In 2024, the British parliament enacted a ban on (some) leasehold homes, though the law is not yet in force. There is a massive fog of political messaging, wishful thinking and outright nonsense obscuring the abolition of leasehold. Despite the huge aggravation and agitation, there doesn't seem to be a written-up, widely-known plan for abolishing leasehold, and few people ask why not.
Sometimes the implementation of the Law Commission's 2020 proposals, or Labour's 2024 election manifesto are taken as being synonymous with abolishing leasehold. They are nothing of the sort.
Moreover it's not clear what abolishing leasehold even means, how it might be accomplished, or how feasible it is. The rest of this article is an attempt to clarify that.
So let's answer two questions: what exactly do we mean by leasehold, and if we only mean part of leasehold, which part? Secondly, what does abolishing it involve, and how to do so?
Leasehold itself is a form of property tenure, defined in the Law of Property Act 1925, section 1(1)(b); the other allowed form is freehold, provided for in section 1(1)(a). The difference between them is that freehold is unlimited in time, and leasehold is by definition unlimited in time.
The term "leasehold system" is just rhetoric. It doesn't have any accepted definition that we can point to in law, and so if someone is proposing or promising to abolish the "leasehold system" they can't possibly be sincere. Is the "leasehold system" system just part of leasehold? Or is it something which is more than leasehold? Or is it the same thing? It's not clear, and it's not supposed to be clear.
But the point of rhetoric like "leasehold system" is to connote the abuses attendant upon leasehold with third-party freeholders or managers. These are more or less impossible to reform. So "leasehold system" might just be intended to mean "the abuses attendant upon much of leasehold", but that's not specific enough to be a target for abolition.
Most importantly, "leasehold" is used as a metonym, totum pro parte: the way "America" sometimes means "United States" and "Ireland" sometimes means the whole island and sometimes means the country also called the "Republic of Ireland". Similarly, when people say "leasehold" they sometimes mean "leasehold property sold at market rates", and in the context of leasehold abolition, they generally mean "residential leasehold" as distinct from commercial leasehold property. There are borderline cases of between "residential" and "commercial", some of which are highly relevant for leasehold abolition.
The ambiguity allows people to claim they're planning on abolishing leasehold while only planning on abolishing part of it.
I think we are not talking about long commercial leases, e.g., the 25 year lease on an office block or a warehouse.
A leasehold abolition plan should just focus on residential leasehold, with some minimum term, e.g., leases granted for more than 21 years.
For "residential leasehold" I mean "long leases of single dwellings and the property that is used with them". There are a couple of borderline cases:
A big question is what to do about the use of leasehold in social and affordable housing, and other sub-market transactions. That will be dealt with later. There is a sleight-of-hand, particularly from the Labour party, about saying "private leasehold" to exclude Shared Ownership properties from the ambit of any reform pledges. I think Shared Ownership should cease to be on a leasehold basis too.
There is however no credible plan for abolishing the leasehold basis of Shared Ownership for flats. So anyone promising to abolish all of residential leasehold has some explaining to do on that point at the very least.
Leasehold would eventually go away if for each type of long residential lease, there were a ban on creating new leases of that type, and a means of ending each lease of that type and replacing the arrangement with something else. The rest is detail.
In legislation, the word "description" is used for when it's contemplated to have different ways of dealing with different situations, e.g., "description of building" or "descriptions of company", so I'll stick to that usage here too.
So a leasehold abolition plan would be a list of descriptions of leases, with a sunset date that is the last day on which leases of each description can be created, and a provision for converting those leases to something else. There has to be a "catch all" description for "none of the above" as well.
In practice, we'll need descriptions of leases largely for the purposes of carving out exemptions from sunset clauses, rather than for providing a special method of bring the leases to an end.
A lease can turn into a freehold over the same land in a couple of ways, mainly "enfranchisement" for individual houses, "conversion to commonhold" for flats, and "enlargement" for some unusual cases involving other sorts of land. In all these cases, the event would happen at a time that would have to been chosen or agreed to by the leaseholder. Any abolition plan which leaseholders have to agree to is going to result in the leases disappearing over some longish time period. Any plan which involves some group of leases all ending on a particular day necessarily involves overriding the consent of the leaseholders involved.
Under the existing enfranchisement laws, the freeholder's consent is not required, but compensation must be paid for three aspects of the freeholder's asset:
This will usually amount to a four or five figure sum for a flat, partly arising from the objective arithmetic of ground rent as specified in the lease, and partly involving subjective assessment of the value of the buildings. This system is supposed to reflect the market value of the transaction if it had been entered into willingly.
The 2024 legislation, not yet in force, introduced a complication by applying discounts to some onerous leases, leaving some freeholders out of pocket compared to market value; similarly, there was a proposal to reduce the freeholder's share of marriage value to zero. This means freeholders are now much more likely to push back, and will likely do so in a way that damages even those leaseholders who do not benefit from these discounts, who constitute the vast majority.
Legislation can divide the compensation bill any way between leaseholders, the freeholder and taxpayers. My back-of-the-envelope calculation is that it's about £50 billion. The current legislative framework in force, under laws from 1967 and 1993, allocates the whole bill to leaseholders. Any re-allocation to freeholders or taxpayers will be met with various forms of political pushback, which might take the form of political lawsuits. Any leasehold abolition plan needs to be realistic about this. Some leaseholders and some freeholders won't be able to pay, so leaseholder consent ought to be required, which raises the problem that leaseholders remain veto-players against other leaseholders of flats in the same building.
To the extent that leaseholders remain liable for the compensation bill, the 2022 abolition of new ground rents has placed limitations one obvious financing option, namely a rescheduling and redirection of ground rents.
Requiring leaseholders to pay to enfranchise at a time of someone else's choosing is like requiring mortgagers to pay off some or all of their mortgage at a time of someone else's choosing: it could be a bit of a mess.
The 2024 Act, known as LAFRA, imposes a sunset on a particular description of leases: new leases on houses.
LAFRA's sunset comes with ten carve-outs. Each of these ten carve-outs constitutes a "description" of lease as mentioned above. They are listed and spelt out in Schedule 1 of the Act, and that is a great starting point for answering questions about how to deal with different sorts of leasehold situations.
Leasehold and Freehold Reform Act 2024
Schedule 1 represents the Sunak Conservative government's idea of the only situations where new leaseholds should be tolerated on houses at all. Its ten carve-outs can be grouped as follows:
This last description of exemption points to a significant problem with leasehold abolition. We want leaseholders to become freeholders and enjoy the corresponding rights, but of course one of these rights is the right to dispose of the property for a time by granting a long lease. Banning freeholders from granting long leases does not have a happy history in the British Isles (see, e.g., the Popery Act 1704 in Ireland, which banned anyone from granting long leases to people who were Catholic, which resulted in no-one being sure if they really owned property that had belonged to a Catholic in 1703). Commonhold, in particular, bans the freeholder of a flat from granting a long lease on that flat, and the Law Commission's proposals threaten to water this down(!) to accommodate shared ownership within commonhold.
LAFRA's Schedule 1 applies only to houses rather than flats, but could be applied to flats with little modification, as the details of Schedule 1 largely relate to the terms of the leases rather than the shape of the dwellings involved.
So that gives us a starting point for sunset clauses. The leasehold house ban could be applied to flats, with the same list of carve-outs from Schedule 1. To do so would be quite awkward in the current circumstances, as the only feasible alternative, commonhold, is not ready, for reasons I have written about in the past.
Why commonhold can't be mandated on existing blocks
Until commonhold is ready, the toxic "third-party freeholder" form of leasehold could nevertheless be banned on new blocks of flats. Indeed an amendment to do just that was proposed when LAFRA was going through parliament, removing third-party freeholders from owning blocks of flats, and splitting the ownership between the leaseholders; this provided a sunset beyond the terms of Schedule 1 for flats.
Outside the Schedule 1 hard cases, many of the leases are enfranchisable under the existing law. Enfranchisement eligibility criteria could be expanded somewhat to bring more properties in scope, but there is a practical limit to this. There will likely remain a "residuum" of leases that are outside Schedule 1, meaning that even liberal pro-business Tories like Rishi Sunak think they shouldn't exist, but which can't in practice be enfranchised because they're in largely non-residential buildings. The only route out is an obscure fault-based system under section 29 of the Landlord & Tenanct Act 1987.
Sadly LAFRA's easing of freehold enfranchisement does not apply to the 1987 Act's provisions, though that is easily fixed. The mandatory leaseback provisions would need to be extended to cover non-residential property.
Currently, LAFRA contemplates mandatory leasebacks on enfranchising blocks, for up to half the flats. This provision is in section 32 and has not yet been brought into force. But section 32 could be extended to non-residential premises, and it could also be allowed for a greater percentage of a block of flats if there were a right to join an enfranchisement company that had already bought the freehold.
Instead of gathering 50% of the flat owners and stumping up 100% of the cost of the freehold, once LAFRA is commenced, 50% of the leaseholders can pay just their 50%, but grant a lease over the other flats to the outgoing freeholder, who gets to continue to collect the ground rent. With a statutory scheme for enfranchisement companies that allowed leaseholders to join post-enfranchisement, a single leaseholder could organise buying the freehold, pay for his own flat's share of the costs, grant the former landlord a head lease over every other flat, and let the other flat owners gradually buy their shares. That is, enfranchisement could start with a single flat.
For this to work, you'd need a strong criminal penalty for failing to admit members to a freehold ownership company, and you'd also have to exclude the previous freeholder from membership on the basis of a leaseback over a flat, which would just invert the unfairness of the system. The operation
The operation of a right to participate in a collective enfranchisement that has already happened is so complicated that the Law Commission sensibly just gave up on it. The terms of their surrender were magnanimously published on the web. It follows that this machinery may not be able to be introduced in the next phase of leasehold reform planned by the new government.
Note on the right to participate
It is possible to prevent non-mutualised blocks from charging service charges unless the leaseholders control the appointment of the managing agent. Service charges are already unenforceable unless the landlord's identity is disclosed; where blocks are not mutualised, they need not be allowed to charge for services until all of those paying the charge have a say over the appointment of the managing agent.
This means that where leaseholders cannot avail themselves of RTM or enfranchisement, the landlord must choose between voluntarily handing control of the building to the leaseholders, or receiving future service charge income. It will not go unnoticed that share-of-freehold blocks where not all the leaseholders have shares would face insurmountable pressure to allow the non-participating leaseholders to buy in, or at least to be given shares that entitle them to a vote on the appointment of the managing agent.
Power to Appoint Mananging Agents (PAMP)
A realistic way of abolishing leasehold is as follows:
This leaves the private sector to get on with it: toxic leases are sunset, and most of the existing leaseholders have a way out. The government of the day has two policy levers it can pull:
There remains a "residuum" outside Schedule 1's list of allowable leases. The goalposts will have to be shifted to deal with that too.