1. Leasehold ‘Ownership’

Lawyers refer to leasehold as a 'legal fiction’.

The legal fiction is this: that it is possible to separate ‘ownership’ of a building and ownership of the land on which it is built .

Physically we cannot separate them. On paper however they can actually be sold to different people.

The freeholder buys the land. The leaseholder only buys a lease in part of the building erected on it. Because it is the freeholder's building, they have the power to:


-engage experts, and charge the leaseholder

-decide on contractors, and charge the leaseholder

-fix administration fees, and charge the leaseholder

-engage a managing agent, and charge the leaseholder


The system is extraordinary, but once it is acknowledged that the building does NOT actually belong to the leaseholder, only the lease belongs to the leaseholder - hence the name ‘leaseholder’- the legal position is then established.

Since 1954 there have been no fewer than sixteen Acts of Parliament attempting to regulate the residential long leasehold system. The seventeenth Act, the latest, is the 2002 Commonhold and Leasehold Reform Act.

We now have more problems than ever with leasehold because these Acts have not fundamentally changed the relationship of the parties. They have attempted to regulate and control the consequences.

2. Forfeiture

The threat of forfeiture - ‘confiscation without compensation’ is inherent to leasehold, because the leaseholder is not the owner. A freeholder under the terms of the lease has a right to threaten leaseholders with confiscation (‘forfeiture’) of their flats for breaking the undertakings in the lease (‘covenants’).

A freeholder also has the right under the terms of the lease to threaten leaseholders with confiscation for money owed as ‘rent’.


‘Forfeiture is state sanctioned theft. I have no problem with someone being required to pay a debt that they owe under an agreement into which they have freely entered. However I have enormous problems with the fact that the law allows landlords to take vastly greater sums than are owed them and turn people out of their homes’.
Andrew Selous MP HL Deb. 24/1/02, Standing Com. D c.175


Repossession by a mortgage company repays the leaseholder after taking the amount owed, but a freeholder can confiscate a whole home with no compensation - an unavoidable result of the leasehold system.

In the Commons debate on the Leasehold Reform Act in March 2002 an amendment which would have banned forfeiture, was lost. Only forty-eight MP’s from all parties voted to abolish forfeiture. Two hundred and seventy-eight MPs voted to keep it. Why ?
Hansard HC Deb. 13/3/02, Vol. 381 c.971


‘Reform of the Leasehold laws has been discussed for many years. I therefore find it hard to understand why, with only 10 minutes or so to go before the last stage of voting on the Bill, insufficient thought has been given to including in it provisions for the abolition of forfeiture, and for compensation’
David Lepper MP Hansard HC Deb. 13/3/02, Vol.381 c.968

The Leasehold System keeps the Great Landowners’ Estates intact. It is very rewarding for property developers, as well as lawyers, barristers and surveyors, and other professional advisors.Those for whom leasehold is most rewarding, also have the power to ensure it continues through professional associations and pressure groups.

3. Human Rights


The United Nations Commentary on Forced Evictions and Human Rights begins with this:

‘On the first day they came, they spoke to us of progress....
they measured our lands,
and we said nothing....
On the second day they came, they invaded our houses....
and we said nothing....
And because we said nothing,
we will never be able to do anything.
Are we going to let this happen again ? ’


‘ Forced Evictions and Human Rights’ The centre for Human Rights
(UN publication, ISSN 1014-5567, Geneva 1991)

It continues:

Security of Tenure - A Legal Entitlement

‘General Comment No. 4, 1991 of the Committee on Economic Social and Cultural Rights on the Right to Adequate Housing clearly places Security of Tenure in the category of Legal Entitlements, arising under the International Covenant on Economic Social and Cultural Rights.’
(UN publication, as above, p.20)


Requirement for Compensation

‘Few Governments will openly defend the legitimacy of an eviction without any form of compensation’
(UN publication, as above, p.29)


Legal protection against harassment and other threats

‘Notwithstanding the type of tenure, all persons should possess a degree of security of tenure which guarantees legal protection against forced eviction, harassment and other threats. States parties should consequently take immediate measures aimed at conferring legal security of tenure upon those persons and households currently lacking such protection, in genuine consultation with affected persons and groups’
(UN publication, as above, p.36)

4.The Commonhold and Leasehold Reform Act 2002


In 1998 the Government began consultation on the seventeenth Leasehold Reform Act.

The following sections are reproduced exactly from Government papers:

(i) 'Ministerial Foreword' to the Consultation Paper 1998

(ii) Press Release from the DETR, 1998

(iii) Government 'Notes to Editors' issued with the Press Release, 1998

(iv) Parliamentary Debates on the the Bill,
Jan-March 2002


(i) ‘Ministerial Foreword’ Housing Minister Hilary Armstrong:
(Full text, word for word - only numbering added)

1. ‘The leasehold tenure is almost unique to England and Wales.

2. It has its roots in the feudal system and gives great powers and privileges to landowners.

3. It is totally unsuited to the society of the twentieth - yet alone the twenty-first - century.

4. Over the last thirty years, a series of reforming measures have addressed its worst features, but the result is a confusing and inconsistent patchwork which still allows abuses to flourish and causes misery and frustration to many leaseholders.

5. The Government believes the leasehold system is fundamentally flawed.

6. It is committed to introducing a new form of tenure for flats - commonhold - which in future will enable the individual flat-owners in a block to own and manage the whole building collectively from the outset.

7. We see commonhold as the best way to tackle the problems faced by many existing residential leaseholders.

8. However, in the meantime we still need to undertake a major overhaul of leasehold law to help the existing two million residential leaseholders in England and Wales.

9. This consultation paper represents a first step in that process. It is a long way from being the last.

10. This time, it is imperative that the legislation is thoroughly prepared and draws on the accumulated experience and expertise of all those with interests in leasehold to create a fair, workable, comprehensive and durable system of rights, obligations, and safeguards against exploitation.

11. Primary legislation will be required both for the introduction of commonhold and for most of the leasehold reforms proposed in the paper.

12. We will legislate when Parliamentary time allows. The Government cannot sort out all the problems surrounding leasehold tenure through legislation alone.

13. However, we intend to provide a framework which is clear and gives the basis for effective resolutions.We look forward to receiving your comments.’

Hilary Armstrong Minister of State

Jon Owen Jones, Parliamentary Under Secretary of State
Department of the Environment, Transport and the Regions (Welsh Office)


(ii) Press Release from the DETR, 1998

To accompany release of Consultation Paper - summarising the present position of leaseholders, and describing new proposals.
(full government text, word for word)

‘The first step in a root and branch overhaul of the leasehold system in England and Wales was taken today.

Housing Minister Hilary Armstrong launched a consultation paper proposing a fairer deal for leaseholders.
Ms Armstrong said:

“The leasehold system is flawed to its roots and we are committed to reform it. Previous attempts have just been tinkering with the odd elements. They have not worked. Abuses still flourish, causing misery and frustration to many leaseholders. We want a fair, workable and durable system.

This consultation paper is the first step in the process. No firm decisions have yet been taken. Before they are, we want to know what all interested parties think.

We are committed to sustainable home ownership. We want to provide leaseholders with the security and control other home owners enjoy. We plan to strengthen leaseholders' rights while striking a fair balance with landlords' legitimate interests.” ’

Full text of the DETR Press Release, (word for word continued ):

'Proposals in the consultation paper include:

- making it easier for leaseholders of flats to join together to buy the freehold;

- options to cut down on arguments over the price of buying a freehold, avoiding the need for expensive professional advice;

- a new right to 'manage' their block of flats for people who do not want to buy;

- a range of options for improving management standards and controlling the activities of property managers;

- options to tackle landlords who use the threat of forfeiture proceedings to intimidate leaseholders into paying unreasonable charges;

- a thorough rationalisation of the existing law to help leaseholders of houses, as well as flats.

-the Government also plans to introduce a new form of tenure for flats - commonhold - which enables individual flat owners in a block to own and manage the whole building collectively from the outset. The Lord Chancellor's Department will be consulting separately on this in due course.’

(iii)Government ‘Notes to Editors’, issued with Press Release, 1998:

‘1. There are about 900,000 leaseholders of houses in England and Wales and more than one million leaseholders of flats.
Leasehold tenure is almost unique to England and Wales.
Despite a variety of reforms over the past 30 years, the system is widely perceived as being unfair to leaseholders and has attracted considerable criticism.

2. Although leaseholders have invested substantial sums of money in their homes they do not have the same degree of security and control over the running of their homes as other owner occupiers. The landlord often has a monopoly over the supply of services and maintenance, but the leaseholders have to pay the cost. There is no incentive for the landlord to provide a cost-effective service and there is evidence of widespread exploitation by unscrupulous landlords.

3. A leasehold is also a wasting asset. Although leaseholders may have originally paid a similar price for their home as a freehold, its value diminishes as the lease gets shorter. Mortgagees are often reluctant to grant loans where the lease has less than around 60 years to run, making the property difficult to sell.

4. Following earlier reforms, leaseholders have a number of rights which were intended to deal with the above problems. However, there is evidence that they are difficult and expensive to use.

The closing date for responses is Friday 12 March 1999.

(iv)Parliamentary Debate, Commonhold and Leasehold Reform Bill 2002

Mr. Adrian Sanders MP Hansard HL Deb. 24/1/2002,
Standing Com. D - c. 176

‘Two groups want to retain Forfeiture: one is represented by the Government, and the Minister will explain why, and the other is the British Property Federation.... ‘ ‘Even the British Property Federation therefore recognises that forfeiture is not an appropriate modern-day property management tool’.

Shona McIsaac MP Hansard HL Deb. 24/1/2002,
Standing Com. D - c. 175

‘We must stop people being harassed with the threat of losing their homes’.

Lord Jacobs Hansard HL Deb. 15/4/2002,
Vol. 633 - c. 711

‘..the more one reads about it and the more one listens to the Minister today,
the more one realises that we are quietly putting up with a serious injustice ’.

David Lepper MP Hansard HC Deb. 8/1/2002,
Vol. 377- c. 502

‘We say that we are taking our time because we want to get the legislation right, yet in may ways we have made a pig’s ear of it. We have a legislative slot however, so I ask Ministers to go the extra mile and put an end to Feudalism’.

Dr. Brian Iddon MP Hansard HC Deb. 8/1/2002,
Vol. 377 - c. 503

‘Finally, I am against Leasehold. Its time is up, and we should ban it ’.

Barry Gardner MP Hansard HC Deb 8/1/2002,
vol. 377- c. 476ff

‘If more than 60% of new build flats are Commonhold and Leasehold withers as Ministers predict, I will be delighted to eat my words.....


‘If even 10% of Right to Enfranchise companies succeed in effecting that transfer, I shall rejoice at my own folly for ever doubting Ministers and their Civil Servants.....


‘If only 10% of current residents associations successfully establish themselves as Right to Manage companies, I will be astounded by the Bill’s success.....


‘The fourth aim is to enable existing leaseholders to enfranchise more easily. In that respect my threshold drops lower still, to a mere 5% increase in the number of leasehold blocks that are able to enfranchise...


‘The House and the Minister will recognise that I have set exceedingly small benchmarks by which to measure its success...


‘I am confident that in perhaps six or seven years time we can begin afresh the enterprise of making radical and comprehensive reform to the laws governing property tenure in this country....


'After all what is six or seven years between comrades, Leaseholders have been waiting since 1884 ?’

5. Leasehold Disputes

Most disputes between lessee and freeholder occur because the freeholder has the right to choose, while the leaseholder has only the right to challenge.

Government, because of the volume of leaseholders’ complaints, has attempted to modify the absolute power of the freeholder.

What it has not done is alter the power relationship. It is still the freeholder who acts (or not) and the leaseholder who reacts. Freeholders do not need the consent of leaseholders to build penthouses on top of a leasehold block. They can continue even if it is totally against the wishes of all the leaseholders.

But, leaseholders must have consent from the freeholder even to:


-Initiate a repair to the building

-Alter their flat

-Supervise work on the structure or services


‘Consents’ can be charged for
Consent can be refused if the freeholder disagrees

A leaseholder who continues without ‘consent’ can actually be accused of ‘trespass'

The present 2002 Act has the most complicated rules for leaseholder / freeholder disputes ever set down.

Successive governments have failed to control leasehold disputes, because it is the leasehold system itself which has inherent problems. Leasehold reform leads to an accumulation of rules (called ‘laws’) which are more and more complex, making disputes unfathomable. There is no reason to continue leasehold.

This country is unique in the world in still allowing leasehold for residential developments.


6. Leasehold Law

The Landlord and Tenant Acts are monumental rule books. They are not laws in the sense that most of us see the law - the moral sense, of distinguishing right from wrong.

Here are two examples from among many. In the Government notes issued with the 2002 rule book called ‘Commonhold and Leasehold Reform Act ’ (CLRA)

Section 115: Non Residential Premises

‘Section 115 amends section 4(1) of the 1993 Act to enable premises where the proportion of the internal floor area used for non-residential purposes is up to 25% to qualify for the right. This replaces the present limit of 10%’

Question: Who chose the 10% figure and who changed it to 25% and on what basis?

Section 151: Consultation about Service Charges

‘A qualifying long term agreement is an agreement entered into by or on behalf of the Landlord or a superior landlord for a term of more than twelve months’

Question: In what real way might an eleven month agreement differ from twelve, and not need a consultation?

The very best information on the present rules are the rules themselves published by the Stationery Office (0845 7 023474) or www.tso.co.uk and the ‘Explanatory Notes’ published with it.

Ongoing changes in the rules are documented in ‘Woodfall’s ‘Law of Landlord and Tenant’. Used by legal professionals and usually found on open shelves in reference libraries. Costs several hundred pounds to buy.

Each new instalment of the rules (or ‘change in the law’) encourages an avalanche of information. It is impossible to absorb all this, and the stranglehold of the professionals is reinforced. We need one Act of Parliament which consolidates all the rules. This has been requested and refused.

Now systematic information processing is impossible.

7. Leasehold Advisors

All these professions are needed to service leasehold tenure and may be employed by either side in a dispute:

Accountants
Architects
Barristers
Building surveyors
Cost construction consultants
Expert witnesses
Forensic accountants
Housing and Tenancy Relations Officers
Managing Agents
Quantity surveyor
Solicitor
Structural engineer
Valuer

In addition the following may also be needed:

Building Control
Companies House
Fraud Officers
Land Registry
Police
Trading Standards Officers
VAT Officers

Finally new businesses are now being developed to feed off leaseholders. Intermediaries that charge several hundred pounds per flat to help organise enfranchisement and lease extensions. Most of the rules (laws) which in theory, protect leaseholders cannot be used due to lack of expertise, time, money, or support.

The more complicated the law, the more advisors are needed to sort it out . The experts who are employed in disputes are also the rule makers whose rules led to the disputes in the first place.

8. Leasehold Problems

Problems are inherent in the system. They are built in and they will not ‘go away’ with a new Act of Parliament.

Acts of Parliament simply change the rules of the game. The playing field is the same with the fictional division of a property between the land owner and the lessee.

This inevitably leads to disputes in which the leaseholder is at a disadvantage. The Rules are full of expressions like ‘eligibility criteria’, ‘qualifying rules’, and ‘requirements’

All these criteria are for leaseholders. There are no similar ‘criteria’ for freeholders.

For example there are two equal sets of promises (covenants) in leases. One set for the lessees and an equivalent set for the freeholders

If a leaseholder breaks a promise (breaches a covenant) then the freeholder can ask for forfeiture. What if the freeholder does the same? there is no equal set of rules for a leaseholder to forfeit a freeholder - only the other way around.

Some of the ways in which Parliament has attempted to answer the problems are complete nonsense. They are also against Social Equality and Social Justice.


9. Leasehold Valuation Tribunals

These were intended to be an improvement over Courts for most leasehold disputes. Fortunately they are held in public and those intending to use them are able to visit them first.

- There are ongoing disputes about what a Tribunal may adjudicate.

- Cases can sometimes be divided between Court and Tribunal.

- Leaseholders cannot re-claim their costs if they win.

- Freeholders can put the costs into the service charge unless prevented by a prior request to the Tribunal.

- A case could cost more than was lost.

There is a panel of three. This consists of two relevant experts and a ‘lay’ member who is an expert in some other field.

They cannot accept anything but an academic level in argument, which is of course inevitable given their own background.

Their literature is disarming and friendly, but the experience can be threatening for all but the professional expert, and without one there is almost no chance of success.


The Tribunal pamphlet says:

‘You should make appeals and applications directly to your local offices (listed overleaf). You will simply need to include all the information you have about the issues in dispute. In some case you may need to fill in a form. If in doubt the staff at your local panel office can advise you’ (rpts leaflet ref gnl-6/03)


A reading of previous cases on the Tribunal web site (www.rpts.gov.uk) shows this to be a great over simplification. Leaseholders must be prepared to produce evidence to an academic standard, and using technical terms. Simply ‘including all the information you have about the issue in dispute’ will not be sufficient.


10. Leasehold Enfranchisement

Leasehold Enfranchisement / Buying the Freehold:

Leaseholders buy out the ground owner (the freeholder).
The leaseholders form a company.
All participating leaseholders can take a share in the company.


Two sets of rules are now involved:

1. Company law, which contains the rules for the shareholders in the new freeholding company.

2. Landlord and tenant law, which contains the rules for the relationship between the lessees and the new company. These follow the present rule books - 2002 Commonhold and Leasehold Reform Act. (CLRA)


The resulting organisation:

Lessee/freeholders in theory now wear ‘two hats’.

It is not necessary to have 100% of the leaseholders involved, although desirable.

At present enfranchisement is the only way to achieve democratic self-rule for blocks of flats.

‘Commonhold' is less cumbersome, having only one rule book, but under CLRA needs 100% consent from leaseholders.


Rules for enfranchisement:

The ‘rules’ for buying the freehold have changed to become less onerous in terms of numbers, but more complicated to organise.

The sum to be paid is built up on four calculations:

1. Paying the freeholder to give up the ground rent.

2. Buying out what the ground might be worth when the lease ends.

3. Paying for any profits the freeholder might have lost out on.

4. Paying because we now have something said to be worth more - property with share of freehold.

The last is called ‘marriage value’. It is based on a proportion of the increase in the actual value of the flat - which is only still in good repair (still of value) because the leaseholder has been paying to maintain it.

Only the leaseholder will pay ‘marriage value’ because the freehold is more valuable to the person living in the flat, than anyone else.

The price quoted for enfranchisement by a freeholder may be three times as much as the price offered by a leaseholder. Professional valuers, employed by both sides produce widely differing calculations for the same four components particularly ‘marriage value’. Government support for marriage value:

1. Supports monopoly pricing.

2. Is divisive. Splitting a block between ‘haves’ and ‘have-nots’.

3. Permanently disenfranchises the less well off in a block.

4. Represents a windfall gain to the freeholder.

5. Puts an unfair burden on those leaseholders who have funds

6. Goes against the moral principle it recognised in its 1966 White Paper and 1967 Leasehold Reform Act:


‘The Government has decided that a solution must be found to right this injustice. In the Government’s view the basic principles of a reform which would do justice between the parties should be that the freeholder owns the land and the occupying leaseholder is morally entitled to the ownership of the building which has been put on and maintained on the land’

(‘Why Did We Vote For Them’ LEA News Letter. October 2000)


The possibility of enfranchisement depends, under current rules, on the price asked by the freeholder for the ‘marriage value’. But the freeholder does not own the building, and has no claim on a proportion of its value.

This rule is an anomaly holding back thousands from buying their freeholds. It disenfranchises leaseholders who cannot afford to pay ‘marriage value’.

It creates a new inequality where none existed before.

11. Commonhold

The Government has now legislated to allow property developments called ‘Commonhold’.

Leaseholders become ‘unit owners’ and own their flats, plus a share of the ground as ONE SINGLE UNIT.

There is NO division of leasehold and freehold.

Flat owners in the rest of the world all enjoy a version of common hold.

BUT it may be many years before commonhold is the norm in England. In the newest rule book (CLRA 2002) :

1. Existing buildings need every leaseholders’ consent. (100%)

2. There is no requirement to develop commonholds for the future.

3. No end has been set for leasehold developments.


In 1998 The Government said :

‘We see commonhold as the best way to tackle the problems faced by many existing residential leaseholders’ .

It also said:

‘The Government believes the leasehold system is fundamentally flawed’

If a product (leasehold) is ‘fundamentally flawed’ why are property developments still allowed with leasehold tenure?

If commonhold is:

‘the best way to tackle the problems faced by many existing leaseholders’

Why have existing leaseholders no way to become part of commonholds without 100% agreement?

There is no justification for the government to continue to support leasehold development, and to multiply leasehold problems now that commonhold tenure is available.

12. Lease Extension

A lease extension is buying more air time. So called short leases are talked down by lenders and estate agents. Leaseholders with 60 years on a lease are encouraged to think it is devalued.

A lease extension is calculated on the same basis as a share of the freehold. It is NEVER preferable to buy a lease extension if there is any possibility of owning the freehold because lessees are still on the same ‘board game’ they still have a freeholder. They still have the power only to re-act not to initiate.

Whilst the building does not present challenges the system does not seem onerous, but as soon as there is a major repair, its disadvantages and stupidities become clear.

Lease extensions are granted automatically when leaseholders buy the freehold. An extension alone is a poor alternative.


Firms offering to negotiate lease extensions for leaseholders are doing them a great disservice. A lease extension still leaves leaseholders in the power of the freeholder.

13. Right to Manage

Leasehold ‘managing agents’ have the power to spend money at whim. They are not regulated and work for a freeholder who has only a financial interest in the leases.

Leasehold disputes are usually due to too much maintenance or too little. ‘Giving’ lessees the power to manage their own leaseholds deals with the problem on a superficial level.

The issue of fees for alterations, lease extensions, permissions, disputes with the freeholder to whom breaches of the lease must still be reported, remain.



The Right to Manage has been offered as a ‘jewel’ in the crown of leasehold reform. In fact it is a cynical piece of legislation.

It may alleviate initial problems of management but it maintains the leasehold system of separate ownership.

It channels the real profit to the freeholder, this time relieving them of the onerous task of day to day management which the leaseholders have formed a company to do for nothing!

Meanwhile the lease get shorter and yearly more expensive to buy back, while the leaseholder carries out the freeholders’ task for nothing.