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“Good news for homeowners: we’re capping ground rent at £250”, announced Keir Starmer in a TikTok video yesterday. The announcement will have pleased the likes of Angela Rayner, who last week described a “titanic battle” between “hard-working leaseholders” and the “unaccountable investors” who own freeholds on millions of properties across the UK. It was also the fulfilment of a Labour manifesto promise to “finally bring the feudal leasehold system to an end”. Starmer was rewarded with a much-needed crop of positive headlines: “millions to benefit”, reported Sky News.

But the leasehold battle is far from over. The government’s plans do not cover many of the issues faced by leaseholders, and they will be aggressively challenged by freeholders. The government may become liable for billions in compensation, at which point a U-turn will become inevitable. Industry experts say their advice has been ignored in favour of a headline-friendly measure that moves the issue into the next parliament – when, on current polling, it will be someone else’s problem.

Capping ground rents at £250 (which will not happen until 2028) and ending new leaseholds are unquestionably good policies for tens of thousands of current leaseholders and people who might have fallen into the leasehold trap. In recent decades, unscrupulous property developers have sold new-build properties with terms that allowed them to increase ground rent by unreasonable amounts. However, these situations apply to a minority of fewer than 100,000 leaseholders. The number of leaseholds in the UK is disputed, but it is somewhere between four and six million properties. All of these properties have to contend with other factors such as service charges, which aren’t capped, and the high cost of extending leases – a problem that a previous government claimed to have solved.

In January 2021, the then housing secretary, Robert Jenrick, was himself in need of a few good headlines. His department had failed to act on the risk posed by the cladding on the Grenfell tower, and he had been forced to admit that he had unlawfully approved a housing development one day before its developer – a Tory donor – would have become liable for an additional £40m in tax (Jenrick denied there was any “bias” in this decision). His reforms to leasehold proposed a quick fix to the biggest cost incurred by most leaseholders, which is the cost of renewing an old lease. These costs are particularly high if the lease has less than 80 years remaining, which means the freeholder can add “marriage value”, increasing the price dramatically (this applies to about a million properties in the UK). Jenrick announced that marriage value would simply be scrapped.

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This quick fix was never going to be applied while Jenrick was still in the housing department, and one source suggested to me that this was well known at the time. The policy was contested immediately by freeholders, who have a very significant interest in taking every legal measure to ensure the policy is defeated. James Wyatt, a surveyor who specialises in leaseholds, said that at £15,000 to £20,000 per property, marriage value is an issue worth around £20bn to some of the country’s biggest landowners, who include the Crown Estate, the Church of England and individuals such as the Duke of Westminster. The freeholders have already secured judicial review on marriage value – which the government won – but they will not stop there. The case will go to the Supreme Court and the European Court of Human Rights, and Wyatt told me the consensus in the industry is that “the government will eventually lose”.

An even larger group of freeholders exists to challenge the cap on ground rents. I’ve been told about a single investment fund that has an interest in ground rents worth £500 million. “If the freeholders are prepared to take on the government over marriage value,” Wyatt said, “then they’re going to certainly take on the government over capping ground rents”, which he said “have the potential to be even larger”.

The political importance of these disputes is that they are not fights between leaseholders and freeholders, but between freeholders and the government, because the freeholders will be seeking compensation for having been expropriated by the state. Many will have a good case for doing so: for many decades, properties with high ground rents have been sold at very significant discounts, precisely because they came with steep additional costs.

Even Wyatt, who acts on behalf of leaseholders, says this makes a blunt change to the rules hard to justify: “if two parties voluntarily both enter into a contract, why can the government then just completely change the terms of that contract to favour one party, without paying compensation?” The rights to property and fair compensation are established in UK primary legislation, and in even in cases where the losing party is morally repugnant – such as in the slave-owners who were compensated by the government when Britain abolished slavery – the state has a history of compensating those it has expropriated. If the case goes to Strasbourg, there will be a long fight over the two halves of the Article 1 of the first protocol of the European Convention on Human Rights, which establishes the right to property as a human right (“no one shall be deprived of his possessions”) but also establishes the right of a state to “enforce such laws as it deems necessary to control the use of property in accordance with the general interest”.

What’s frustrating is that this is not an issue that needed to be fudged. The people who were ripped off by property developers already had legal recourse to challenge the solicitors and surveyors who didn’t properly advise them on the dodgy contracts they were signing. Wyatt and a group of experts have spent years arguing for a fair way of calculating marriage value, rather than the current system, which is to use a set of arbitrary numbers produced on behalf of the Duke of Westminster. Existing leaseholds could be “grandfathered out”, winding down the current system without leaving room for powerful interest to mount years of legal challenges. Much of this could be done without new laws. As the leasehold campaigner Harry Scoffin put it to me: “We’ve already got legislation, and they’re letting it rust. They’re not commencing its provisions while sending us down a wild goose chase about draft legislation that may or may not happen before the election.”

But this is a government that spends a lot of time thinking about two things: the ECHR and the fiscal rules. Leasehold reform has implications for at least one of these things (both, if the freeholders win in court and the state becomes liable for compensating them). It’s also an issue on which both the Greens and Reform are becoming increasingly vocal. So Labour seems to be employing the strategy that marked the Tories’ last few years in power: rather than taking immediate action and accepting the immediate legal or fiscal consequences, they have made an announcement that sounds good and pushed the legal and fiscal risk into the next parliament.

Meanwhile, the leasehold market is paralysed by indecision, with real consequences. Wyatt told me about one leaseholder, suffering from a very serious illness, who cannot move into a home that is adapted for their needs because they can’t sell their leasehold flat – no-one knows what it is worth. Scoffin told me about a poll conducted by his organisation which found that more than half of London leaseholders had put off having children because they felt “trapped” by the system. Ground rents will not be reduced to negligible amounts (“peppercorn” rents) for another 40 years. This is a situation which demands changes that work, now.

[Further reading: Labour’s next rebellion may be over leasehold reform]

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Topics in this article : Labour