Plans for Leasehold reform, first announced in the King’s Speech and the subsequent Leasehold and Freehold Reform Bill, could cost the taxpayer millions of pounds in compensation.
Trade body the Residential Freehold Association (RFA) has said that the compensation to investors for plans to retrospectively introduce a cap on grounds rents could cost as much as £31bn. The RFA has said pension holders, charities and other institutions that receive ground rent income from their investments in freeholds would seek compensation from the Government.
The body has also warned that the move would create “zombie buildings” as freeholders are driven from the market creating
“greater safety risk for residents, given there will be no steward with institutional experience to oversee the remediation of complex building safety issues in many cases, and in the case of an emergencies residents will not have the support of a freeholder during evacuation of unsafe buildings.where there is no freeholder present.”
The RFA also point to the use by pension schemes and insurance institutions to match or fund Defined Benefit pension liabilities and has warned that any disruption would have an impact on the may millions reliant on such pension schemes.
Research published by Government suggests that leaseholders are wary of taking ownership of their freehold, concerned that such a move will do nothing to reduce service charges for the maintenance and management of buildings. Indeed the RFA’s own survey identified just 18% of current leaseholders would be comfortable assuming the legal obligations for managing their building. And that’s if a deal on building management and maintenance issues in complex blocks between residents could be reached, a secanrio 1 in 5 consider unlikely.
Mick Platt, Director of the Residential Freehold Association, said:
“It’s astonishing to see a British Government consulting on the retrospective interference with the legitimate rights of property owners in this way and it sets an alarming precedent for UK plc. Mr Gove’s department has gone way beyond any reasonable attempt to reform the leasehold system and has consistently ignored calls for regulation. Instead, they have proposed a raid on investors that would hit the public finances and leave leaseholders in the lurch.
“Spending over £31bn to reduce consumer choice and leave millions of residents with management responsibilities they do not want would be a thundering own goal. The Government has ignored extensive research, including its own, which shows there is simply no desire from a majority of residents, or the public at large, for the policy proposals they are pursuing.
“The Government must respect the rights of property owners and ensure any leasehold reform is proportionate and delivers tangible benefits to leaseholders – from managing service charge levels to no new leasehold houses – instead of running a horse and cart through a huge area of investment in the UK economy.”
