Conservative MPs have rejected, by a majority of 144 votes, an amendment put forward by Labour that would have required the government to produce legislation to reduce ground rents in existing leasehold properties to a ‘peppercorn’.
Introducing the amendment to the leasehold reform bill for Labour this evening, shadow minister for local government Mike Amesbury told the minister that the “antiquated” system of leasehold was “unjust for the many and not just the new”.
“New clause one proposes that the narrow scope of the bill is widened to improve the life of leaseholders – that’s the 4.5 million people trapped in this feudal system. 1.4 million of those in houses. Many in the North West and indeed in Wales, who may be experiencing high ground rents on top of other exploitative terms,” he said.
The government’s legislation only relates to new leases. Minister Eddie Hughes argued that the leasehold reform bill is “just the first two parts of legislation to reform the leasehold system and that further legislation will follow in this parliament”. He invited MPs to “engage with the government” on the further bill.
Commenting on the bill shortly after the vote, MP for Ellesmere Port and Neston Justin Madders said: “It is little comfort to those who are still trapped in homes that they cannot sell because of the onerous leases that they’ve been left with…
“Ending of ground rents for new homes is a positive but it will create, I think, a strange situation. There will be houses within a stones throw of one another where they have a different form of ownership. And, actually, that will just add more weight to the sense of injustice existing leaseholders feel.”
306 MPs voted to reject the Labour amendment, while 162 voted in favour. The bill received its ‘third reading’ this evening, completing its House of Commons stages, without a division as Labour did not force a vote to oppose the passage of the legislation.
Leasehold properties traditionally charged ‘peppercorn’ ground rent, in some cases as little as £1 per year. Developers began to charge much higher ground rents at the start of the century, however. Contracts typically set this at between £200 and £400 with the sum doubling periodically, such as every ten years.
Leaseholders have consequently found their homes unsaleable as lenders will not grant mortgages with onerous ground rent clauses and conveyancing solicitors will warn off prospective buyers, making homes saleable only at a large discount.
Rising ground rents have also made it more difficult for leaseholders to buy the freehold as a charge that doubles every ten years effectively amounts to a return on investment of 7% a year, and is represents a legally enforceable income.
Addressing the issue in 2017, then Communities and Local Government Secretary Sajid Javid said leasehold should be a “tool for making multiple ownership more straightforward”, not a “means of extracting ever-more cash” from home buyers.
The government introduced the reform bill to parliament in May 2021, with the aim of making leasehold ownership fairer and more affordable for leaseholders by restricting the annual ground rent payable to a peppercorn rate or nil.
The bill makes provisions for leaseholders to recover unlawfully charged ground rent with interest. It would also place a statutory duty on trading standards authorities in England and Wales to enforce action where an unlawful rent has been charged and, where breaches occur, impose a financial penalty of between £500 and £5,000.
According to government figures, there are around 4.6 million leasehold homes in England. Around 68% are flats while 32% are houses. Most flats in private sector (an estimated 93% of owner-occupied and 73% of rented) are leasehold.
Leasehold houses are in comparison rare across England, representing just 8% of all leasehold properties. The regional distribution is skewed towards the North, however, with 28% of leasehold houses located in the North West region.