Navigating the Ludicrous Leasehold Labyrinth
Could buying a flat with a short lease in the Brunswick Centre be worth the gamble?
When I woke up this morning, I didn’t anticipate delving into the complexities of the archaic leasehold system. My initial plan was simple: write a brief post about this one-bedroom flat in the Brunswick Centre, mentioning its short lease.
I then went to my local coffee shop for breakfast (an expensive habit I’ve recently fallen into, which I try to justify by doing a post about my walking guides on Instagram, in the hope that if I shift at least two guides, that’s breakfast paid for). When I got there, I realised my phone was out of battery, so I was forced to just sit there. And think.
I began pondering the fact that nearly all the flats I’ve seen for sale in the Brunswick in recent years have very short leases. A few things struck me: if we assume the flats were bought when the Right to Buy was first introduced in 1980 with 99-year leases, that would mean they would have 55 years left — this flat has 49. Were they sold with short leases? It seems bizarre that so many leaseholders haven’t extended their leases. Did the original tenants buy their flats and keep living there, or did they move out and rent them privately? Did no one advise them that when a lease gets below 80 years, the cost of extending it is very expensive? Substantially more than the initial cost of the property, I suspect.
Hours later I was down a rabbit hole trying to find out how much the Brunswick flats would have sold for in the 1980s. I bought and downloaded various title registers but drew a blank. (Thank you to all the paid-up subscribers for funding this, even though it ended up being a waste of £12, it seemed justified in the name of ‘proper research’.) The earliest sale I could find was a one-bedroom flat in 1997, which sold for £97,000—but whether that would have included the Right to Buy discount, I don’t know. Compared to today’s prices, the flats must have been cheap.
I’m old enough to remember the Brunswick before its makeover in 2006. It’s hard to imagine just how different this Grade II listed scheme in Bloomsbury felt before then. I remember the first time encountered it in the late ’90s. I stumbled across it whilst cycling from town back to the Barbican. I’d never heard of it or seen it before, and I was completely blown away by its bold concrete ziggurat form.
The story of how this low-rise megastructure came to be realised is a turbulent one. In 1960, the developers, Marchmont Properties, commissioned Leslie Martin and Patrick Hodgkinson to draw up a scheme that would include housing, shops, restaurants, offices, and car parking, with a height restriction of 80 feet. Elegant Georgian terraces were torn down to make way for the new development. By 1963, the final plans were drawn up, which included luxury housing in two parallel rows, harking back to the houses that originally stood on the site, with a shopping precinct between them. The housing units were made up of a variety of sizes to accommodate the widest range of possible tenants, from single professionals to families (similar to the Barbican). Two years later, however, due to various financial setbacks, major compromises to the scheme had to be made, including, crucially, the housing element—which was taken over by Camden Borough Council. The units were simplified and standardised to mostly two-bedroom flats (the council thought the area unsuitable for families), with a few one-bedroom and three-bedroom units—although I’ve never seen the latter. Various other budget constraints and compromises eventually led Hodgkinson to resign from the project.
By the mid-1990s the place felt very run down but it was still striking. I remember thinking ‘What the hell is this place?!’. It was as if the whole thing had just landed from space. It felt futuristic and dystopian. I recall seeing the cinema (now a Curzon and one of my favourites) and a large but down-at-heel Safeway’s supermarket (now a Waitrose), but barely anything else there, including people.
In 1998 its fortunes changed when it was sold to the developer Allied London Properties. They invited Hodgkinson back to return to the scheme and improve it. In turn, he invited Levitt Bernstein to work with him on the project1. By 2006 the makeover was complete, the retail element was greatly improved and the stained concrete finally painted a crisp white—as Hodginkson had originally intended. The average price of a two-bedroom flat in the Brunswick in 2005 was £315,000, a year later, after the makeover, they jumped by a whopping £105,000 to £420,000. Today they are closer to £1,000,000.
Those first residents who bought their homes through the Right to Buy scheme couldn’t have predicted the value of the flats today. I wonder what they were thinking. The Right to Buy scheme was first introduced under Margaret Thatcher’s Conservative government, the narrative pushed was unless you owned your home you were a second-class citizen—and with discounts of up to 70% of market value, how could people refuse? This was a chance for working-class people to free themselves from the stigma of being a council tenant, climb the social ladder and improve their, and their children’s, lives forever. The dream to own property and to have something to pass down to the next generation was finally possible. Of course, in reality, this couldn’t be further from the truth. The initial policy, introduced by Michael Heseltine when he was Environment Secretary, stated that 75% of the revenue from council home sales would be given back to local councils to build more social housing2. Everyone’s a winner — in theory. But when Heseltine moved to become the Defense Secretary in 1983, that clause was dropped and the building of new council homes came to a standstill, causing an ever-decreasing depletion of council housing stock. In the first 20 years of the policy, 2.2 million council homes were sold off3—creating the very opposite of opportunities for the next generations that the Conservatives had promised. The grandchildren of those first tenants who bought their homes now have almost no chance of ever being able to rent a council home, and with an increased demand for property, particularly in London, being able to own your own home is now harder than ever. In 1960, the average first-time buyer in the UK was 234, it’s now 335.
So that’s the background as to how this flat was transferred from being a council home to being a leasehold flat. I should mention, however, and to further complicate matters, that the Brunswick is peculiar as Camden Council aren’t the freeholders of the building—they lease the residential element who in turn sublet to their council tenants. This could have something to do with all the short leases. If anyone can shed any light on this, I’m all ears.
So what exactly is a leasehold tenancy? Essentially, a leaseholder is someone who owns a property on a lease: typically for 99, 125, or 999 years. The length of the lease decreases year by year until it eventually runs out. So when you buy a flat, you are buying the lease. When the lease runs out, the property is transferred back to the freeholder. Anyone who is reading this outside of the UK unfamiliar with our system must think it’s crazy. It is. To make things worse, as a leaseholder, you have certain obligations such as service charges. The freeholder is entitled to bill you for day-to-day charges such as caretaking and repairs of communal areas to the building. These tend to be fairly predictable, year on year, but where it starts to get really messy is for any major works. If the freeholder decides the roof needs to be repaired, or the windows need replacing, for example, that’s when bills can become eye-wateringly high (not to mention the recent cladding scandal, which justifies a separate post in its own right). Of course, this doesn’t just apply to ex-council homes, but to all leasehold flats; in most cases, however, its the councils that have not invested in the regular maintenance of their housing stock over the years, meaning that fifty years or so on, the level of work needed to bring it up to standard is substantial. And so is the cost. I’ve experienced this myself in the block I live in. Since buying the flat nine years ago, there have been three lots of major works programmes: window replacement, water tank replacement, and a complete overhaul of the gas pipe system, at circa £4,000–£15,000 each, I’m now broke and need you more than ever to pay for this Substack newsletter if you can (smooth, huh?).
Although the price of ex-council properties may seem cheaper compared to other properties in the first instance, once you take into account the service charges, my guess is they’re probably not in the long run.
Priced at £550,000, this one-bedroom flat is considerably less than it would be if it were sold with a long lease—I’d imagine probably in the region of £700,000–800,000. So what’s involved in extending a lease? Currently, by right, you can extend the lease by an additional 90 years, with the ground rent becoming a peppercorn (practically nil). You pay a premium to the freeholder to extend the lease, made up of an amount to cover the ground rent that will no longer be paid (the ‘term’) and to take account of the longer period before the freeholder can expect to regain the property (the ‘reversion’). If your lease term is below 80 years, then an additional premium called ‘marriage value’ is added to the cost of extending the lease. I found this online calculator that gives an indication of what the estimated costs could be.
Taking the Brunswick flat as an example:
Example 1
Estimated value if it had a long lease: £800,000
Length of lease remaining: 50 years (the calculator wouldn’t let me calculate under 50 years)
Lease extension is likely to be between £145,000 and £152,000 plus costs.
Example 2
Estimated value if it had a long lease: £800,000
Length of lease remaining: 79 years
Lease extension is likely to be between £49,000 and £51,000 plus costs.
Example 3
Estimated value if it had a long lease: £800,000
Length of lease remaining: 81 years
Lease extension is likely to be between £11,000 and £16,000 plus costs.
(Costs are based on the presumption that the ground rent is £10 a year, which is what I pay for my Camden property)
As you can see, the difference once it falls below 80 years is HUGE. I won’t try to explain the ‘marriage value’ as it makes my brain hurt, so here’s a quote from the Lease Advisory Service website:
‘Marriage value is the increase in the value of the property following the completion of the lease extension, reflecting the additional market value of the longer lease. In that this potential ‘profit’ only arises from the landlord’s obligation to grant the new lease, the legislation requires that it be shared equally between the parties.’6
If you’re still here, well done. Thank you.
In short, any property with a lease under 80 years is f***ked. You’re unlikely to be able to get a mortgage for it, and if you’re the one selling, you’ll have to knock a chunk of money off the asking price. It’s a ridiculous system and one that the current government has been talking about reforming for years. In the King’s Speech on 7 November 2023, however, the government promised to introduce a Leasehold and Freehold Reform Bill:
‘A Bill To Amend the rights of tenants under long residential leases to acquire the freeholds of their houses, to extend the leases of their houses or flats, and to collectively enfranchise or manage the buildings containing their flats, to give such tenants the right to reduce the rent payable under their leases to a peppercorn, to regulate charges and costs payable by residential tenants, to regulate residential estate management and to regulate rent charges.’7
The Bill is now due to have its report stage and third reading in Parliament next Tuesday 27 February. Exactly how long it will take to become legislation is anyone’s guess. Labour go further and promise to end to leasehold altogether if they get into power8.
So back to this one-bedroom flat for sale, which could cost an additional £152,000, plus fees, to extend the lease. Is it worth it? If you are a gambler and happened to have £550,000 cash knocking about and optimism to believe the Leasehold Reform Bill will happen, it could be a chance to own a central London home at a fraction of the average price of a one-bedroom flat in the area. Then again, wouldn’t it just be better if you could rent it at an affordable price with an assured tenancy from the council—and without the worry of exorbitant service charge bills—and for the next generation to be able to do the same?
View the listing here.
https://www.levittbernstein.co.uk/now/tribute-to-patrick-hodgkinson/
https://www.bbc.co.uk/programmes/m00099yx#:~:text=The%20social%20housing%20in%20Enfield,for%20better%2C%20or%20for%20worse%3F
https://www.bbc.co.uk/programmes/m00099yx#:~:text=The%20social%20housing%20in%20Enfield,for%20better%2C%20or%20for%20worse%3F
https://www.independent.co.uk/property/first-time-buyer-age-increase-1960s-housing-market-cost-property-ladder-a8244501.html
https://www.money.co.uk/mortgages/first-time-buyer-mortgages/statistics
https://www.lease-advice.org/advice-guide/government-announces-reforms-to-make-it-easier-and-cheaper-for-leaseholders-to-buy%E2%80%AFtheir-homes-and-to-prepare-homeowners-and-the-market-for-the-widespread-take-up-of-commonhold/#:~:text=leaseholders%20in%20England.-,When%20will%20the%20abolition%20of%20marriage%20value%20come%20into%20force,(i.e.%20by%20May%202024).
https://bills.parliament.uk/bills/3523
https://labourlist.org/2024/01/what-leasehold-reform-freehold-bill-mean-property/