London’s ancient rental ideas

A brief exposition of the historical origins of the leasehold system is instructive as it shows why it, and not a freehold system, for instance, was so prevalent during the 19th century, a factor of paramount importance in the evolution of London‘s social and spatial structure. Basically, the leasehold system evolved out of the feudal form of land tenure as it increasingly came into contradiction with capitalist market relations. In many respects, it was a product of the integration which was occurring between the landed aristocracy and merchants and employers. In the Feudal era, all land was ultimately owned by the Crown. Under a law instituted by William the Conqueror in 1066, all other persons having rights over land were his tenants and received their rights from him. He assigned control of the land in large portions between his retainers who comprised the landed aristocracy. In return these nobles had to furnish the king with military aid in times of war or with the equivalent value in money.

They were regarded as ‘freemen’ and the holding of land on these terms was called freehold. With the passage of time, the freeholders’ obligation to the Crown fell away and the term ‘freehold’ in England came to mean absolute right of ownership of land. Each aristocrat’s land holdings could be handed down within his family. The freeholder could ‘by copy of court roll’ convey the land to his retainers, a form of tenure known as copyhold. Undoubtedly, land changed hands in this way as freeholders attempted to offset debts which they had incurred. But land could not be bought and sold at will–it was inalienable.

As [261 Karl Polanyi has correctly argued: “Land, the pivotal element in the feudal order, was the basis of the military, judicial, administrative and political system; its status and function were determined by legal and customary rules. Whether its possession was transferable or not, and if so, to whom and under what restrictions; what the rights of property entailed; to what uses some types of land might be put–all these questions were removed from the organization of buying and selling, and subjected to anentirely different set of institutional regulations.” However, this system progressively came under pressure, particularly in London, as its rate of expansion increased and as the potential for realizing ground rents dawned on the freeholders of peripheral land. The change to a new form of tenure occurred first in urban areas as a result of the basic difference in the formation of rural and urban land rent and due to the growing specialization of land uses which characterized urban areas. In the case of rural land, given a certain fertility of the soil, the landowner can, by investing more capital in the land, increase its yield and thereby its value. In urban areas, however, the landowner has minimal control over the value of his land. Rare is the occasion in which he can, by his own industry, increase the value of his land, which funda[271 mentally depends on its place in the overall development of the city.

All he can do is to ensure that he gets the prevailing rent by developing his land in a manner appropriate to its situation. Further, unlike rural land, on which peasants lived and which they worked for their subsistence and for the needs of their feudal landlords, urban land was increasingly given over to specialized productive, financial or residential functions. Thus it was not amenable to a system of payment in kind or alternately working the land for one’s own and the landlord’s consumption as was rural land. What were landlords to do with half a tailor’s produce of workmen’s suits or half a ship? How could a financier pay in kind for his offices or a clerk for his house? Clearly, the only common denominator which could lubricate all these transactions was money. Attempts had been made to sell land freehold but these were effectively prevented by legislation enacted by Henry VIII in 1558. Some other mechanism had to be found which would enable the landowner to assign the use of his land to others in return for money. The building lease was an ingenious answer to this dilemma.

In the words of Michael Harrison: “The device of the building lease–which smacks more of the cunning of the attorney than the self-protective ingenuity or the aristocrat with his lands in tail–enabled the owner of entailed property to evade not the provisions of the law but its disadvantages.” It allowed landlords to maintain ownership of their land and theoretically to control the use of the land, thereby satisfying the Crown, while others were granted rights to build on the land and to use the buildings for agreed purposes in return for an annual ground rent. Landlords, who were concerned with the distant future as well as the immediate present, had a financial incentive to provide good layouts which meshed well into those of surrounding estates. By means of covenants in the building agreements, they could control the quality of both the design and construction of their estates and maintain some degree of supervision over the period of the lease. On the expiration of the lease, which could vary from 21 to, more popularly, 99 years, the land, together with the improvements, reverted to the ground landlord who was at liberty to begin a new lease on the existing property,or to rebuild the estate.

Thus, landlords were not required to transgress their agreements not to sell the land, yet they received an annual return for it; and what’s more, they became the outright owners of improved and more valuable land once the lease expired. Leaseholders, on the other hand, received the use of space which 4aass essential to their productive or residential requirements. Their initial outlay was much smaller than would have been the case if they had purchased the freehold of the property for a capital sum. No doubt they would have preferred not to pay the ground rent. However, employers were especially reticent to challenge this burden as it meant attacking the institution of private ownership of land which might bring private property in general under fire, and that might have proved especially problematic at a time when they were struggling for political and economic dominance.

The ground rent was a small price to pay for an essential item, and the leasehold system did facilitate the institutionalization of a competitive market in land, which prevented land from becoming communal property and enabled those with financial power to outbid others for prime locations which suited their requirements. Thus, the market in urban land, mediated by the building lease, became an appropriate device for allocating space to competing users, a necessary process which might otherwise have posed thorny political problems. The London building lease owes its origin to the fourth Earl of Southampton who first used it in the development of Bloomsbury Square. After that freeholders increasingly applied to Parliament to pass Private Acts enabling them to grant building leases.

They employed surveyors to plan the layout of the estate, often in conjunction with prospective builders, and to supervise its construction. Their attorneys drew up leases with appropriate covenants designed to regulate land use, costs, density, aesthetic and constructional standards and/or maintenance in an attempt to keep the value of the land high. But landlords had little control over changing market forces. In those cases where the status of potential leaseholders began to decline, freeholders found to their dismay, in the words of Donald Olsen: “that the forces which were undermining the integrity of their original plans were too powerful to be stopped by restrictive covenants… .The difficulty was that during the term of the lease, apart from occasional expenditure on public services, the ground landlord was limited to passive and defensive measures….The building plan might have been a good one for its own time, but have grown outdated because of changing circumstances.” In west London, many of the estates which were developed for building were very large indeed. In the inner districts of east London, the pattern of land ownership was generally more fragmented,as was the case in south London with the exception of larger estates in Lambeth and parts of Camberwell.


May 2, 2018

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