I have always defended leasehold as a way of recognising the layered nature of property rights, which can help reducing the incentive to rent-seeking, speculative behaviour that property markets attract so readily. Eg many Community Land Trusts use leasehold to limit the price growth of homes and preserve affordability. But that relies on the freeholder being a decent representative of the collective interest, not a spiv... And as Dan says, the weird residual form of leasehold we've ended up is in some ways the worst of all worlds, as it doesn't moderate price growth effectively while still allowing for unsavoury practice that was bad enough when it was a few oddballs and is disastrous in the hands of the pros.
Weirdly I found myself as No 10 adviser when leasehold reform was being proposed, and had to listen to the lobbying of the leasehold industry - which was no more sophisticated than 'we're making a lot of money here - surely you wouldn't want to disrupt that?' But then many of the promoters of leaseholders' interests were pretty unpleasant too: they didn't really object to the property system gouging the poor and the overall economy, they just wanted to be the gougers not the gouged.
This reminds me of the rise of class-action / mass-action litigation in the United States. Essentially for a long time you had a number of different kinds of legal rights that were worth something in the aggregate but worthless to their holders individually because they were too costly to enforce. (You could also say that large corporations were able to aggregate the benefits of violating those rights since they could avoid the costs of compliance, although ideally one would hope that the benefit of compliance to the right-beneficiary exceeds the costs to the right-complier.) Then a change in legal “technology” (if we can call procedural rules that; there is also an element of know-how) made enforcement possible and profitable to some specialized plaintiff-side firms. Then you started to see the professional-service dynamic you talk about where plaintiff-side firms started to develop improved methods of extracting value, some of which look a lot like rent-seeking. And we are all still arguing about which effects predominate from a social value perspective, and good luck figuring it out because practically everyone with an informed opinion also has a relevant financial incentive, an ideological commitment, or both.
yes absolutely - this is sort of the theme of the project I'm working on at the moment. all these little episodes of people mining for gold in the legal system and suddenly coming up with a nugget like ground rent or a motherlode like class action
Canberra has a 99-year lease system, originally motivated by Georgist ideas about capturing capital appreciation, but the rent payments were cancelled decades ago. Some of the leases are expiring now. As far as I can tell, they are just being renewed automatically.
"And one consequence of this seems to be the same thing that worries me about professional services in general – when the pros move in, people are compensated based on results, and this means that every potential rent-seek becomes and actual rent-seek. Consequently, you suddenly find out exactly how many abuses were always implicitly possible." yes yes yes, just imagine AI wrapping these bundles up after a search through a millennium of law,
Isn’t the advantage of not having a written constitution supposed to be that parliament can just pass a law saying “lease holding is over, nobody will be compensated, this overwrites all other law”?
It doesn’t matter how much compensation the owners demand if the law says they get nothing!
For that to work we’d need Parliament to introduce a conflict of interest rule that prevents any MP owning a property portfolio from legislating on property matters
Domestic ground rents existed in Ireland from (mostly)* the same historical background but since 1978 tenants have been able to buy them out at a reasonable figure and no new ones can be created in houses. Where the lease has expired the price is 1/8 of full market value.
The colonial aspect (many of the ground landlords were the remnants of the Ascendancy) probably gave an extra impetus to getting rid of them. But still, it goes to show that it could be dealt with.
We still have long leases in apartments but the freehold has to be transferred to a company owned by the apartment owners so no opportunities for gouging.
(*not going to get into leases for lives renewable for ever )
Fun fact: the primogeniture system for freehold was introduced to the Colony of Van Diemen's Land, in order to create ye old English bonds of community or do I mean class, but it got washed away by the island's proximity to the egalitarian mainland's 'convict' and gold digger systems, when it became Tasmania. (might be a dead letter on some old land grant titles still in use).Though there are a few other idiosyncrasies, like the odd title to the low tide mark rather than high on old shipyard titles which rich people have built houses on thus forestalling public walkways along the shore...
A lease is just a contract, freely entered into by both parties, the lessee ('owner') and the lessor (some opaque offshore entity, represented by one of the various managers, such as Homeground). You get to use the flat for 125 years. You agree to pay some money to someone and make contributions to the upkeep of communal areas.
The law is very reluctant to rewrite such contracts. Lawyers (who are massively over-represented in parliament) will argue that tearing up millions of leases will send a very bad signal to overseas investors, who are very important for the UK economy.
It's clear that Gove will not pass any sensible leasehold reforms in the current parliament, and it's not clear that Labour cares about this very much.
The problem with leasehold has been recognized for decades. An alternative, fairer, system was permitted in English law in 2002 ('commonhold'), but it's not favourable to lessors so it was, effectively, dead on arrival. It seems that there are fewer than 30 commonhold titles that have ever been created in the UK.
I like and buy the mechanism of "when the pros move in..." but why have the pros moved in now and not before? Did something change in the legal-technical environment that now makes it feasible, was there a cultural change that made a semi-taboo potential asset class now palatable [although I find it hard to believe given how low and for how long that bar has been], or is it simply a matter that it was a less-interesting resource that's the Next New Thing because others are already being exploited intensively? (A sort of slash-and-burn agriculture metaphor for social infrastructure being financialized until positive externalities break and then people move forward to the next non-squeezed thing.)
My guess is a mix of supply side shortage pushing up prices, land banking by developers, cash strapped councils unable to refuse planning permission due to fear of costly legal challenge, together with technology & lack of safety oversight making high rises cheaper and quicker to build
Seems unnecessarily hard to find information on the passage of the Harold Wilson Leasehold Reform Act 1967, and why/how it has been amended since. As parents were looking for a new house 1965 ish, leasehold/freehold was an issue. Leasehold houses were being built (Midlands) at the time. Difficult to imagine the flats issue was unmentioned at the time.
Strongly suspect that some freeholders think it advantageous to their cases that pension fund investment managers could be persuaded to invest in freeholds, making reform more difficult.
I have always defended leasehold as a way of recognising the layered nature of property rights, which can help reducing the incentive to rent-seeking, speculative behaviour that property markets attract so readily. Eg many Community Land Trusts use leasehold to limit the price growth of homes and preserve affordability. But that relies on the freeholder being a decent representative of the collective interest, not a spiv... And as Dan says, the weird residual form of leasehold we've ended up is in some ways the worst of all worlds, as it doesn't moderate price growth effectively while still allowing for unsavoury practice that was bad enough when it was a few oddballs and is disastrous in the hands of the pros.
Weirdly I found myself as No 10 adviser when leasehold reform was being proposed, and had to listen to the lobbying of the leasehold industry - which was no more sophisticated than 'we're making a lot of money here - surely you wouldn't want to disrupt that?' But then many of the promoters of leaseholders' interests were pretty unpleasant too: they didn't really object to the property system gouging the poor and the overall economy, they just wanted to be the gougers not the gouged.
This reminds me of the rise of class-action / mass-action litigation in the United States. Essentially for a long time you had a number of different kinds of legal rights that were worth something in the aggregate but worthless to their holders individually because they were too costly to enforce. (You could also say that large corporations were able to aggregate the benefits of violating those rights since they could avoid the costs of compliance, although ideally one would hope that the benefit of compliance to the right-beneficiary exceeds the costs to the right-complier.) Then a change in legal “technology” (if we can call procedural rules that; there is also an element of know-how) made enforcement possible and profitable to some specialized plaintiff-side firms. Then you started to see the professional-service dynamic you talk about where plaintiff-side firms started to develop improved methods of extracting value, some of which look a lot like rent-seeking. And we are all still arguing about which effects predominate from a social value perspective, and good luck figuring it out because practically everyone with an informed opinion also has a relevant financial incentive, an ideological commitment, or both.
yes absolutely - this is sort of the theme of the project I'm working on at the moment. all these little episodes of people mining for gold in the legal system and suddenly coming up with a nugget like ground rent or a motherlode like class action
Canberra has a 99-year lease system, originally motivated by Georgist ideas about capturing capital appreciation, but the rent payments were cancelled decades ago. Some of the leases are expiring now. As far as I can tell, they are just being renewed automatically.
I am slightly surprised that Macquarie didn't manage to get their teeth into that one
"And one consequence of this seems to be the same thing that worries me about professional services in general – when the pros move in, people are compensated based on results, and this means that every potential rent-seek becomes and actual rent-seek. Consequently, you suddenly find out exactly how many abuses were always implicitly possible." yes yes yes, just imagine AI wrapping these bundles up after a search through a millennium of law,
Isn’t the advantage of not having a written constitution supposed to be that parliament can just pass a law saying “lease holding is over, nobody will be compensated, this overwrites all other law”?
It doesn’t matter how much compensation the owners demand if the law says they get nothing!
For that to work we’d need Parliament to introduce a conflict of interest rule that prevents any MP owning a property portfolio from legislating on property matters
Domestic ground rents existed in Ireland from (mostly)* the same historical background but since 1978 tenants have been able to buy them out at a reasonable figure and no new ones can be created in houses. Where the lease has expired the price is 1/8 of full market value.
The colonial aspect (many of the ground landlords were the remnants of the Ascendancy) probably gave an extra impetus to getting rid of them. But still, it goes to show that it could be dealt with.
We still have long leases in apartments but the freehold has to be transferred to a company owned by the apartment owners so no opportunities for gouging.
(*not going to get into leases for lives renewable for ever )
Fun fact: the primogeniture system for freehold was introduced to the Colony of Van Diemen's Land, in order to create ye old English bonds of community or do I mean class, but it got washed away by the island's proximity to the egalitarian mainland's 'convict' and gold digger systems, when it became Tasmania. (might be a dead letter on some old land grant titles still in use).Though there are a few other idiosyncrasies, like the odd title to the low tide mark rather than high on old shipyard titles which rich people have built houses on thus forestalling public walkways along the shore...
A lease is just a contract, freely entered into by both parties, the lessee ('owner') and the lessor (some opaque offshore entity, represented by one of the various managers, such as Homeground). You get to use the flat for 125 years. You agree to pay some money to someone and make contributions to the upkeep of communal areas.
The law is very reluctant to rewrite such contracts. Lawyers (who are massively over-represented in parliament) will argue that tearing up millions of leases will send a very bad signal to overseas investors, who are very important for the UK economy.
It's clear that Gove will not pass any sensible leasehold reforms in the current parliament, and it's not clear that Labour cares about this very much.
The problem with leasehold has been recognized for decades. An alternative, fairer, system was permitted in English law in 2002 ('commonhold'), but it's not favourable to lessors so it was, effectively, dead on arrival. It seems that there are fewer than 30 commonhold titles that have ever been created in the UK.
I like and buy the mechanism of "when the pros move in..." but why have the pros moved in now and not before? Did something change in the legal-technical environment that now makes it feasible, was there a cultural change that made a semi-taboo potential asset class now palatable [although I find it hard to believe given how low and for how long that bar has been], or is it simply a matter that it was a less-interesting resource that's the Next New Thing because others are already being exploited intensively? (A sort of slash-and-burn agriculture metaphor for social infrastructure being financialized until positive externalities break and then people move forward to the next non-squeezed thing.)
My guess is a mix of supply side shortage pushing up prices, land banking by developers, cash strapped councils unable to refuse planning permission due to fear of costly legal challenge, together with technology & lack of safety oversight making high rises cheaper and quicker to build
he mentioned the fire of Al & plastic cladding
Could be - does seem there are nonlinearities there in what takes to push something into exploitable territory.
*William the Bastard
Seems unnecessarily hard to find information on the passage of the Harold Wilson Leasehold Reform Act 1967, and why/how it has been amended since. As parents were looking for a new house 1965 ish, leasehold/freehold was an issue. Leasehold houses were being built (Midlands) at the time. Difficult to imagine the flats issue was unmentioned at the time.
Strongly suspect that some freeholders think it advantageous to their cases that pension fund investment managers could be persuaded to invest in freeholds, making reform more difficult.