Victory for competition regulator makes case for leasehold reform

Hang around with property developers for long enough and everything begins to look like a landmark.

The Competition and Markets Authority gave itself a pat on the back on Wednesday for securing what it called “landmark commitments” from Persimmon and Aviva over their property leaseholds. Housebuilder Persimmon pledged to offer leaseholders who bought homes after 1999 a chance to buy the freeholds at a discounted price. Insurer Aviva, which buys parcels of freeholds as investments, agreed to remove lease terms the CMA considers unfair and to refund homeowners whose ground rents have doubled every decade.

These voluntary commitments were a welcome sign of life from the CMA’s inquiry into ground rents, which after nearly two years has yet to upend an English land ownership system that’s a relic of the Middle Ages. The regulator has so far launched enforcement actions against four housebuilders and in March ordered two of them, Taylor Wimpey and Countryside, to remove so-called doublers from freehold sales.

On one hand, it all looks too little too late. The big builders had stopped selling leasehold houses by 2017, having been shamed a few years earlier into scrapping new leases with ground rent doublers, and have since been working to cap liabilities by cutting deals with tenants. Their remediation efforts in combination with previous regulatory and government inaction will keep their compensation costs minimal.

More significant is Aviva’s retreat. Its agreement to rewrite leases and give refunds provides a precedent for the often murky world of leasehold investing. The CMA said it expected others to follow Aviva’s lead or face legal action.

But a voluntary deal with the UK’s biggest general insurer also underlines that, absent substantial legal reforms, it’s a very long road ahead. Aviva is an outlier in a sector rife with offshore shells and corporate Russian doll structures seemingly designed to obscure ultimate ownership. When accountability is nil by design, compliance won’t be without a fight.

Take the three companies served with written warnings by the CMA: Brigante Properties, Abacus Land and Adriatic Land. Identifying who’s behind any of them resembles a game of six degrees of separation. And these three companies only entered the CMA’s purview because they bought leaseholds from Countryside and Taylor Wimpey, the developers under investigation.

Actions taken so far barely scratch the surface of the problem that, by government estimates, affects 4.5m leasehold homes in England. Forcing change on a maddeningly opaque industry is well beyond the scope and legal clout of a consumer protection regulator.

So what about the long-promised legislation to abolish ground rents? Well, there’s good and bad news.

The Leasehold Reform (Ground Rent) Bill last week passed back to the House of Commons from the Lords, so is on track to become law by the end of year. But with summer recess looming, the legislation has been fast-tracked through the Lords’ Grand Committee. As a result, peers were blocked from voting on amendments to tighten up definitions and extend rights to existing leaseholders.

Given the first consultations were launched in 2017 it’s unclear what justifies this sudden urgency.

In its current draft the bill might allow freeholders to swap ground rent for informally agreed lease extensions and service charges, around which current legislation is woefully inadequate yet not up for debate. More comprehensive reforms will probably have to wait until 2022 at the earliest. Campaigners now fear a repeat of the Building Safety Bill, which was rushed through the Lords and into law earlier this year after MPs voted down amendments aimed at preventing landlords from passing repair costs on to tenants.

Political will could fix all this. Scotland managed it nearly two decades ago. Yet south of the border, successive generations have allowed a feudal system to persist. Regulators are toothless and supposed consumer protections rely on laws so imprecise and subjective that even the no-win-no-fee legal firms have steered well clear. The CMA might be celebrating a landmark victory but given the size of the problem faced, it’s barely a molehill.