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Leasehold and Freehold Reform Bill should be debated in Edinburgh as well as London

henry tapper

This week, the Leasehold and Freehold (Reform) Bill is being debated in Parliament. The leasehold system  dates back hundreds of years – before women even had the right to own property – to a time of lords and landowners, peasants and serfs.

Campaigners against leasehold say it should be abolished, it is feudal and unfair, allowing freeholders – who in effect own the land flats and some houses are built on – to extract money from leaseholders via managing agents.

The FT has argued that the current system has consistently down valued leasehold ownership

The government says it will give leaseholders an easier and less costly route to getting legal redress. It will call for greater transparency to justify the service charges levied – but not to cap them – and will make new leases a standard 990 years – rather than the current 99 or 125 years.

Michael Gove has rejected the calls for complete abolition of the leasehold system, saying legally it is “knottingly complex“. He also resists suggestions the government has given in to lobbying from those with vested interests who profit from the current set-up.

“Making sure the room for exploitation is squeezed is critical,”

says Gove.

“The real challenge with abolishing leasehold with the stroke of a pen is the complexity of the English legal system.”

But Scotland managed to do so 20 years ago, which means aside from a handful of properties in Northern Ireland, England and Wales are now the only countries in the world where leasehold is still widely used.

So who owns the freeholds?

James Tuttiett

James Tuttiett    owns 40,000 of them through various companies. Tuttiett owns E&J Estates whose website boasts

E&J Estates administers over 40,000, primarily residential leases, and manages the freeholds of over 1,600 buildings across the UK.

Andrew Henderson bought his house outside Blackburn from Taylor Wimpey six years ago, but found that the developer then sold the freehold on his house to E&J.

“We are currently paying around £145 every six months. This doubles every 10 years, so in 45 years, whilst enjoying retirement, I’ll be paying E&J £10,000 per year to live in my own home that will be fully bought and paid for.”

Linda Barnes’ home in Heywood, Manchester is typical of developments where E&J acquired the freeholds soon after the site was completed. Her ground rent doubled in January 2016 and will keep doubling every 10 years. She says residents are in “sheer panic” as the ground rent has made their homes unsaleable.

The financing of Tuttiett’s property empire is helped by low-interest loans totalling £336m made by an insurance company, Rothesay Life, spun out of Goldman Sachs, in which the US investment bank remains the largest shareholder. Among the Rothesay Life loans made to E&J is one at £128m with a stated interest rate of just 0.95% a year, although it is understood the real rate paid is likely to be higher.

The existence of the Rothesay loans opens a back door into Tuttiett’s interests, as Companies House lists all the properties over which Rothesay has a charge.

A part of this scandal is that  pension companies are using pension money to leverage fees through arbitrary ground rents and uncompetitive management agency fees. The PLSA investment conference happens to be running at the same time as the debate on leasehold in parliament.

Although Rothesay Life use money transferred from occupational schemes to make their money, they can argue that how they invest this money is not a matter for the PLSA since it is no longer in the occupational pension scheme. This is true of “buy-out” but not of “buy-in” but in any case , the transfer of trustee assets to an insurer should require scrutiny of the insurer’s financial practices.

The Freeholders Association have argued in parliament that the freehold assets held by pension scheme is vanishingly small (1% of all assets). But 1% of £1.4trillion pounds is not a vanishingly small number and in any case does not take into account the interests of companies like Rothesay who use debt to help freeholders extract debt from leaseholders against the principals of fiduciary care, the consumer duty and ESG.

The PLSA has belatedly stepped back from an alliance with the Freeholders Association and one big fund – Railpen – has distanced itself from the ownership of freeholds. But there are plenty of pension schemes that still benefit directly through owning freehold or indirectly from the income streams from freeholds paid to them through financial structures such as hedge funds and indeed buy-outs and buy-ins of liabilities by insurance companies such as Rothesay.

I intend to raise this issue this week with the PLSA policy team and in conference. The PLSA must make its members aware that it does not support practices such as the doubling of ground rents every ten years or the use of managing agents ripping off leaseholders in cahoots with freeholders.

ESG is not just about polar ice-caps and African droughts, it is also about the way we invest our money in the UK. Investing pension fund money in ground rents that offer investors “money for nothing” to prop up feudal malpractices, is anti-social and anti ESG. It should stop.

Leading campaigners Norma Cohen and Harry Skoffin will be discussing this matter with me at a Pension PlayPen coffee morning on Tuesday 5th March. I hope it will follow on from a debate on this matter in Edinburgh among the asset owners of our pension schemes.

I hope it will also follow on the successful reading of the Bill in parliament. The Freeholder’s rent seeking interests must not prevail.

To make my position clear. I support a move to reduce all ground rents to “peppercorn” (£1pa), do not recognise the interests of freeholders to extract rents through over-charging and commission taking by leasehold agents and consider the argument that ground rents pay the pensions of “grannies” as sophistry.

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