Charities stand to lose millions of pounds if moves to reform the UK’s leasehold system are given the go ahead.
Michael Gove’s flagship Leasehold and Freehold Reform Bill is currently being pushed through Parliament in the hope of becoming law before the election this year.
But critics warn charities that rely on freehold income may become one of the Bill’s unintended victims.
If you are a current leaseholder of a flat in England and have been for more than two years, you have a right to extend the lease and have to pay the freeholder to do this.
However, if the lease left on the property is less than 80 years, then an additional premium called “marriage value” is added to the cost of extending the lease.
This is half of the increase in value of the property worth a current £7.1bn to freeholders.
Mr Gove wants it abolished despite the high tax take due to the Exchequer and the wider impact on local economies.
However, campaigners say freeholders – many of them individuals who rely on income from ground rents and marriage values – should not be penalised.
The Church Commissioners manage a £10bn endowment fund, much of which is in land – particularly real estate in London. This is used, alongside donations, to fund the Church of England’s ministry.
Church Commissioners hold the freeholds to these buildings, including the Hyde Park Estate, which has been in continuous Church ownership and care since around the 11th century, when it belonged to the monks of Westminster Abbey.
Speaking in the second reading of the Bill in the House of Lords, the Bishop of Manchester David Walker said: “My concerns are with charities which own freehold as part of their permanent endowment.
“We have already heard that some 80pc of marriage value in the UK relates to properties in and around central London.
“Many leaseholders in such blocks are corporate and often overseas entities.
“They are not the people this Bill aims to protect or benefit, nor should it. The Church Commissioners’ Hyde Park properties have an average sale value of £1m.
“Those who own them are not, by and large, London’s poor.
“The Bill, as drafted, will take money presently used for charity purposes and give it to the wealthy—robbing the poor to pay the rich: a reverse Robin Hood.”
The proposed abolition of marriage value would result in a one-off cut in income from the Church Commissioners Hyde Park Estate of £35m.
This would reduce the annual amount given in support of the Church of England’s charitable work by £1m a year.
The Bishop pointed to the John Lyon’s Charity which is the largest independent funder of children and young people’s services in Greater London.
In 2022-23, it reached the milestone of having awarded over £200m in grants since 1991. That is over 4,500 grants to over 1,700 organisations.
The loss of marriage value could cost it around £3m per year, money which would go to owners of apartments valued in the millions.
“John Lyon’s is not the kind of rogue landlord that leaseholders need protecting from,” the Bishop added.
“It’s a widely accepted principle of charity law, accepted even when right-to-buy legislation was extended from council housing to many housing association tenants, that charity assets should not be transferred to individuals or bodies that would not qualify as their beneficiaries.
“This Bill seems to fly in the face of that principle. Is it possible to exempt charities?
“The National Trust already has such an exemption and one not restricted to those parts of its estate that are inalienable under Act of Parliament.
“Should that prove impossible, will they put forward a full compensation scheme for when a charity loses marriage value?”
Medical research charity The Wellcome Trust, which owns a freehold estate of 1,800 properties in South Kensington, London and John Lyon’s Charity, the largest independent funder of children and young people’s services in Greater London, are among those set to be hit.
Eleanor Bateman, of the National Residential Landlords Association, said: “This is just one of the many ‘known unknowns’ surrounding the legislation and, in the case of the marriage value clause, underlines why the Government must as a matter of urgency follow through on its vow to examine the lease premium calculation in detail.”
Critics want to see a “grandfathering” amendment added to the Bill for existing leases under 80 years.
This would offer freehold investors a transition period, achieve the Government’s goal of abolishing marriage value and protect British property businesses.
A Whitehall source said: “This would be an elegant compromise. A straightforward amendment would tweak the legislation by ‘grandfathering’ the current situation for those leases which have fewer than 80 years to run.
“Effectively any lease with more than 80 years remaining at the time of the act passing will not have marriage value included within the calculation of premium for a lease extension or enfranchisement now or in the future.
“The Government will still have achieved the objective of abolishing marriage value.”
The Church Commissioners hold the freeholds of hundreds of buildings, not least of the Hyde Park Estate, which has been in continuous Church ownership and care since around the 11th century, when it belonged to the monks of Westminster Abbey.
A spokesman for the Church Commissioners said: “The proposal to abolish ‘marriage value’ amounts to a transfer of wealth from charities like us to wealthy individuals who own property in prime parts of London.
“For us, that means there is less money to spend on looking after those in greatest need.
“What we are seeking is an exemption for charities to the proposed abolition of marriage value, in view of the public benefit that charities provide, which would otherwise have to be scaled back.”
This is the latest salvo directed at Mr Gove’s centrepiece leasehold legislation which aims to reform what he’s described as “an outdated feudal system”.
A key part of his plan was to reduce all ground rents to a zero (“peppercorn”) rate, which he hoped would give landlords the incentive to sell the freehold to leaseholders, leading to a phasing-out of the system.
But the proposal was quietly axed after Gove and officials at the Department for Levelling Up, Housing and Communities met resistance from the Treasury which has been subject to a lobbying campaign by pension funds, some of which have invested billions in buying up freeholds for blocks of flats.
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