The appalling scandal of newly built houses being sold as leasehold by Britain’s six biggest housebuilders (and where the ground rent can double every 10 years – just because they can) is by now well documented. In fact leasehold properties are now thought to make up over 40% of all new homes.
This is rent extraction at its worst – often just plain extortion.
Housing leaseholds or their equivalent haven’t existed in Scotland since the 70s and old ones are gradually converted to commonhold. Rents are capped as leases come up for renewal. So now England & Wales (and, possibly, Ireland) are the only places in the world where new housing leaseholds can be created. All based on William the Conqueror’s claim to every acre in England, which he then parcelled out to his supporters.
English and Welsh leaseholders can convert to commonhold, but every leaseholder has to buy the freehold together, and everyone in the building must agree to convert to commonhold. Individual houseowners do not have this option.
Industrial leases are no better. Tenants are rarely allowed to rent ‘on licence’ – in effect on monthly or quarterly terms – so a commitment to a longer term is still the norm and always with those upward only rent reviews, which if you want to start a business or timetable a move of premises, are still very difficult to hold out against. And then, too, break clauses will be argued against. From my personal experience when I was a sole trader a break was outlawed by a large insurance company portfolio investor on the grounds that they needed to project their income forward. So here I was, a small, sole trader allowing them an income projection when I didn’t have the security of knowing when the next recession was! That is why I was very careful never to give them my home address.
Contrast this with France, where (perhaps still conscious that the rentiers were heavily implicated in the causes of the French Revolution!) their commercial leases are based on 3, 6, 9. Which means normally they are for a maximum of 9 years with break clauses for the tenant after 3 or 6 years. Rent alterations at those three year intervals are based on one of the government compiled inflation indexes that must have relevance to the tenant’s business. Rent disputes are settled by a judge with a default bias towards the tenant.
By adopting French style terms we would be offering more encouragement to small business, who, let’s not forget, contribute more jobs to the market than any other sector, making commercial leaseholds more flexible and more tenant orientated. And then we achieve further fairness by effectively abolishing leasehold for homeowners, as Scotland does.
Both of which are likely to engender a small, if gradual, measure of dampening down of the property market fever. And would also be a reduction in burdensome unproductive rent for the rest of the economy.
We need our leases to move on from feudalism and to be orientated towards the interests of the majority of us and not the extractive minority.