Ground rent reform – a sledgehammer to crack the wrong nut

Ground rent reform – a sledgehammer to crack the wrong nut

10:16 AM, 7th December 2021, About 3 years ago 29

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This week, the House of Lords will scrutinise the Leasehold Reform (Ground Rent) Bill 2021-22. When enacted it will impose onerous penalties and yet it signally fails to tackle what most MPs and the public think is its main purpose.

Subject to some exceptions, it will become a civil offence to charge a ground rent of more than a peppercorn in any new lease of a single dwelling granted at a premium. The penalties are severe. Landlords can be fined a minimum of £500, and a maximum of £30,000. The Bill is meant to address the scandal of escalating rents, where initially small ground rents create serious problems for leaseholders. If rents double every 25 years, increases are roughly in line with the Retail Prices Index and are manageable. However, in recent years greedy landlord-developers of new builds have shortened the doubling period to 20 or even 10 years with dramatic effect.

Two major problems are caused by escalating ground rents. When the rent goes above £1000 pa in Greater London or £250 elsewhere, the tenancy becomes an assured tenancy and can be forfeited for some rent arrears. The courts have no discretion to grant relief from forfeiture. The landlord thereby receives a windfall. The lease becomes un-mortgageable and the property practically unsaleable.

The second problem is that rents doubling every 10 years will reach astronomical levels. A ground rent of £125 pa in a lease granted in 2021 for a term of 150 years, doubling every 25 years, will be £4,000 pa during the last ten years of the lease term. By contrast, if the rent doubles every 10 years the highest rent would be £2,048,000 pa and the total rent payable over the course of the lease will be nearly £41 million.

The Bill could easily amend the law so that such leases did not become assured tenancies – an easy change that nobody can reasonably object to. It could also put a cap on escalating ground rents.

The Department for Levelling Up, Housing & Communities knows that these are live issues but deals with neither of them. Instead, a landlord who grants a new lease with a ground rent of £5 a year fixed throughout the term may be fined up to £30,000 yet the landlord who holds or acquires the freehold of a lease with an escalating ground rent can continue to receive the benefit and can charge the leaseholder a substantial premium to vary the lease or can take the rent into account in an enfranchisement claim.

The Bill is a missed opportunity and a sledgehammer to crack the wrong nut.


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Comments

Graham Wright

6:40 AM, 9th December 2021, About 3 years ago

ABOLISH LEASEHOLD. Retrospective laws must be in place so hard working,honest people can claim back monies stolen from incompetent,corrupt managing agents. Their representatives and associated cronies ombudsman,1st and 2nd tier tribunals are not fit for purpose. A gravy train that clearly supports RESIDENTIAL SLAVERY.

Puzzler

13:48 PM, 9th December 2021, About 3 years ago

Reply to the comment left by BernieWales at 07/12/2021 - 12:42
Unfortunately, because of the onerous ground rents which are factored into the price it is usually prohibitive to buy one's way out of these by purchasing the freehold or extending the lease

BernieW

13:58 PM, 9th December 2021, About 3 years ago

Reply to the comment left by Puzzler at 09/12/2021 - 13:48
Not a prohibitive as staying with it and paying the onerous ground rent each year. Long-term (10-15 years) it's best to enfranchise.

Mick Roberts

14:30 PM, 9th December 2021, About 3 years ago

Government not listening again then Ian.
Glad to see u know your compound interest.

Please keep me updated when the Govt are changing this Leasehold thing which apparently makes it easier for me to renew my 4 Council flats leases which are currently about 88 years each.

NewYorkie

14:37 PM, 9th December 2021, About 3 years ago

Reply to the comment left by BernieWales at 08/12/2021 - 17:36
This is my registered username on this site, and you should be pleased I choose not to display my mugshot! I'm always prepared to engage in debate in my name, but I'm pleased you appear to be supportive of the aims and objectives of the #NationalLeaseholdCampaign.

NewYorkie

14:39 PM, 9th December 2021, About 3 years ago

Reply to the comment left by Mick Roberts at 09/12/2021 - 14:30
You can stay updated on progress, and contribute to the debate by joining the #NationalLeaseholdCampaign

Walter10

23:11 PM, 9th December 2021, About 3 years ago

Reply to the comment left by BernieWales at 07/12/2021 - 12:15
BernieWales - some really useful info. I have 121 years left on my lease, ground rent doubles every 25 years and we are in the process of getting RTM. Do you suggest buying the freehold over RTM?

Walter10

9:09 AM, 10th December 2021, About 3 years ago

Reply to the comment left by BernieWales at 08/12/2021 - 17:36
Bernie I’ll just chime in and say I am not using my real name and have no profile picture. The reason being the feeeholder and management agent of NewYorkie sound like they’re the same as mine and will chase me for defamation. The situation is desperate.

BernieW

9:30 AM, 10th December 2021, About 3 years ago

Reply to the comment left by Walter10 at 09/12/2021 - 23:11
Yes! Buying the freehold is always the best route. It gets your destiny in your hands.

More info on my website.

Ian Narbeth

10:08 AM, 10th December 2021, About 3 years ago

Reply to the comment left by Walter10 at 09/12/2021 - 23:11
Walter10, a ground rent doubling every 25 years is tolerable and roughly in line with increases in the Retail Prices Index.

That said I agree with BernieWales that getting the freehold is best.

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