The National Leasehold Campaign(NLC) have commented on potential leasehold reforms, stating that the government have ‘gone soft’ following proposed reforms around leasehold being ‘quietly axed’.
The National Press has suggested that the Treasury will ‘not hold back’ on leasehold reform, but the NLC say that, ‘if the rumours are true, the Treasury and the Prime Minister have been hoodwinked by sector lobbyists’.
The NLC have said in a statement today:
“The National Leasehold Campaign (NLC) are extremely disappointed to hear that the Government is allegedly going soft on leasehold reform. We know that thousands of leaseholders have responded to the Government’s Ground Rent consultation, explaining in their droves why existing ground rents need to be reduced to a peppercorn to avoid the inherent unfairness of a two-tier system now that ground rents are limited to a peppercorn on new build properties.”
“It is extremely frustrating that, if the rumours are true, the Treasury and the Prime Minister have been hoodwinked by sector lobbyists who have no regard for the leasehold misery faced by millions of leaseholders across the country. It also seems they are running scared from legal challenges funded by freehold investors with skin in the ground rent game and deep pockets. We believe that retrospective action on ground rents would have no material impact on pension schemes, and those pension schemes that do have ground rent investments should be reassessing them – no reputable company with a responsible and ethical investment strategy would invest in ground rents if they saw first-hand the misery they cause and the deplorable sales tactics that have led so many leaseholders to have onerous ground rents. With a general election looming, abandoning a manifesto commitment that would help thousands of leaseholders is just pure folly.”
Housing Minister Michael Gove introduced the legislation in November 2023 shortly after the King’s Speech, describing it as ‘a landmark moment for millions of leaseholders across the country (delivering) significant new rights and protections, (slashing) unfair costs and crack(ing) down on exploitation.”
The issues are twofold; a proposed cap on ground rents and plans to reduce grounds to a peppercorn rate would, it was hoped, create an incentive for landlords to offload freeholds to the leaseholders. But with pension funds investing billions in buying up freeholds for blocks of flats, ministers are concerned that leasehold reform could wipe out between £15 billion and £40 billion of investment and disincentivise investment in new developments.
In December Trade body the Residential Freehold Association (RFA) warned that plans to retrospectively introduce a cap on grounds rents would result in investors seeking compensation from the Government. At the time it estimated the cost to be as much as £31bn. Housing campaigners say the potential impact has been greatly exaggerated.
The second issue is warnings from government lawyers that making retrospective changes to property rights could leave ministers open to legal challenge.
Leasehold reform has been a significant part of Michael Gove’s agenda as Housing Minister. In February 2023 he called for the abolition of leasehold, describing it as ‘feudal’, but was forced to backtrack May as abolition was ruled out. Reform has however been on the cards in the months since and was a key part of the King’s Speech in November, with the ‘Leasehold and Freehold Reform Bill’ introduced into Parliament just two weeks later. It’s introduction wasn’t without controversy though as the landmark bill, which it was said would introduce a ban on new leasehold tenures, had been hastily drafted and omitted one of the key elements of the legislation.
2 Responses
There was always going to be an issue; who is going to compensate freeholders/pension companies/investors? This should have been thought about first and foremost. There is no point saying I want to do this I want to do that if your main stakeholders say no! I wonder if this is a bargaining chip. There has been a refusal (unsurprising) to peppercorn rent, maybe there will be a compromising on a maximum rent of £250 P/A. The public coffers are facing a circa £10 billion pay out to do with WASPI (quite rightly so), I don’t think the accounts could handle having to compensate freeholders and pension funds too.
If the Treasury wish to avoid that frightening scenario, they will have to deal with those large players
The Law Commission sought advice from leading counsel on Human Rights and a great deal of the Law Commission’s recommendation are in the Bill and accordingly is believed to be compliant with Human Rights.
Mr Gove however has decided to go “off-piste” , and suggest ground rent be capped at nil with no compensation . Clearly, the Insurance companies and large funds would lose billions. They have a duty to their shareholders and policy investor to repair their balance sheet, and it would be clearly worth their while to spend several millions taking the Government to court to get damages. They have made that clear
The treasury are clearly worried about having to find £30bn coming hot on the heels of the Waspi where another £10bn or whatever will need to be found . The idea of capping a rent at a cap of £250 will not appease the insurance companies who invested heavily in indexed linked ground rents – so it is a stand-off. between the Treasury and Mr Gove. If Mr Gove wins then the Labour Party (almost certainly) will need to find the money to pay the damages [ to put into perspective a cut in NI by 2% cost £10bn ] and if the Treasury win then 95% of leaseholders will be stuck paying less than 85 pennies a day , half of those leaseholders who rent out properties will get tax relief on their payments it so their net cost is circa 50 pennies a day
Being constructive, I think the answer is to have the initial ground rent in the lease stand – clearly the leasehold understood that at the time of entering the lease and on every review it rises by whatever was planned in the lease OR if lower the movement in the RPI/CPI or average earnings – this gets rid of the problem of 10 year doublers. Secondly have a sunset clause of 60 years similar to what they did with rent charges.
Such a policy would make England and Wales look a safe place that respects contract law, the nightmare ground rents have lost their teeth and I strongly suspect the insurance funds would accept such a proposal . And Mr Gove who to his credit has pushed hard on reform particularly in the service charge and insurance aspects of leasehold could still take credit for getting rid of the problem that sparked off this wave of unhappiness over ground rent – the 10 year doublers
The campaigners fail to acknowledge in the rhetoric that they did promise to pay this yearly rent as part and parcel of the deal that was offered to them. The ground rent is indeed for no service as the lease makes clear that it is not used in the maintenance of the building. It’s a financial burden that needs to be considered when offering on the property.