Industry reaction to capping ground rents and leasehold reform

Industry experts have welcomed the government’s plans to cap ground rents at £250 a year in older leases and introduce wider leasehold reform.

Under the proposals, new leasehold flats will be banned, while ground rents on existing leases will be capped at £250 annually before being reduced to a peppercorn after 40 years, meaning no ground rent will be payable.

The long-awaited draft Commonhold and Leasehold Reform Bill is also set to be published, although industry figures are urging the government to implement the reforms as soon as possible.

£250 cap will make a difference

Jo Darbyshire, National Leasehold Campaign (NLC) co-founder, said capping ground rents is a step in the right direction.

She said: “The £250 cap will make a difference. Particularly for people who bought new build properties in the last 20 years with punitive ground rents.  And let’s remember that ground rent is a charge for no service.

“It’s money for nothing. It’s also encouraging that the government recognises that monetary ground rents must end. However, 40 years is an incredibly long time to wait for peppercorn ground rents.”

Tackles one of the largest barriers to selling leasehold properties

Timothy Douglas, head of policy and campaigns at Propertymark, said: “We welcome the announcement from the UK government to cap ground rents and ultimately reduce them to a peppercorn rate.

“We know from our research with Propertymark member agents that leasehold properties with escalating ground rent will struggle to sell, even if priced correctly.

“Addressing ground rents for existing leaseholders is a key step towards a fairer leasehold system. It brings existing leaseholders on par with new leaseholders, and it tackles one of the largest barriers to selling leasehold properties.”

Vital these changes come in as soon as possible

Under the plans, a new process to make it easier for existing leaseholders to convert to commonhold will also be introduced and draft Commonhold and Leasehold Reform Bill.

Mr Douglas adds the bill must give guidance to agents and consumers.

He said: “We also welcome steps to make it easier and cheaper to buy leasehold property and the ambition to transition towards commonhold, but agents and consumers will need clear guidance, education, and practical support to understand and navigate this change.

“A draft bill provides a vital opportunity for policymakers to work with the sector to get the reforms right before legislation is passed into law. It is vital that the changes come in as soon as possible to support property transactions and that the costs are reduced for consumers.”

Capping of ground rents welcomed by landlords who own leasehold properties

Tom Goodman, managing director of Goodlord Platform, said: “The capping of ground rents will be welcomed by landlords who own leasehold properties at a time when they are facing rising costs across the board. Escalating ground rents penalised this class of landlord and created an additional incentive for them to sell up – something the market can ill-afford against the current backdrop of supply and demand challenges.

“The private rented sector desperately needs more regulatory measures that support landlords to stay in the market, meaning this is a well-timed reprieve for certain landlords and hopefully contributes to a market environment in which it makes financial sense for them to continue operating.”

May not be the silver bullet leaseholders are hoping for

Caroline Wild, Counsel (Real Estate Disputes), Forsters law firm, warns the government plans may not be a silver bullet.

She said: “The leasehold system has long been lambasted and so the reinvigoration of a more flexible tenure, such as commonhold is welcome.  That said, it may not be the silver bullet that leaseholders are hoping for. Commonhold is still a form of communal living and a lot of the challenges leaseholders face under the current system will persist under a new tenure.

“Introducing commonhold in phases seems to be the most workable option, especially if the government chooses to start with new developments initially, as this will enable all parties and the market to become familiar with the structure.”

She adds: “Essentially, it will operate a stress-test to understand how the mechanics could be rolled out for wider conversion from leasehold to commonhold.  Careful consideration needs to be given to the legal and practical aspects of how commonhold can be implemented in complex developments, especially in schemes with a mix of residential and commercial space.

“Key to the success of commonhold will be the upskilling of professionals such as conveyancers, managing agents and lenders so they understand the nuances of commonhold and perhaps more importantly, arming leaseholders with sufficient knowledge and ensuring expectations are managed, not only in relation to the rights that commonhold will afford but the responsibilities and limitations also.”

Draft legislation is long-awaited

Mark Chick, the Association of Leasehold Enfranchisement Practitioners (ALEP) director and Senior Partner at Bishop & Sewell LLP, said the draft bill must be subject to scrutiny.

He said: “This draft legislation is long-awaited, both by the industry and by the five million plus leaseholders in England and Wales. Reforming tenure structures may not attract the same attention as meeting housebuilding targets, but it remains a cornerstone of housing delivery.

“The structure of ownership underpins how communities are managed, maintained and held to account and reform was long-overdue.

“ALEP has consistently supported the government’s intention to reform leasehold. Its position is that reform must be workable, evidence-based and developed in partnership with the professionals who will be responsible for implementing it.”

He adds: “We welcome the consultation on commonhold. If commonhold is to succeed as a viable alternative to leasehold, its introduction must be practical, transparent and legally robust and this will require input from the wide range of professionals involved.

“There is clear political and public pressure to accelerate change, but reforms of this magnitude must balance speed with care. Rushed legislation rarely delivers clarity or certainty. The experience of implementing Leasehold and Freehold Reform Act (LAFRA) shows how important it is to get the detail right.

“Similar comments apply to the proposed cap and eventual sunset on ground rents which will potentially be susceptible to Human Rights Act challenges, although the government has been at pains to set out its approach in a policy statement for this very reason.”

Reforms will give homeowners more control of the estates and communities

Andrew Bulmer, chief executive of The Property Institute (TPI), said: “We welcome the publication of the Draft Commonhold and Leasehold Reform Bill, which will give homeowners more control of the estates and communities they live in and reduce high and escalating ground rent costs for many leaseholders. These are important steps forward in improving the lives of homeowners in England and Wales.

“Commonhold will bring new responsibilities for homeowners, including building safety, financial governance, and upkeep of shared areas.

“Our members regularly work with residents who manage their own buildings, two-thirds of the buildings TPI members manage are resident-controlled. We embrace the move to commonhold and stand ready to support future generations of commonholders to live in safe, well-managed homes.”

She adds: “It is vital that commonholders, as well as leaseholders, can rely on a professional and regulated property management sector to support them. We want to see government also deliver on its commitment to mandatory qualifications, and to bring forth regulation of managing agents, to further improve outcomes for homeowners.

“Some of these reforms will be complex, and there will be important details to scrutinise, for example, on a replacement for forfeiture, to ensure buildings with arrears can continue to function. It is very positive that the Select Committee will first scrutinise a draft of the Bill with all stakeholders.”