The Leasehold System

Joseph Hyder The Case for Land Nationalisation

Chapter VII: The Leasehold System

Lord, I knew thee that thou art an hard man, reaping where thou hast not sown, and gathering where thou hast not strawed: . . . Thou knewest that I reap where I sowed not, and gather where I have not strawed.
 Matthew xxv. 24-26.

And they shall build houses, and inhabit them; and they shall plant vineyards, and eat the fruit of them.
They shall not build, and another inhabit; they shall not plant, and another eat.
Isaiah lxv. 21, 22.

I have just received a letter relating to some property which I had been in treaty for as an investment, to the effect that the occupying tenant having since my previous negotiations (which had fallen through) expended some £20 on the place, his landlord (the vendor) has raised his minimum selling price by that amount, plus £5 for the improved security for the punctual extraction of rent.
 Letter from a correspondent.

THE terminable leasehold system is of comparatively modern origin. It arose out of a desire on the part of the great landlords to keep the land in the family. When buildings on a large scale were wanted they were unable to find the money for them themselves, and they were unwilling to sell the land out and out. They therefore agreed to let the land at a fixed rent for a given number of years. The tenants agreed to put up the buildings at their own cost, and, at the end of the leases, the land and everything upon it came back to the ground landlord. 

Where land was subdivided to any extent it was sold outright, and freeholders were multiplied. But where there was a closer monopoly in the hands of a few owners the leasehold system was adopted, and it provides some very remarkable evidence of the way in which landlords have reaped a great harvest without either exertion or expenditure on their part. 

At the same time it is probable that the evils of that system are not necessarily inherent in it. Everything depends on the terms of the lease; such as the amount of the rent charged, the length of the lease, the character of the covenants, and, not least, whether the buildings revert to a private landlord or to the community. For instance, it was manifestly unfair that buildings, paid for by tenants, should revert to their landlords at the end of so short a period as thirty-one years. Yet this was the regular rule on the Duke of Norfolk’s estates after the great Fire of London, and doubtless on many others as well. The Duke’s surveyor, giving evidence before the Town Holdings Committee, in 1886, said that the houses in Arundel Street, Norfolk Street, and Surrey Street, were built on thirty-one-year leases on the site of the Duke’s former town house after the Great Fire, and they were then still standing. For nearly two hundred years they had been in the ground landlord’s possession, and the full rack-rent came to him. And when the Thames Embankment was made he was able to get £225 for houses, which were only rented at £90 before. 

The steward to the Duke of Bedford said that the first Bedford lease was in 1620, for thirty-one years. It was let to the King’s Carpenter for £7 19s. a year. Only the best, well-seasoned oak was to be used. 

Previous to that the leases were even shorter, as is shown by an enabling statute, 32 Henry VIII., which allowed a tenant for life to lease for so many as twenty-one years; and this restriction applied to settled estates till 1846, when the first general Leasing Act was passed. Thus the Arundel Estate at Sheffield was settled on the title in 1628, and from then till 1846 no Earl of Arundel could let Sheffield town property for more than twenty-one years. It is scarcely possible to exaggerate the serious effects, which such a restriction must have produced in the hampering of industry. 

The Church, which was, next to the King, the largest landlord in the country, was also under stringent limitations, at first being unable to grant leases at all. It seems almost incredible that, until the year 1853, no Church lands could be leased for more than forty years; and for many years the Church could not grant a lease allowing an old building to be pulled down, but only for it to be repaired. 

As the greater part of London was in the hands of the Church, and of life-tenants of settled estates, it is easy to understand how the slums and jerry buildings, which have made London notorious, were created under a system of such absurdly short leases. 

The opinion is commonly held that no London leases are now granted for less than ninety-nine years, but a great authority, Mr. Charles Harrison, told the Town Holdings Committee in 1886 that leases, in his most recent experience, rarely ran beyond sixty years. In 1884 the Ecclesiastical Commissioners let about 30 acres of land at Harrow for that period. He said that he had renewed some leases only the other day on the Berkeley Estate for sixty-three years, and was informed that he had no power to grant a longer term. 

Naturally no builder can afford to build substantially unless the lease is long enough to enable him to recoup himself for his original outlay, and seventy-five years is perhaps the minimum period which justice requires in such cases, and on that term the Birmingham Corporation has developed the estate which it acquired nearly forty years ago in the centre of the city. 

The leasehold system has been widely condemned, and, as it has been relentlessly worked in the interests of many private owners, it fully deserves condemnation. It should, however, be observed that it has generally been condemned on grounds that do not appear to be valid to the present writer. Is there really anything inherently and necessarily unjust in the system itself? Is it necessarily wrong for the building to revert to the owner of the ground on which it stands, and especially if it reverts to the community as a whole, rather than to an individual? For the ground landlord foregoes any part of the unearned increment for the whole term of the lease. The original ground rent is absolutely fixed. The presumption is that, if the buildings were not to be his property ultimately, he would demand a considerably higher ground rent from the beginning. And where there is no right to the reversion, as under the Scottish feuing system, or the northern plan of chief-rents, it is questionable if either the landowners, the actual builders, or the subsequent tenants, are any better or worse off under those systems than under that of terminable leases; always, of course, provided that the terms are long enough to enable the recovery of the first cost of the building. The difference, upon examination, seems to be more apparent than real. 

Accounts have been kept in a number of cases, and it has been shown that the original cost of the building has been fully repaid with interest by the rents received, and, as a lease nears its end, each buyer pays less and less for a house because he only buys the limited ownership of it for a short period. It is, of course, only natural that a man should dislike handing a house over to a man who never paid for a brick of it. But neither did he himself build it, nor pay but a small part of its cost. He can hardly therefore say that he is robbed. Presumably he paid only the fair market price for the short lease, which he holds. He knew that he would have to surrender the house at a certain time, and he calculated that the rent he would receive during that time would return him the whole of the money he paid. Certainly the landlord gains, but it by no means follows that the leaseholder loses anything to which he is either legally or morally entitled. It may be properly urged that the terminable leasehold system is a bad one on the ground of the insecurity it creates towards the end of a lease, because of harsh restrictive covenants, or because it destroys all incentives to improve a property that is to pass away from the improver of it. But the average advocate of leasehold enfranchisement goes further than that. He lays particular emphasis on the landlord getting possession of a property, which he neither created nor paid for. 

The leaseholder does not in the slightest degree impugn the right of the ground landlord to the annual ground rent paid in cash; he simply impugns his right to that part of the ground rent which is deferred till the end of the lease, and which is payable not in cash but in bricks and mortar. The truth of the matter is that the landlord is as much entitled, or as little, to the one as to the other. They are parts of the same bargain. They are parts of the same price. It is illogical, therefore, to admit the landlord’s right in the one case, and to deny it in the other, as the leasehold enfranchiser does. To be consistent we must either justify both, as the landlord does, or deny both, as the land-nationaliser does. 

For the rent that is deferred, and is paid in kind, in no essential respect differs from the rent that is exacted each year, and is paid in cash. They are both alike tribute exacted by landlords for permission to use the earth. The following cases, therefore, are to be taken as illustrating their power to appropriate the value of land, which belongs to the whole community, rather than as evidence of special wrongs inflicted upon particular leaseholders. And this was evidently the view taken by the thirty-nine Liberal Members of Parliament who supported Lord Haldane’s Amendment to the Leasehold Enfranchisement Bill in 1891, on the ground that it would confer upon the enfranchised leaseholders the values attaching to land which are the creation of society. 

That amendment was supported by no less than six members of the present Government, viz.: Mr. Asquith, Mr. Birrell, Mr. Sydney Buxton, Sir Edward Grey, Lord Haldane, and Mr. Lloyd George, besides men like Mr. Bryce, Mr. T. P. O’Connor, and Mr. Shaw Lefevre (now Lord Eversley). And Mr. Asquith referred to that incident in the following terms, when he received a deputation on May 18, 1911:

“At that time there was a movement in the country and in Parliament in favour of a scheme of leasehold enfranchisement, but I have always regarded that proposal, not as a solution of the land question, but as a great imposture, which, so far from securing to the community the increased value of land, would merely transfer it to a new body of landowners.”

The Gorringe Case
One of the most striking and best-known cases of unearned increment accruing to a landlord at the end of a lease is what is known as the Gorringe case. Mr. Gorringe was a successful draper in Buckingham Palace Road, and he held a number of separate leases on the Duke of Westminster’s estate. The original aggregate ground rent was £395. The true land value was of course much more, long before the leases fell in. It had steadily grown year by year, and, in the meantime, it was the property, not of the ground landlord, but of the leaseholders for the time being, although it was the creation of the community as a whole. The ground landlord’s chance did not come until a new lease was required. Naturally he saw his chance and took it. All the old leases were surrendered, and a new one was granted for the combined area. The ground rent of £395 was increased to £4,000; a £50,000 building had to be erected, which was to become the landlord’s property in sixty-three years; a £50,000 fine or premium had to be paid; all the local rates were to be paid by the lessee; the buildings had to be insured at the lessee’s expense, and kept in first-class condition all the time; and, of course, a handsome price had to be paid for the lawyer-made agreement which specified these terms. There is little doubt that the anxiety of the Gorringe Company to secure that particular site where the business had been established for many years was an important factor in determining the conditions, for it is well known that in such cases the value of the tenant’s goodwill of his business is practically confiscated. He is not a free agent, and is not in a position to make a free contract.

But let it be assumed that this was an ordinary bargain, that the premium and the new ground rent, and so on, no more than represent the then value of the land, and that the leaseholder had recouped himself for all his previous expenditure, as in all probability he had. Then the question is simply this: What moral right has the Duke of Westminster to any part of the value of that site, let alone to the whole of it? Neither he nor his predecessors had made the land nor improved it, and whatever value it had was properly due to the rightful owner of the soil, that is, to the people as a whole. While, therefore, he is not to be blamed for reaping where he did not sow, for gathering where he did not straw, or for entering in where he did not build, it is surely a radically bad and indefensible system which permits either him or any other man to act in that way. 

The setting up of the leaseholder as a freeholder in his place is obviously no solution of the problem. The new Reversion Duty of 10 per cent. on such windfalls is but a partial remedy. Nothing less than the full public ownership of land will avail to secure for the Public Exchequer the full unearned increment in all such cases.

It has been said, and quite truly said, that much the same system prevails on public land; that the Crown deals with its London leasehold tenants in the same way, and that the City of London Corporation, and the Corporations of such places as Birmingham and Nottingham, exact the full value of their land when the leases fall in. Of course they do. To act otherwise would be to hand over public values to private interests. But there is all the difference in the world when land is under public ownership, for then the rent is paid to the rightful owner, and every farthing is returned to the public in public services, which would otherwise have to be paid for out of rates or taxes. But, in all such cases as the one here described, the rent is paid to a private person privileged by the law to take it; and it is spent, not upon public services, but for the satisfaction of private desires. 

The Duke of Westminster had inherited a tract of some 400 acres in Pimlico, which was once a marshy farm. It was Crown property in Queen Elizabeth’s time, and its total rent was only £21 per annum. It has all been developed by leaseholders, and they have had to pay all the expenses of local government. In the fullness of time the entire area, from Hyde Park Corner to the Thames, will fall into his possession, besides street after street and such valuable squares as Grosvenor Square, to the East of Hyde Park, which will similarly revert to him as ground landlord. 

He is not to be singled out for envy or hatred on this account. He is but the creature of his circumstances. But how much better it would have been for the common weal if that land had never been alienated by the Crown, but kept as a public trust, and its revenues applied to the common good instead of to the luxuries of one man! 

The past cannot be recalled, but the mistakes of the past afford lessons for the present and the future, which the nation will take to heart as soon as it learns wisdom. 

The Bedford Estate
The Duke of Bedford once said that he spent so much on his agricultural estates (spoils of the Church, be it remembered) that were he not the fortunate possessor of “a few lodging-houses in Bloomsbury” he would have been hard hit by the agricultural depression. Thus did he refer to his vast London estate, which was developed by his tenants in the usual way. And, however generous he may be to his farmers, he has always dealt with his London tenants on strict business principles. Covent Garden Market has already been mentioned as producing £15,000 clear annual gain. Drury Lane Theatre was built at enormous expense by his lessees. He receives £10,000 a year in ground rent, and it is a very good year when the Drury Lane Company is able to show so much as that as the reward for all their effort and enterprise. Then, again, look at the magnificent Hotel Russell in Russell Square, with its “hall of marble in red, green, and yellow tints, its noble fireplace surmounted by the sculptured arms of the Duke of Bedford, its banqueting hall which is a veritable triumph of artistic decoration in the French Renaissance style,” and its 700 rooms in all! And remember that this great property was all paid for by the lessees and will revert as ground rent to the Duke. Think, also, of the vast changes which have come over London since the 28 acres of land at the rear of his ancestor’s house (where Southampton Street now is) was let, in 1559, on lease for twenty-one years at a rental of £1 16s. an acre !

The Portman Estate
In 1512 this entire estate was worth £8 only per annum. It consisted of green fields, far from London as it was then. In March 1888 a large number of leases fell in, and Lord Portman netted a million and a quarter pounds in fines and increased ground rents. One hundred and twenty thousand pounds were taken from one street. Here is one typical case. A tradeswoman took a shop with eight years of the lease still to run. She spent £300 in adapting it to her particular business, and applied in good time for permission to renew the lease. On this estate a two-guinea fee is charged before the terms of renewal can be known. She was informed that she could continue to occupy the premises if she paid £80 ground rent, instead of £10. She must spend some hundreds of pounds in further alterations and decorations, and must pay a fine of £l.000, or 5 per cent. interest on it until it should be paid, as it must be within eight years. For the drawing up of this agreement she was compelled to pay £15 to the lord’s own lawyer.

The Cadogan Estate In Chelsea
Concerning the valuable estate of Lord Cadogan, Mr. R. M. Cocks writes as follows to the Property Market Review: “Speaking from an experience as a surveyor and valuer of upwards of forty years, for twenty-eight years of which I have been in business for myself, I can say of my own knowledge that there is no comparison between the ground rents of forty years ago and those that, for the most part, are created to-day. Then it was considered that the ground rent should be about one-sixth of the rack-rent; now the ground rent is not more than two or three times covered at the most. As an example, let us examine what has happened in this, my own neighbourhood. In the case of small houses in Hans Place, Chelsea, which I can recollect as formerly letting at rack-rents of from £60 to £80 per annum, ground rents of £150 a year and rack-rents of about £300 are now the figures. Sloane Street ground rents range from £200 a year to £250, and bear a similar relation to rack-rents as in the case of Hans Place. A baker’s shop, situate opposite my office here in King’s Road, of which the ground rent of two years since was £7 per annum, has now been rebuilt on building lease under which it has been transformed into the sum of £120 per annum.”

The Salisbury Estate
Apart from the heavy payments incidental to the system, the onerousness of many of the covenants is a serious matter in itself. Messrs. Coutts & Co. a few years ago moved their Bank to new premises on the other side of the Strand. They were lessees of the Marquis of Salisbury, and their lease was not to expire till March 25, 1915. The London County Council sought to acquire the last ten years of the lease for temporary offices. They were asked to submit to altogether new conditions, to carry out structural alterations of an extensive and expensive kind which the old lease did not provide for, to pay down at once (instead of ten years hence) the estimated cost of re-instating the premises, and to get the endorsement of Messrs. Coutts upon the agreement, as if the County Council were not substantial enough or honest enough to be trusted; and, for the licence to assign the lease, which usually costs a few guineas, Messrs. Coutts were asked to pay no less than 100 guineas.

It is sometimes said that the landlord’s lawyer is to blame rather than the landlord himself, and it is very likely true that it is the lord’s “business man” who initiates such terms. But the landlord reaps the benefit and he cannot disavow the responsibility. 

The late Colonel Hughes of Woolwich, a solicitor, gave the Town Holdings Committee some interesting facts about Woolwich. When the Arsenal was established there the land was leased for workmen’s and other houses. The chief landlord lived in Ireland. For the last fifty years of his life he refused any extension of leases, and any sale of the freehold, as he wanted to leave it all just as it was till his nephew came into the property. This attitude and policy of course effectually prevented all improvements. And in Plumstead, where six-sevenths of the land is let on leasehold, property worth a million pounds would revert to the freeholder.

The Craven Estate
The Craven Estate in Paddington was let on building leases in 1854. One condition was that the Earl of Craven may take possession and use any property for a pest-house, surgeon’s house, or burial ground in the event of a plague occurring. This is explained by the fact that an ancestor of the present Earl so decided after the Great Plague.

Torquay is an example of the evils of settled estates and life leases. Three-quarters of the ground rents (said Mr. Arthur Burr, the agent in 1887) belonged to Lord Haldon. There were ten encumbrancers. Before the estate could be sold, under Lord Cairns’s Settled Land Act, the consent of them all would have been necessary. There are 2,500 holdings. That, he said, would have meant 25,000 solicitor’s bills, and 25,000 surveyor’s bills, costing £150,000. So a private Bill was got, costing £7,000 or £8,000. Then the leaseholders were permitted to buy the freehold. A twelve-guineas ground rent, fifty-three years unexpired, fetched £1,700; a £1 ground rent, thirty-eight years unexpired, fetched £300; and a £60 ground rent, seventy-six years unexpired, realised £3,500. And when the committee asked Mr. Burr if there was any particular reason for such high prices being obtained, he gave the significant answer, “No, except that we thought the lessees particularly wanted to buy, and so we charged them accordingly.”

Some of the property was let on life leases, for three lives. On the death of one a renewal was granted on payment of two years’ rack-rent. And Mr. Burr said, “We have been very lucky in people dying off.” Comment would only spoil such eloquent testimony to the effects of private property in land. 

A Typical Case At Birmingham
In 1870 there were several small shops at the upper end of New Street, near the Town Hall, which had cost probably £150 to build. One of these was taken on a lease for ten years at a rental of £50, being a considerable increase upon what had been previously received. At the end of the lease another was granted for seven years at a rental of £100, at the end of which time, in consideration of having spent about £250 on improving the small place, the lessee was granted another lease for eleven years instead of seven, but with another increase of £50, making the rental £150. Again, when this lease terminated, it was renewed for another seven years at £175, and the clauses in the lease were so onerous that the lessee’s lawyer informed him that at the end of his term he might be called upon to rebuild the premises, the result being he was only too glad to get rid of his lease without any compensation.

A century ago Lord Street (the finest street in Southport) was a large rabbit warren and a heap of sand-hills. Some enterprising leaseholder took a piece of the sand hill and paid £25 a year ground rent for it, and built a public-house, with stables and outbuildings. When the lease expired the ground landlord raised the rent from £25 to £575 a year, and insisted upon very valuable property being set up to secure his rent. Today that land contains ten shops and a large hotel that cost £35,000.

Sir John Brunner told the House of Commons (February 10, 1899) something of the land history of Southport. He said: 

“I will take the case of a member of a very old Lancashire family, who bought in the year 1845 an enormous extent of sand-hills in the west of Lancashire, near the seashore. I remember being told many years ago, by the solicitor who advised that Lancashire squire, that he bought that property, a good many square miles in extent, for £45,000. The property had been, at the time I was told this, in the possession of the family for less than thirty years. The income from that £45,000 was then £40,000 a year. It is now four times that, at the very least. And not one penny of rates have the owners of that land ever paid. That land had been vacant until it was occupied with houses. When it was vacant it paid no rates. Since it has been occupied by houses, it is the tenants who have paid the rates.” 

The Case Of Widnes
Sir John Brunner then gave the case of Widnes, where he lived for ten years:

“Widnes was occupied by chemical manufacturers on account of the fact that it had good railway accommodation, good water communication, and that it was near a coal-field, and coal was cheap. Now, sir, the centre of the township – we speak not of parishes in the north of England, but townships – belonged to a family whose fortune is founded upon the purchase of land in Lancashire – land which had increased enormously in value, land which at the time of the death of the grandfather of the present head of that family was of such little value that his two sons doubted whether it was worth while to prove the will and claim the property. 

Now, sir, that property is worth very decidedly over £3,000,000, and the owners of it have never from beginning to end paid a penny in rates. Now, this centre of the township of Widnes, as I said, belonged to this family, the only wealthy landowners in the whole township. What was the result? The chemical manufacturers wanted cottages for workmen. They were prosperous men in those days, they were men who wanted to put money into their business, which returned 10, or 20, or 30 per cent., and not to put it into cottages, which returned only 5 or 6 per cent. But they were obliged to build these cottages. They could not carry out their work without cottages. They built cottages – the poorest of cottages, the most wretched of cottages, and in these cottages, beginning with the year 1849 up to the year 1869, the workmen of these manufacturers lived. These cottages, every one of them built by the employer, every one of them rotted to such an extent that they were all condemned as unfit for human habitation and pulled down. 

“That is the result of the occupation of land in the centre of the township by one wealthy landowner, who paid no rates and no taxes at all for it. I have watched that land growing from a value of £40 or £50 an acre out-and-out, until it has come to such a value that the representatives of the family thought it worth while to begin to sell, and they did not begin to sell until it had risen from £40 to £20,000 an acre, and not one copper of rates has been paid. Now, sir, when we find not only a money injustice, but when we find a people living short lives, living unhealthy, immoral lives, in order that the landowner of the centre of the town shall become richer – then, sir, I say we have a case for our serious consideration.” 

The Case of Bootle
“I might go on, sir, to speak of Bootle, which is practically the north end of Liverpool. When I lived as a child in my father’s house at Everton, I remember very well looking over the fields towards the sea, and being unable in any direction to get two houses in a line between us and the sea. And now everybody knows – a great many people at all events, know – what Bootle is. It is a very large and a very prosperous town, and it is all let upon short leases – building leases – and at the end of these leases, in the same fashion of which my honourable friend the Member for Devonport has spoken, the whole of that town will belong to the owner of the ground; and, in the meantime, the occupiers of that town have first built their houses, then made their roads, then their sewers, then bought their waterworks, and paid all rates, including those paid for the return of the capital borrowed from the Local Loan Commissioners – it has been paid oft” out of their hard-earned incomes – and then the whole, under the operation of this law, which I suppose will be maintained to-night by Her Majesty’s Government, the whole lot will belong to one family.”

Sir Francis Channing (afterwards Lord Channing), in the same debate, gave to the House some figures about another leasehold town, Huddersfield.

“Huddersfield is a town owned practically by one landlord, Sir John Ramsden, who is reputed to receive not less than £100,000 annually from a property that was originally acquired by his ancestors, I believe, for the sum of £1,000 sterling; and the estate is being continually improved by public works at the expense of the occupying ratepayers. At Huddersfield, in the case of Greenhead Park, 28 acres were purchased for £30,000, of which the estate returned £5,000. Thus the landlord pockets £25,000, while the Corporation spent many thousands in laying it out, and, if they saw the houses since built, they would see how it had improved the value of the sites.” 

A Shooting Lease
As an example of another kind, showing the conditions which are sometimes inserted in leases, a case may be mentioned which was told to the House of Commons by the one affected by it. He said he had recently taken a lease of some shooting in Ayrshire, and he had had to give an undertaking that he would not take part in, or even be present at, any political meeting that might be held in the neighbourhood. It need hardly be said that he was not a supporter of the landlords’ party, or such a limitation of his political liberty would not have been insisted upon.

Leasehold Chapels
The Church of England has no difficulty in acquiring sites for its churches, and, to make quite sure that there should be none, it secured an Act of Parliament in 1818 to enable it to buy sites by compulsion where necessary. That power has not been needed except in two cases. But it is very different in the case of Nonconformist Chapels. The Welsh Calvinistic Methodists’ Report showed that in 1883 they had no less than 3 }7 chapels, built on the leasehold system because the landlords refused to give them the security of the freehold. That property, worth £355,946, is at the mercy of the ground landlords, and Sir S. T. Evans told the House of Commons that the leasehold chapels in Wales alone are valued at over £1,000,000. At the expiration of the leases the congregations have to pay rent for the places they built and paid for, and, in some cases, their chapels have been compulsorily converted into warehouses and shops when the leases have expired.

On Lord Penrhyn’s estate there are twenty-seven chapels, which were built on thirty-year leases, which is eloquent proof that freedom of contract was conspicuous by its absence. 

The Wesleyans built a chapel in 1843 in the City of London, on the land of one of the City Companies. The ground rent was £48. When the lease expired in 1893 the ground rent was raised to £650. It was impossible for them to pay that amount, and they had to surrender the chapel, which had cost them £6,000. Cases like these could be multiplied, but it is unnecessary. Enough has been said to show that the land has been very generally used by the landlords as an instrument of extortion, and to prove the need for a complete change which will for ever deprive them of such power in the future. And if, under public ownership of land, it should be decided to continue the leasehold system, the utmost care must be taken to ensure that the terms shall be such that none of the value, which an occupier gives to land by his own labour and expenditure shall be confiscated as it has been in the past.