The forgotten freeholders set to lose out under reforms
Many who bought out their freeholds are going to lose money
They are the forgotten freeholders. They have none of the resources of the institutional landlord and none of the public support of ordinary leaseholders.
They are the people who, encouraged by the Government, have clubbed together with their neighbours to purchase their freeholds, often at extreme personal cost, only to find that under the Government’s new legislation they will become worse off.
When leaseholders decide to exercise their right to purchase their freehold, they simply need the majority of flat owners to sign up to the claim. In almost every case, there is a significant proportion who do not participate, leaving the others to pick up the bill.
Up until now, they could gain some comfort from the income they receive from non-participants in the form of ground rent and leasehold extension premiums. Now those compensations are being forcibly removed, resulting in further subsidies for their neighbours.
Under the government’s new leasehold reforms, marriage value – the additional value created when a lease is extended beyond 80 years – is set to be abolished.
Ground rent caps add to the misery
While the change was promoted as a way to make lease extensions fairer and more affordable, experts warn it has created a serious imbalance: participating leaseholders will lose a key mechanism for recouping their financial outlay, whilst non-participating neighbours will stand to benefit at their expense.
In a further blow to the estimated one million forgotten freeholders, the Government has set a blanket cap of £250 on ground rents, meaning forgotten freeholders will lose out once again.
A double whammy.
The cumulative effect of these measures is to place a disproportionate financial burden on those who have already taken responsibility for their buildings. Far from being wealthy investors or speculative landlords, these resident freeholders are often ordinary flat owners who stretched themselves financially to buy out their freehold in the interests of long-term security, good management, and fairness. Many took on significant debt or depleted their own life savings to do so, in the expectation that the existing legal framework would not be changed to confiscate what they paid for.
Mike Somekh, The Freehold Collective
Enquiries Surge 50% In A Year
Stripping away the income streams they were expecting
Instead, the reforms retrospectively strip away the limited income streams that helped make collective enfranchisement viable in the first place.
By abolishing marriage value and sharply reducing ground rents, the legislation removes the only practical means by which participating leaseholders could offset the cost of acquisition over time. The result is not the elimination of unfairness, but a redistribution of wealth away from participants and onto their neighbours, who never expected an undeserved windfall.
This creates a perverse incentive. Leaseholders who declined to join the original freehold purchase will now enjoy the benefits of longer leases at lower cost, subsidised by their neighbours who bore the initial financial risk. Those who followed the Government’s advice, acting responsibly and collaboratively are penalised; those who opted out are rewarded.
Such an outcome undermines the very principle of collective enfranchisement and risks discouraging future groups from pursuing it at all.
Moreover, the reforms fail to distinguish between large commercial freeholders and resident-led freehold companies.
A one-size-fits-all approach may appear politically attractive, but it ignores the reality that these are fundamentally different actors with different capacities and motivations. Treating a residents’ freehold company as though it were a professional landlord is not reform - it’s misclassification.
The unintended victims
Mike Somekh, Founder of the Freehold Collective, said:"Left unaddressed, these changes risk creating a new class of unintended victims of leasehold reform: the very people whom the Government claims to have helped by making it cheaper, easier, and fairer for leaseholders, are the same people who now find that the rules have been rewritten to be punishingly costly, an adversarial trap and wholly unjust.