Leaseholders deserve justice – however Labour’s reforms might have unintended penalties says HELEN CRANE

Those scrolling through Tiktok this week may have been surprised to see the prime minister pop up amid the dances and cat videos, bearing some good news for leasehold homeowners.

Keir Starmer took to the social media platform to announce that the ground rents leaseholders pay will be capped at £250 per year, with a view to reducing this to zero over the next 40 years.

Ground rents are charges paid by leaseholders, who overwhelmingly live in flats, to their freeholder – the company or person that owns the land and building.

Unlike service charges, which pay for the running of the building, ground rents don’t get them anything in return – other than the ‘right’ to occupy the freeholder’s land. 

It’s one of several reasons the leasehold system is accused by critics of being feudal.

The average ground rent is £304, according to the latest English Housing Survey, while in London it’s £412 on average. But some owners pay far more.

Problem properties: The leasehold system is often described as feudal, and owners of new-build flats get a particularly raw deal thanks to ground rents, service charges and cladding

Where it gets really egregious is when leasehold contracts allow the ground rent to double every 10 or 20 years – effectively charging flat owners a penalty for continuing to live in their own home.

Flat owners subject to these nasty clauses will be breathing a sigh of relief. Or at least, they will when the policy eventually becomes law, which won’t be until at least 2028.

But for most leaseholders – and especially those who own new-build flats – ground rent is a drop in the ocean when it comes to the headaches they face.

The real problem is that leasehold has become a dirty word among home buyers. And who can blame them?

It started with the cladding scandal, set off by the appalling Grenfell Tower tragedy. Overnight, homeowners went from living in flats they felt safe in, to occupying potential death traps that were essentially worthless until any problems were first identified, and then fixed at great expense.

The Government eventually stepped in and forced the developers of the blocks to pay in most cases, rather than the people who lived there – but the stain on the reputation of flats remained.

Then came the cost of living crisis, when the spotlight was shone on the inflated service charges paid by residents of some blocks of flats to their freeholders. 

Service charges have increased by an average of 41 per cent between 2019 and 2024, according to The Property Institute, and cost £3,634 each year on average.

Unsurprisingly, those who already own leasehold flats now face an uphill struggle when it comes to selling them.

Owners of new build flats are six times more likely to sell at a loss than owners of new build houses, according to stark official data analysis by estate agent Hamptons.

For some, it means they are stuck with their starter home, unable to move on with their lives – as one leaseholder told us this week.

Some would say leaseholders knew what they signed up for. But the reality is that, if your budget doesn’t stretch to a house, you have little choice but to become a leaseholder.

Buying new build leasehold flats was actively encouraged for years during the property boom time of the 2010s, when Help to Buy fuelled developments in cities across the country.

For young home buyers, this offered a chance to get on the property ladder. But the real winners were developers, who got a ready stream of buyers willing to pay arguably too-high prices, backed by taxpayer cash.

The Government has finally committed to sorting out some of the multitudinous problems with leasehold, and there are a raft of changes at various stages of the legal system.

However, there is one big problem that stands in the way of change.

The conversation around ground rents this week brought up the fact that capping the charges at £250 would require the Government to force freeholders to tear up legitimate existing contracts. 

Other elements of the wider leasehold reform would require the same.

The Association of British Insurers this week described it as setting a ‘troubling precedent’ that could put firms off investing in property in the UK.

Flat dwellers have been palmed off with a second-rate version of home ownership for too long, and it’s right that the needs of the UK’s 5.2million leaseholders should come before those of investors.

But for a Government that wants to build 1.5million homes by 2030, sorting out leasehold once and for all could come with some unintended consequences.