U.K.’s Arcane Land-Ownership Rules Targeted by Labour Party

(Bloomberg) -- The opposition Labour Party took aim at one of the U.K.’s most controversial land-ownership rules, proposing to end a system that can leave some homeowners paying rent each year on the ground beneath their buildings.

So-called leaseholders, who own a house or flat but not the plot underneath, would have the right to buy that land for no more than 1% of the property’s value under Labour’s plan. The “ground rent” they pay each year to owners of the land beneath their buildings would also be capped, and the sale of new private leasehold homes would be stopped.

The changes would rein in excesses such as clauses in contracts that allowed ground rents to double every decade, making properties unsellable. It would also have an impact on the business model of companies such as Vincent Tchenguiz’s Consensus Business Group Ltd. and Schroders Plc-backed Ground Rents Income Fund Plc, which collect the income generated by ground rents.

“England is one of the only places in the world which has failed to move away from this feudal system,” Sarah Jones, Labour’s shadow housing minister, said in a statement late Monday. “Leaseholders have everything stacked against them. Too often they suffer extortionate fees, appalling service and restrictive contract terms, and no way to easily challenge them.”

‘Pernicious’ Rents

Labour’s plan goes further than the one announced last month by Prime Minister Theresa May’s government. James Brokenshire, the secretary of state for housing, proposed that all new houses would be sold on a “freehold” basis, which brings ownership of the home and the plot on which it stands. In addition, “pernicious” ground rents on new leases would be reduced to zero.

“Exploitative and unfair leasehold arrangements have no place in a modern housing market, so we are taking bold action to reform the sector,” Brokenshire said in an emailed statement on Tuesday. He didn’t comment specifically on Labour’s plan.

Some of the U.K.’s biggest homebuilders such as Taylor Wimpey Plc and Persimmon Plc have sold thousands of leasehold homes, then placing all that income into a single portfolio that can be sold to investors.

To contact the reporter on this story: William Mathis in London at wmathis2@bloomberg.net

To contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, Patrick Henry, Jack Sidders

©2019 Bloomberg L.P.