Firm Ground

Angela Rayner did not help herself, but between the decision that you could not be unfairly dismissed until you had worked somewhere for six months, and that of which Vicky Spratt writes, you do begin to wonder about the throwing of Rayner under the bus:

Labour’s pledge to cap onerous ground rents for leasehold homeowners at no more than £250 a year is facing being cut after treasury officials intervened, The i Paper has learned.

Campaigners fear this has delayed Labour’s leasehold reforms and the long-awaited changes may “no longer meet expectations” and “break election promises” as a result.

Failing to cap ground rents would be an “outrageous betrayal” of millions of voters, they said.

The reforms were being brought forward by former housing secretary Angela Rayner before her resignation in September.

The former deputy prime minister is understood to be determined to see that the Government follows through on its manifesto commitment to tackle unregulated and unaffordable ground rents. One Rayner ally told The i Paper: “We promised to sweep away the feudal leasehold system, not prop it up, and she stands firm on that.”

“This comes down to a question of whose side we are on. It’s core to tackling the cost of living, and now is not the time to buckle,” the source added.

Former Conservative housing secretary Michael Gove said that Rayner was “quite right to press this point” and added that Steve Reed, her replacement, “must not back down”.

It comes after Rayner, the architect of the employment rights bill which was watered down last week, secured a deal with ministers that will see protections against unfair dismissal for workers start from 2027 – staving off a plan by the former deputy PM to force the Government to set a start date.

The Leasehold Reform Act 2022, introduced under the Conservative government, brought an end to ground rents on new-build leasehold properties. Labour had pledged to go further and help people in existing leasehold homes whose charges were not addressed. Ministers had been looking at capping what freeholders can charge up to a maximum of £250 a year.

But Treasury officials are understood to be pushing for this cap to be dropped over concerns this would affect pension funds that own freehold properties.

It is estimated that there are almost 5 million leasehold homes in England alone, which are home to millions of people.

Britain’s leasehold-freehold homeownership system means that blocks of flats, in particular, are owned by freeholder landlords. Some of these are major institutional investors, others are backed by pension funds.

The Residential Freehold Association – the trade body for freeholders – estimates that pension funds have invested more than £15bn in residential ground rents and the total value of investment in UK ground rents is thought to be close to £30bn.

However in recent years expensive ground rents, which sometimes run into thousands of pounds, have forced leaseholders into financial ruin and made homes impossible to sell, causing untold misery.

One leaseholder from Salford told The i Paper that doubling ground rent meant their charges had gone up from £250 a year to £500 and, then, £2,000. The flat itself was bought for £125,000. Another said that her ground rent would eventually reach more than £1m a year in 50 years time without a cap.

Last year, before Labour’s election victory, housing and planning minister Matthew Pennycook told Parliament he wanted to “cap ground rents at a peppercorn” as he urged the then-Conservative government to “act to protect leaseholders from ground rent exploitation”.

In Labour’s manifesto, they pledged to “go where the Conservatives have failed and bring the feudal leasehold system to an end”.

Leaseholders must pay ground rent on top of a service charge and their mortgages. Some of these people have particularly problematic leases which allow their freeholders to double ground rent every ten years, causing bills to run into tens of thousands of pounds over time.

Labour’s forthcoming Leasehold and Commonhold Bill, which Pennycook is responsible for, aims to address this complex web of legislation, but it has been delayed. It is expected that the Government will announce it before Christmas.

A “peppercorn” rent is zero or next to zero – but Labour have been looking at capping what freeholders can charge at a maximum of £250 a year.

Katie Kendrick, founder of the National Leasehold Campaign (NLC) said: “Every single day we hear from leaseholders who are trying to sell their homes, but the sale is falling through because many mortgage lenders will no longer lend on escalating ground rents.”

“This issue is not going away. It has brought the house-selling process to a halt,” Kendrick added. “Leaseholders are physically trapped in properties that they cannot sell. They cannot move on with their lives and feel powerless to escape this feudal system.”

Housing market analyst Neal Hudson said homebuyers worried about leasehold is a major reason why flats – which are often sold as leasehold by developers – are not selling, particularly in London.

“If the Government is serious about hitting its housing targets, then it needs to build far more flats than are currently being built. The problems with leasehold are one of the barriers to achieving that,” Hudson said.

As The i Paper has reported, freeholders are often investment funds, and sometimes they are not based in the UK.

One source involved in discussions about Labour’s leasehold reforms told The i Paper that if the Treasury continues down this path, they will be “effectively putting millions into the pockets of offshore property investors” at the “expense of ordinary people”.

A cap of anything more than £250 a year won’t help the majority of leaseholders, they added.

If Labour do axe the cap, it will make them less progressive on the issue than the previous Conservative government. After much wrangling with his own Treasury and an intervention from former prime minister Rishi Sunak, Mr Gove promised all leaseholders that their rents would be a “peppercorn” moving forward.

It follows a landmark court judgement in favour of the Government, following a challenge brought by major freeholders who argued that Conservative reforms to cap their ground rents, which passed in the 2024 pre-election wash-up but were not implemented because of the challenge, “infringed their human rights”.

The High Court disagreed and ruled that freeholders were not entitled to charge ground rents or bill leaseholders for legal costs. However, in spite of this legal judgement clearing the path for reform, Labour’s bill has not yet been announced because of the wrangling with the Treasury about ground rents.

Mr Gove said: “The Treasury has always resisted justice for leaseholders”. He said this was because they believe it “sends the signal that the UK is not a good place for investment, because we legislate retrospectively.”

However, he added that failing to address this issue was relying on a “butler economy” where “the interests of foreign investors are put ahead of British citizens”.

In opposition, Pennycook pledged a move away from the leasehold system – where buildings are ultimately owned by freeholder landlords – to a commonhold system, where flat owners collectively own and manage the building their homes are in. It has been successful in Australia, Canada and America and has been deemed the fairest model of ownership by the Law Commission.

If the promise on ground rents is abandoned, experts say the transition to commonhold will also be watered down.

As one housing expert who has been involved in reform discussions said: “Higher ground rents will make it more expensive for leaseholders to move to commonhold and, in some cases, it will simply be unaffordable – so it won’t happen.”

It could even “damage the property market because the value of leasehold flats will go down even further in relation to newer flats which may be built as commonhold without expensive ground rents,” they added.

Campaigners think the Treasury has been “hoodwinked” by the “powerful” freeholder landlord lobby, who insist that capping ground rents could “spook investors”.

A spokesperson for the Residential Freehold Association (RFA) warned “capping ground rents will drive freeholders into insolvency” which could have a significant impact on Britain’s economy.

They added that capping ground rents signals “that investments and property rights can be rewritten by the state.”

Barry Gardiner, the Labour MP for Brent North, who has regularly raised the plight of leaseholders in his own constituency, told The i Paper that it would be “unconscionable” if the Government did not see a cap on ground rents through.

“It’s a fee for no service,” Gardiner added. “It’s the definition of exploitation, and I am absolutely confident that no Labour minister would do such a thing.”

Harry Scoffin, founder of the campaign group Free Leaseholders, said, “it is disturbing that a self-styled pro-growth government is now rushing to defend rent-seeking elite landowners and offshore shell companies who use coercive legal arrangements to extract wealth from working people.”

The Treasury declined to comment.

A housing ministry spokesperson said: “Far too many leaseholders face unregulated and unaffordable ground rent charges. “We will legislate to address this and we’ll set out further details in due course.”