Queen’s Speech 2021 – Leasehold Reform (Ground Rent) Bill

Queen’s Speech 2021 – Leasehold Reform (Ground Rent) Bill

15:57 PM, 12th May 2021, About 6 months ago 12

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“Laws (to modernise the planning system) will be brought forward, along with measures to end the practice of ground rents for new leasehold properties.”

The above statement is detailed further in the Leasehold Reform (Ground Rent) Bill

The purpose of the Bill is to:

Tackle the inconsistency and ambiguity of ground rents for future leaseholders. The Government is legislating to require that for the first time ground rents in residential long leases will have no financial demand. These will beset in law as a ‘peppercorn rent’ level(the legal term), meaning that nothing more than a literal peppercorn can be sought from leaseholders.

The main benefits of the Bill would be:

Ensuring leaseholders of new, long residential leases can not be charged financial ground rent for no tangible service, making leasehold a more transparent and fairer system for homeowners.

The main elements of the Bill are:

Restricting the charging of ground rents on new long residential leases.

Enforcing the charging of a prohibited ground rent by way of a civil penalty regime, including fines of up to £5,000 for freeholders that charge ground rent in contravention of the Bill.

Ensuring that there can be no financial demand for ground rent for all future qualifying leases so that future leaseholders do not face unfair terms or significant ground rent liabilities.

Having only selected exemptions including:

  • Some parts of the communityled housing sector, so they can retain the right to levy ground rent to maintain their ability to further promote community activities.
  • Certain financial products which depend on leases where rent replaces interest-bearing mortgage payments, such as those drawn on by the older population for a type of equity release and the growing Islamic finance sector.
  • Business leases, to allow people who need to live in the same premises as their workplace to continue to do this and agree with their freeholder the most beneficial and appropriate terms.

 



Comments

by Ian Narbeth

12:31 PM, 13th May 2021, About 6 months ago

I have said in the past that some Parliamentary draftsman wakes up and thinks: "It would be a good idea to fine landlords £5000. What offence can we create for them?" Well, here we go again. If you are going to make charging ground rent unlawful, simply legislate that it is not payable and that if paid it can be recovered with interest at 12%? Instead, we will have vicious legislation. Who else is fined £5000 for demanding money that is not due to them?
On a separate note it is not a good idea to abolish ground rents altogether. They provide a reason to keep the freehold company going and allow a cushion if there is a problem collecting service charges. If a freehold company can only recover service charges but make no profit, it will always be on the brink of insolvency. It is not good for leaseholders to have to deal with their freeholder becoming insolvent. I suppose we will have to wait until a few large blocks of flats find that the freeholders are wound up and some leaseholders end up subsidising free riders who don't want to pay running costs, such as preparing accounts and making annual returns.

by Mike Newman

8:52 AM, 15th May 2021, About 5 months ago

Ian do you think this legislation might cover the £250 and £100 ground rent thresholds causing a property to be defined as an AST?

by Ian Narbeth

16:02 PM, 15th May 2021, About 5 months ago

Hi Mike
We will have to see the Bill when published. The statement refers to "new, long residential leases" so it may not catch existing leases with doubling rents. The AST problem will go away but that is not the Government's motivation.

by BernieWales

10:49 AM, 17th May 2021, About 5 months ago

The Government's aim here is to level the playing field with Commonhold ... their preferred alternative to Leasehold. But imposing a £5,000 fine is not the way to go. They should just ban ground rent over a nominal figure; e.g. £10pa.

The devil will be in the detail, so we await the actual Bill with interest.

by Badger

8:29 AM, 18th May 2021, About 5 months ago

Is the problem not so much the ground rents per se but the increasingly popular practice of escalating increases that gouge the leaseholder?

by BernieWales

11:03 AM, 18th May 2021, About 5 months ago

Reply to the comment left by Badger at 18/05/2021 - 08:29
That depends on how the rent reviews are written, Badger. Most reviews these days are 10 yearly and linked to Retail Price Index ... which maintains 'real value' and doesn't favour either party.

by Badger

18:10 PM, 18th May 2021, About 5 months ago

Reply to the comment left by BernieWales at 18/05/2021 - 11:03
As a leaseholder that has been on the wrong end of a number of these ten year revaluations I'm not so sure that I could agree that fair value is being maintained from my perspective!

by BernieWales

11:52 AM, 19th May 2021, About 5 months ago

Reply to the comment left by Badger at 18/05/2021 - 18:10
Well, that depends on the terms of your lease - which I assume you entered into without a gun to your head? And you were advised professionally by a competent and experienced lawyer?

by Ian Narbeth

12:09 PM, 19th May 2021, About 5 months ago

Reply to the comment left by BernieWales at 19/05/2021 - 11:52Bernie the problem is indeed people not realising how compounding works. You may remember the story of the grain of wheat and the chessboard. The King agreed a reward of one grain for the first square, two for the second, four for the third then 8, 16, 32 and so on.
As a bit of fun I calculated that with a 999 year lease (granted in 1022 when King Harold ascended the throne) at an initial annual rent of one one-hundredth of a penny, doubling every 10 years the annual rent today would be £63,382,530,011,411,500,000,000,000 which is about 800 billion times the GDP of the entire world. All for one little house!
If it doubled every 25 years the rent now would be £54,975,581.39 and every 40 years a rather more manageable £1,677.

by BernieWales

12:16 PM, 19th May 2021, About 5 months ago

Reply to the comment left by Ian Narbeth at 19/05/2021 - 12:09
But remember Ian ... in 999 years, £54,975,581.39 will only buy you a skinny vanilla latte 🙂

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