold purchase had impacted on their plans to start a family (see: Opinium poll here). Finally, almost 6 in 10 (58%) reported that their ability to sell their homes had been hampered by onerous clauses and maintenance costs (see: Opinium poll analysed by the here). These figures, from different sources, indicate that concerns are not confined to a narrow fringe but reflect broader systemic issues.

Taken together, this suggests that while ‘feudalism’ is an imperfect analogy, it captures something real about the structure of leasehold. It highlights the persistence of asymmetric control over land and the exposure of asset owners to decisions by parties with different incentives. Far from being purely hyperbolic, the label can help communicate these risks in a way that is accessible to consumers navigating a complex market.

Conclusion

By exploring many of the central claims made in defence of leasehold tenure in the hearings on the Commonhold and Leasehold Reform Bill and subjecting them to systematic economic analysis, we have been able to explore the extent to which these arguments are actually logically coherent and supported by evidence. The table below provides an easy to use summary of our findings for each of the six claims introduced above.