By Sebastian O’Kelly
What a sad compromise the Leasehold and Freehold Reform Bill has turned out to be, as it had its report stage in the Commons yesterday.
Sad, because so many MPs – including the minister and his Labour shadow – are well informed about leasehold, have no illusions about it and, I think, would both like to see its well merited demise.
But that’s for another day. Or, rather, year. Perhaps only three or four years, if we are lucky with whatever new government is to come.
This time there was no grand-standing from Michael Gove, whose soaring eloquence was thinly spread over what he knows are modest proposals, and no witheringly mockery from Labour’s Angela Raynor in response.
The debate was left to housing minister Lee Rowley, with Labour’s Matthew Pennycook broadly supporting the Bill while pointing out its feebleness, inconsistencies and the undoubted truth that a new government will have to revisit commonhold as the UK’s blighted market in flats continues for many more years.
This will be in order to make good the shoddily built high and medium rises whose ghastly truth was revealed post Grenfell. The market of new flats is about half what it was before the building safety defects became clear.
So, Mr Pennycook knows full well – and admits – that a new Labour government is going to have to revisit this sector – and deal with our cartel of housebuilders, and the parasites who feed off the ever more complex income streams squirreled away in our (taxpayer subsidised) new housing stock – leasehold, fleecehold, shared ownership and the disaster of designated retirement housing.
Add to that the building safety costs, because few can believe that the housebuilders will pay up anything like the billions Mr Gove said they would, so that will be another expense for the taxpayers to pick up in time.
The full debate can be read on Hansard here
Or viewed on Parliament.tv here
There were contributions from MPs in the debate with a long record of engagement with leasehold injustices: Sir Peter Bottomley, Clive Betts, Barry Gardiner, Bob Blackman, Mark Tami, Sir Stephen “asbestos” Timms and Stella Creasy.
While Labour MPs tend to be better informed over leasehold in flats than Tory ones – representing as they do the urban constituencies – Tory MPs newly acquaited with leasehold property scams made decent contributions to address unadopted fleecehold managed estates, which are now plaguing the suburbs.
Notable here were Neil O’Brien (Harborough), who has a Westminster Hall debate this afternoon on the same subject (that is, a Commons debate but in the smaller hall), and Richard Fuller (North East Bedfordshire). Not fogetting Helen Morgan, the LibDem MP for North Shropshire.
The Competition and Markets Authority – which can seem like the only branch of the state that actually does something effective for consumers – is investigating fleecehold and acknowledged this week that “households are facing financial and emotional detriment, and, if the status quo is maintained, this is likely to worsen over time”.
Something in the Bill may emerge to help fleecehold homeowners – giving them the right to manage these imposed companies would be very welcome.
But just arguing that local councils must adopt all this land is unlikely to happen, not least as so many councils are broke. However, the CMA is arguing that the racket and evasion of responsibility by local councils must end urging the “mandatory adoption of public amenities on new housing estates”.
Unfortunately, Mr Fuller sullied his good points on fleecehold by repeating the most blatant bit of landlord lobbying – the grand London estates, perhaps? – arguing against the proposed ban on marriage value, which he argued should be retained in leases less than 80 years, but banned in leases that at present have more than 80 years.
The proposal is “a £7 billion transfer of wealth from one group to another” and will be “fraught with legal risk and legal jeopardy”. So, one must assume the landlords have told him that they will sue the government – which one has to question, as the very last thing these historic estates want to do is to draw public attention to the fact that a handful of families still own vast swathes of our capital city.
Mr Fuller is also fretting about landlords losing their existing ground rents, although no one has a clue what the government is proposing here at this stage.
Sir Peter Bottomley, champion of leaseholders in numerous toxic disputes, said that “I think the Bill is ambitious in what it is trying to achieve, although we would all like it to go further”.
The key words here being “I think”, as so much of this Bill – again, the proposal to set existing ground rents to a peppercorn – are not yet evident, and so much depends on secondary legislation through statutary instruments.
However, Sir Peter was strongly critical of the government for giving freehold owning landlords the power to put two extra storeys on their blocks of flats “without consulting the existing leaseholders at all. How any Government—let alone one I support—could have done that is beyond my comprehension.”
People can object to this planning giveaway in this consultation:
Sir Peter thanked solicitor Liam Spender, who is an LKP trustee, for drafting an amendment to the Bill to address this.
Former housing minister Rachel Maclean gave the Bill enthusiastic backing and is excoriating in her view of leasehold.
Sadly, she attributed the reprieve won for Dennis Jackson, who had his £800,000 flat forfeited, to the Leasehold Advisory Service rather than us, the Leasehold Knowledge Partnership. We are rather proud of our work on this, and Ms Maclean, had kindly agreed to amend the Hansard record:
Dennis Jackson at Plantation Wharf: An £800,000 forfeiture over-turned by LKP
Related posts:
Housing Bill omits necessary ‘changes to leasehold and commonhold’
Michael Gove: ‘squeeze every income stream that freeholders have’. Parliament debates leasehold reform Bill
Lee Rowley and Matthew Pennycook duel political points over leasehold reform Bill
Our parliamentary briefing on the Leasehold and Freehold Reform Bill
Realities of leasehold spelled out during the Housing Bill
Leaseholders are not the customer. They are the product, LKP tells Lords committee
If Ground Rent is for “no service” it means that those who hold such a view believe that the premium paid for the property was sufficient remuneration for the developer. By reserving a ground rent the developer is being greedy trying to get extra profit.
Those who make such a claim, have no idea whatsoever what the developer paid for the land, the bricks, the bathroom and kitchen units. Therefore cannot substantiate the claim that the premium was sufficient reward. If the developer made a loss but the sale of the ground rent income helped break even then the ground rent is indeed for a service – it was part of the financial package the freeholder sought
Ground rent is an integral part of the overall financial package the landlord clearly sets out at the time of purchase. The landlord states he wants a premium of £xxx,xxx and a yearly income stream of £yyyy. The lease makes it clear that the ground rent is not used to provide any service . The purchaser has to weigh it all up and decide whether to proceed or renegotiate or withdraw
If they sign up to it, then it is reasonable to expect that they keep up their side of the bargain. Seeking to wriggle out of paying the rent years later arguing that their predecessor in title entered into lease terms that they did not understand seems very weak. Arguing that no service is being provided yet the lease makes it clear that the rent is not used t0 maintain the building is also a very weak argument
The root of the problem is that the financial value of the burden of paying the rent was not appreciated by the purchaser when buying. A ground rent of £300 linked to the RPI every 10 years is a financial burden of £10,000 and needs to be factored into the price the purchaser pays.
Ground rent that are pernicious ( ie appear ok at first glance but have clauses that entrap the leaseholder) should of course be modified by legislation
I don’t think your average homebuyer is calculating the present value of future ground rent payments – this type of discounting calculation with assumptions regarding inflation etc. would only really be done by institutional investors.
I think most people find out their budget, then choose the nicest home they can afford. Leasehold/freehold isn’t a major consideration (unless they have been burned by the leasehold system in the past) – and headline ground rent figures are often small at the start.
In a similar way that retail investors are restricted from buying complex financial products, I think it makes sense for the government to do away with the ground rent system to balance out the property market and make it easier for buyers and sellers to understand what they are getting for their money.
We live in an apartment block built for the over 60’s and we are Leasehold. My next door Neighbour is a sprightly 92 Years young the youngest Resident about 61.
I believe that the average UK citizen will be clueless when signing up for Leasehold / Fleecehold tenancy.
I view the whole racket for what it is, which is a perfectly Legal means of “robbing blind” Leaseholders – Landlords – Right to Buyers and others.
I hope that the Noble Lords fully understood and took serious note of Mr O’Kelly’s representations about the victims of this Industry Sector.
I am aware of property investors who are increasingly irritated at margin erosion caused by astronomical and unjustified. increases in service charge demands from imposed third party managing agents who in some cases are less than professional and who bill Leaseholders for goods and services not delivered or cannot justify the service charge demand and have no real Legal need or requirement to do so.
If the “status quo’ continues the as is will continue to get much, much worse.
RTM and the actions of quality property developers and other Landlords will prevail in the end regardless of others.
RTM is not much of prize. or crumb off the table and only has the potential to save money where there are several or many resident leaseholders who want to take on the management of their blocks as it is a full-on job checking how so many terrible managing agents charge so much for their ‘services’. Even where it is implemented, there are countless unprofessional and quite shady managing agents out there that it’s difficult if not impossible to assess their effectiveness when appointing them. They need much tighter regulation if leaseholders are not to be exploited by them too. Let’s face it, in view of the behaviour of all the past governments on this issue, RTM wouldn’t have been put into law if freeholders didn’t agree to it! As has been said before, what ‘investors’ don’t seem to understand is that their ‘investments’ may go up as well as down, in line with all speculation and while this archaic and corrupting influence continues, it is stifling economic prosperity and growth. But then, this government only does stagnation. Ground rent should be abolished as no doubt many have argued in the consultation which (as anyone taking part will have noticed) was filled with questions about and was so biased in favour of and very concerned with the effect that abolition would have on freeholders rather than leaseholder. It was a typical government ‘consultation’, in other words. How sad to live in one of those countries relic the ones we see in the news, run by a government for sale. Big money = big influence and maintaining the status quo, in this case for freeholders, be they the aristocracy, the Church and charity sectors (yes, both of those too), the institutional tax avoiders and any other business or individual enabler ensures private leaseholders who just want to own and / or stay in their homes until they die, must know their place in the pecking order.
Most leaseholders aren’t owners of flats at One Hyde Park. The terms of a lease abd ground rent aren’t understood and the average conveyancer solicitor won’t fully explain them (if they even fully understand them). There should be a universal lease agreement and ground rent universally limited to a % of the purchase that is paid off/expires.
Something is worth what the buyer offers and the seller accepts. The purchase price of a similar freehold or leasehold property is about the same.
Any suggestion other wise is simply a ” a smoke and mirrors” attempt to deflect from the facts in my opinion.
It is simply an unjustified rip off fiddle and without merit.
The purchaser could not care less what the builder paid for this that or the other.
The sale price is all that matters.
“Gobbledegook” does not work in my humble opinion.
Stephen,
I refer you to a news paper article published in the “Guardian” on 13 March 2024 by Julia Kollewe, she reports that “Britain’s competition watchdog has welcomed the Governments consideration of further ground rent reforms, and argues that ground rent is “neither legally nor commercially necessary”
I have glanced at the CMA twenty five page report and found it to be factual, relevant and up to date information.
When those recommendations are enacted it will effectively result in the abolition of freehold.
The larger the initial rent the more likely it is that it will be considered by the buyer.
Ground rent could be seen as an interest payment for a “discount” and if the NPV of the rent was discounted using a rate set by the Government from time to time and shown next to the premium paid the problems of the 10 years doubling ground rents would probably have never arisen. Particularly if SDLT was to be paid on the premium plus the NPV of the ground rent – to help punch the point home
The initial ground rent should stand as that was clearly appreciated at the time of signing the lease and the leaseholder was represented in a transaction where the leaseholder had 2 to 3 months to consider the transaction. In the last 7 years in particular purchasers have been considering ground rent terms more carefully because of campaigning and part of proving affordability required by mortgage providers. Solicitors are particularly careful following the exposure of 10-year doubling ground rents. To write off ground rents without compensation on the basis that purchasers considered it a minor part of the transaction would seem profoundly inequitable.
I think, the answer is that the initial rent should stand and that on every review in the lease the rent should be the lower of what was planned in the lease or the movement in the RPI ( or preferably average earnings) This removes the pernicious ground rents and yet respect our contract law and worldwide reputation.
We must not lose sight that some 95% of all ground rents are less than £1 per day – it is in the matter of service charges is where the real problems rest and significant and well-thought-out ideas are being proposed in the bill.
RTM legislation gives and will give many more leaseholders a way out of problems over service charge abuse.
In some ways the recent ridiculous doubling & RPI Groundrents has done this country a favour. It has highlighted what a complete rip off Leasehold is & brought about the present bill & the abolition of Groundrent on new flats.. well done the National Leasehold Campaign. Now let’s complete the job & bring on Commonhold & get rid of these scum freeholders hiding in overseas havens .
Commonhold will need a “sunrise clause” to ensure that solicitors, mortgagees , developers understand what they dealing with.
At present a number of mortgagees will not accept commonhold. Solicitors will not at present feel able to deal with commonhold as they have had no training or experience in it , so quite correctly they will decline to act.
Developers who have finance outstanding want to see the properties sold quickly (quite understandably) so will turn to leasehold as opposed to commonhold
So the government will need to give a date into the future so the industry can hit the ground running
Many lenders view Leasehold property’s as “toxic” in terms of mortgage offers and have withdrawn their products.
It is reported that many reputable independent Solicitors prefer not to engage with potential clients in the purchase of Leasehold property’s. Work that one out?
Mortgage lenders have not withdrawn their products, as their products cover both freehold and leasehold properties. What lenders have done is altered their underwriting requirements, with some insisting that the ground rent is no greater than 0.1% or is not reviewed to the RPI more regularly than every 10 years and so on.
My understanding is because of the complexities of the Building Safety Act some solicitors do not wish to act, or their fees are such that they become uncompetitive.
Many lenders and many solicitors will not get involved with commonhold – that is why it is important for the Government to introduce a “sunrise clause” so the industry can educate themselves over the next few years so that when it is formerly mandated as the new way forward on developments all parties will understand what it is all about and have systems in place to deal with it
Stephen,
I refer you to an article published in The Guardian on 30 November 2023 and reported by Alexa Phillips.
“Banks are refusing to lend on homes with “onerous” service charges over concerns that they can be difficult to sell, it has emerged.
Some lenders, including major banks and building societies, also said they have policies against mortgages on retirement homes which typically come with high annual maintenance fees.
A banking industry source told the Telegraph lenders have concerns about retirement homes having high service charges, being “notoriously difficult to sell” and dropping in value.
Lenders are also worried about restrictive covenants on ownership and residency that mean retirement homes cannot be sold on the open market which can further restrict their resale value, the source said”.
The full article continues for several more paragraphs and names a number of well known high street lenders who “do not lend on retirement homes”
Typo on my part. The above article was reported in the Telegraph and not the Guardian.
My son bought his first two bed coach house flat in 2009 to get on the property ladder. He was so excited to be able to do this that he signed the TP1 without questioning the consequences. Yes he should have looked at the rules and regulations on this document but at the time he was young and just wanted to be able to have his first home. At the time of purchase the terms of purchasing this property were that he had to sign the TP1 or he would not be able to buy it. He signed not really understanding the consequences of the yearly maintenance fees, which are increased annually. He was paying maintenance fees at a lower rate for the first few years, but when these yearly fees started to increase rapidly and the maintenance work diminished and, the fact that the local authority had taken over most of the amenities on the estate, he was dissatisfied and complained. This fell on deaf ears.
Now 15 years on the estate maintenance company only carry out maintenance work occasionally and this is done extremely badly. After insisting that the electrical box on the exterior wall of my son’s garage be inspected as per the usual time period, as stipulated in the legislation, they eventually had an EICR inspection carried out and this was deemed as dangerous due to there being uncovered live wires which were not earthed. The inspection electrician deemed the unit to be dangerous and danger to life and should not be used until all faults were fixed. It was still being used and the faults were only repaired some 10 months later!! This was not only a fire hazard but danger to life. It took 10 months for the estate maintenance to get an qualified electrician to put the faults right, all the while this box was still being used. The time period for the repairs to be carried out should have been 28 days. My son has complained to them on several occasions and tried to report this to the various authorities because he was worried about the danger to the public if they had touched the box and if it had caught fire as it was attached to his property. He reported this issue to; H&S; his local Council authority; the Fire Services; the Levelling Up Secretary. All these authorities have passed the buck and don’t know who he should report this issue to despite there being legislation. Where is the justice in this and what is the point of having legislation if there is no governing authority to report this incident to or who can help the small home owners in his plight!!!
Part of the maintenance work the estate management company is supposed to carry out is to clean the communal car parking areas and to keep tidy a very small grass area on the estate. My son has a video of one of the contractors cleaning the communal carpark which entailed him blowing all the rubbish with a leaf blower into a corner of the carpark and then leaving it. The rubbish was just left in the corner of the carpark to rot. No one collected it and it then was blown all over the carpark again.
If my son refuses not to pay the estate agent’s fees because of the above incidents the management company have said that they will take him to court which will cost him further money, anxiety and frustration. These companies are allowed to do and get away with whatever they like and still collect their yearly estate management fees. (Money for old rope!) The estate agents fees paid are to cover their insurance, electric bills, contractor’s bills and any repairs needed, e.g., sunken paving areas in communal carpark, EICR inspections and repairs, etc. (obviously not carried out by them every 5 years).
This estate management company demands its yearly fees and ignores any complaints made. It’s a get rich scheme which allow these management companies high profits at the expense of the home owners. When building work has finished the building development company lease their developments to an estate management company for a fee to carry out ground maintenance work. Many of builder’s directors are either related or have some connection to the newly employed estate management company (share holders) who then fleece the unsuspecting homeowner. Who is Policing the Estate Management Companies?
Where is the justice in this and how on earth are first time buyers who struggle to pay their mortgages coping with the extra fees to pay on top? This is NOT affordable housing and the Government should step in. There are too many people taking back handers from this demoralising, outdated and frankly disgusting scheme. It should be stopped!
Eastleigh, Hampshire
A beautifully written article as usual, Sebastian. Looking at the comments, the danger is that we miss the modern significance of ‘ground rent’. We should address the overall subterfuge, not just the arithmatic detail.
1. The notion of GROUND rent is misleading in itself, implying that the termor cannot own the land beneath their property. There is no ‘ground’ rent in my late parents’ 1965 999-year leases. It is just rent. And there is a small private garden to each house, disproving the over-generalised theory that the lessor retains all of the grounds.
2. Obiter dicta in Celsteels v Alton (1987) gave lawyers the idea that lease contracts can be evaded by developers, after sale. The judge observed (beyond the ratio deciding that case) that IF a lessor assigns its freehold and IF a lessee then assigns their lease, then ‘privity of contract’ might no longer exist between the new parties. Combined with the desire to avoid the Rent Acts, this is fundamental to what has been going on for the last twenty or more years: to let while pretending to sell, and to avoid the responsibilities promised.
Collusive disposals of ground rents appear, to lessees, to impose a new landlord upon them. This works through misuse of statutes of 1540 and 1705, combined with deception and misuse of the Land Registry. The aim is to achieve the scenario set out in the 1987 case. Privity of contract has been turned on its head, making leasehold vulnerable to abuse by third parties that have no reputation to maintain as landlords.
There seems patent dishonesty in selling ground rents yet assigning entire freeholds afterwards. After some years of investigating, I fail to find any truthful legal logic in that process. I conclude that HM Registrars should not process such transfer applications without question, since they run contrary to centuries-old common law, as well counter to each lease agreement. I have put fully-reasoned legal arguments to them to that effect. I can do little more, for now.
Sussex Lessee,
What an excellent and highly informative post.
There is also the dubious practice of new build leasehold being sold by developers pushing their panel solicitors for the conveyancing.
The solicitors are supposedly acting for the purchaser, yet they get the business and are paid for by the developer!
The incentive being to get to completion as speedily as possible!
Such conflict of interest should never be allowed.
It is simply an unjustified rip off fiddle and without merit.
The purchaser could not care less what the builder paid for this that or the other.
The sale price is all that matters.
“Gobbledegook” does not work in my humble opinion.
The proposing minister ( Mr Gove) has to certify at the front of the Bill that the Bill complies with human rights, and he was able to do that because he published this publication at the same time.
ECHR_Memo_Leasehold_and_Freehold_Reform_240216.pdf (parliament.uk)
One of the proposals in the bill is to allow leaseholder to reduce their ground rent to nil by paying a premium, but the cost is kept down as the term is not extended. The publication published the same day as the bill considers the Human Rights Issue of such a proposal. In the report this is called GRBO ( Ground Rent buy out Option)
Para 95
The Government considers that A1P1 is engaged by this measure. This is on the basis that a landlord’s rental income stream is turned, through the exercise of the GRBO right, into a fixed, one-off payment. Government considers the measure to be compliant as it is in pursuit of a legitimate policy aim of addressing the historic imbalance between freeholders/landlords and leaseholders. Some leaseholders may have a sufficiently long lease and do not need or wish to extend their lease, though have a need or wish to buy out their ground rent, particularly where this is onerous, or will become onerous in the future. Extending this right to leaseholders will create greater fairness by giving them the ability to address their rental liability without having to progress an unnecessary extension of the lease. The interests of freeholders and landlords is protected in that they will be adequately compensated for the loss of income through the premium and they will have the ability to deny a claim where it lacks merit and also have recourse to the Tribunal in respect of this. Leaseholders will have the protection of being able to bring cases to the Tribunal where there is a dispute as to the claim or the terms of the variation, or where a landlord refuses, post-admission of their claim or post-Tribunal determination, to vary the lease. The position of any intermediate landlords is protected through the right to commute the rent under intermediate leases being extended to the GRBO. These GRBO measures are rationally connect to Government’s policy aim and is proportionate in pursuit of the same.
Therefore, the idea of capping a rent at NIL with no compensation would be a complete U-turn on the advice given to parliament on human rights and, quite frankly, would make the government look……..foolish and have no direction.
Diddums
This is a complex issue and in order to try and find a solution (or to prosecute your own argument with more conviction) it is important to understand both sides of the argument.
Hurling puerile insults behind the anonymity of a keyboard shows you are incapable of listening or thinking about the problem.
It isn’t remotely a complex issue, it is a very simple issue. Much like the slave trade, certain criminal individuals, aided and abetted by government, have been exploiting others of their kind (humankind) for more years than I care to count. These criminal individuals I refer to are not only builders/developers, freeholders and ground rent investors, but also an array of professionals – most notably the legal profession. Successive corrupt governments have allowed this exploitation to go on and on, and on. Only now, due to pressure from ordinary people, is something being done about the wholly wicked system of leasehold. And what is proposed is, thus far, inadequate. There is just the one solution to leasehold, that is ABOLITION, and abolition with restitution – compensation paid by freeholders to those they have cheated.
David,
I whole heartedly agree with you.
The abolition of the institutionally corrupt system of Leasehold is the only remedy.
I believe that “Leaseholders have been swindled on an industrial scale” especially in recent decades.
Enough is enough.
In view of the fact that the leasehold reform bill is going through the houses of parliament, I thought I would communicate with The Department For Levelling Up for some clarity regarding my situation – I have been eager to buy the freehold of my leasehold bungalow for some years. Did I expect a suitable response? Of course not. I swear If I was hearing the words in person of the numerous replies I have had from government departments over the years (rather than reading them from afar), I would commit murder. There were small snippets in the reply however which I latched onto. The first that “The changes to the
enfranchisement valuation process will result in substantial savings for some leaseholders,
particularly those with fewer than 80 years left on their lease.” So the headline claim that buying your freehold will become easier and cheaper is not correct, it will be easier and cheaper for “some leaseholders particularly for those with fewer than eighty years left on their lease.” The second was this paragraph, “Our reforms to enfranchisement
valuation also make sure that sufficient compensation is paid to landlords to reflect their
legitimate property interests.” “LEGITIMATE property interests”?
The developer offers to sell the property for a premium of £ XXX,XXX and requires a further annual payment of £ YYY, then if the purchaser agrees to that contract/lease whilst being assisted by a solicitor, then the logical inference is that the terms were legitimately agreed.
The lease makes it patently clear that it is for no service, it is a pure profit stream for the developer.
That is why the rights are legitimate
There is no legislation in this country that restricts the amount of profit a developer can make on the sale of a property
Those who are campaigning for ground rents be capped at nil, want the right to be able to revisit and change the terms the lease was granted on . Unless a contract can be shown to be unfair, there is no provision for retrospective changes.
It would appear that the Treasury has significant concerns about the proposal to cap ground rents at a peppercorn.
https://www.thetimes.co.uk/article/no-10-scuppers-gove-plan-to-reduce-ground-rents-to-zero-hc0f635sr
Also, if we pick apart the words from Angela Rayner, who is on record saying
“Labour is committed to comprehensive leasehold reform, enacting the Law Commission’s recommendations on enfranchisement, commonhold and right to manage in full.”
That does not commit the Labour Party to capping ground rents at a peppercorn, as the Law Commission did not recommend capping rents with no compensation; the Labour Party have a conflicted position on capping rents at a peppercorn. If such a measure was introduced in the Bill, would they want to see it succeed and hand the Tories a valuable win and then have to find the money to pay the compensation when they get in ( which seems very likely).
The other issue Gove faces is that as the sponsoring minister, if he proposes that Ground Rents be capped at nil with no compensation, then Baroness Scott of Bybrook (in the Lords) would need to be able to defend her statement at the front of the Bill that the Bill is compatible with the European Convention on Human Rights – not easy given the publication “European Convention on Human Rights Memorandum – 16 February 2024” which in the case of the Ground rent Buy out option makes it clear that this will be acceptable if the freeholder/ head lessor receives compensation for their loss of income (see paragraph 95)
It is unlikely, in my view, that capping rents at £250 would appease the insurance companies and large funds. An indexed linked rent affords the insurer to cover long-term liabilities with assets other than Gilts. To an insurer, such indexed linked rents are very valuable and can be valued at around 30 years of purchase if there are regular reviews. A fixed ground rent of £250 does not enable the insurer to do that. The value to an insurer of such income may be as low as 12 yp
The loss to the fund of having a ground rent capped at @250 is far too great and will make them challenge the legislation at Strasbourg.
Another issue that needs to be bourne in mind, is that capping a rent for enfranchisement purpose may be possible if the rationale is to help leaseholders acquire the freehold if that is the governments intention to hep them have greater control. However, the necessity is blunted because legislation already exists ( RTM) for leaseholders to take control, and this is being further improved in the Bill. Therefore, because of the alternative available it means the compensation to the landlord must be near market value
On the paying ability of ground rent, the £250 cap would assist the owners of costly properties in Central London and would make it very difficult to justify and, therefore, make compensation closer to market value. The Sultan of Brunei may well stand to gain from such measures, far more than the leaseholder in a modest property paying £150 per annum.
The only option would be for the initial rent in the lease to stand, and on any review, the increase would be what was originally planned for in the lease OR lower the movement in the RPI/CPI or average earnings. Thereofre the problem rents are dealt with. For example, the rent of £8,000 per annum mentioned by Barry Gardiner and the 10 year doublers. Yet this country’s reputation on contract law is upheld.
A sunset clause of 60 years would result in a 10% haircut on the value to an insurer of an indexed linked ground reviewed every 10 years
Maybe this is the answer as it also shows that Mr Gove has gone into battle and delivered something really meaningful to those who have problems
For those paying ground rents of 85p per day gripped in the fear of them rising to £1.70 per day in 15 years time although offset by rises in inflation over that 15 years, there will be no comfort . However, if inflation averaged 2.5% over the next 15 years, the rent in real terms would be £1.17 per day. For those 45% of leaseholder that rent their flat out, the cost to them will be reduced because of tax relief and their ability to increase rents because of inflation
stephen
Please reply in full and in detail to my previous posts of 14th, 15th and 20th March in which I provided references to documentary evidence to counter your previous claims?
If you cannot “put up” that evidence then I suggest you “shut up” and refrain from using hearsay and biased unsupported opinion.
Let us be sensible and deal in factual, relevant information.
I gave you my views on your comment of 14 March – your post of the 20 March was about service charges which is entirely separate from ground rent
Your post of the 19 March stated that you do not see ground rent being part of the overall financial package the developer seeks when selling the property
Ground rent is paid to the freeholder who often employs connected company’s to manage their property portfolio and who issue service charges for said property management.
What a lovely earner in this largely unregulated industry sector where the establishment turns ” a blind eye” and pretends that its always been this way so it must be alright.
So, please give me a coherent explanation as to why service charge and ground rent are entirely seperate?
“I view them as a symbiotic parasite relationship” that feeds off the Leaseholder allegedly.
I eagerly await your reply?
Stephen (Burns) Our ground rent investor friend(?) should simply “shut up”, nothing he “puts up” has any merit.
David,
I agree “tripe” is worth less.
In today’s Telegraph its former editor Charles Moore, now Lord Moore of Etchingham and from hereon referred to as Moore, makes a contribution on leasehold reform. He starts by mentioning bumping into Enoch Powell in Belgravia at the time of the reforms back in 1993, Moore asked Enoch “Would he take the chance to enfranchise his leasehold (The Duke of Westminster being his landlord and freeholder)?” Enoch responded, “I won’t rob a duke.” Damn decent chaps these hight tories, what ho!
Moore then mounts a defiant defence of leasehold and, indeed, the entire feudal system, but let me highlight certain points he makes to defend leasehold – I have to confess here that I have not read the whole article, there is only so much this mortal human being can bear. “What would happen, for example, to all the pension funds invested in property if leaseholds are abolished? How would the measures hit foreign investment in British property? What would happen to leaseholders in blocks of flats who suddenly found themselves having to manage the block and the complicated legal and practical issues involved? They would not necessarily have the finance or expertise required. If ground rents vanished, professional freeholders would collapse, leaving “zombie buildings” unmanage”. I recall a contributor in this very forum making the very same point of how pension funds would be hit if leasehold was abolished. I was gob smacked at the undisguised self interest to the detriment of of severely sinned against leaseholders. Moore and this contributor want ordinary people with leasehold properties to finance their retirement, much as slaves financed lifestyles when slavery was legal. Regarding the second issue of flat owners suddenly being burdened with managing their blocks, Moore is scraping the barrell here. These blocks of flats are grotesquley mismanaged at present and are a means of extortion. Any problems that commonhold will have will be miniscule compared to the current system.
Last words, Moore demonstrates perfectly what we are up against, and demonstrates perfectly why leasehold over the years has been so difficult to reform. Moore is one individual representing many more in our houses of parliament.
The worrying issue that 95% of leaseholders have, is not paying the 85p per day or less in ground rent, but the worry as to what a mortgage lender will require if they sell their home or remortgage it.
Those with pernicious rents can have their fears taken away by the simple introduction of a cap that restricts any rises to what is planned in the lease or if lower the movement in the RPI/CPI or average earnings – this immediately deals with the problem of 10 years doublers
Removing the right to automatic forfeiture under the Housing Act 1988 (which is being proposed in the Renters Reform Bill) would greatly assist. Also, allowing a mortgagee to buy out the ground rent or extend the lease if they took back possession would also help allay any fears they might have.
The point remains that a contract was entered into, and a term of that contract was to pay this annual rent. The contract is clear that it is for no service and of course is a financial burden on the property that needs to be reflected in the offer made. The leaseholder was legally represented throughout the process
Others have relied on those promises to pay and have bought those obligations from others. Quite rightly they will feel aggrieved if those legitimate rights are taken away without adequate compensation. This is England not Zimbabwe of the late 1990’s
Cancelling of ground rents with no compensation could cost the around £30bn. Leaving aside the reputational damage to our world-class contract law, is this a price worth paying to relieve 95% of leaseholders of the obligation to pay less than 85 pennies a day. Bear in mind 45% of leaseholders are investors, so after-tax relief the saving to them is around 40 to 50 pennies a day
Zimbabwe does not have freehold – fleecehold.
This medieval form of tenure only exists in England & Wales on this planet.
The collective Governments of the World either never adopted freehold or rightly consigned it to historys dustbin.
There is no convincing evidence that that abolition of freehold will remotely affect the financial markets in any way.
Stephen, make up your mind! Ground rents are either a lot of money “over 30 billion” or not a lot of money “only 85p/day”. They can’t be simultaneously so small as to be a non issue (to the leaseholders) and yet so huge and significant to the freeholders that to abolish or cap without compensation would be some travesty.
You made a valid point in another comment, that IF the ground rent did form part of the consideration for the purchase together with the lease premium, then the NPV of the ground rent payments should have been subject to SDLT. As it stands, no SDLT was payable on ground rent, and therefore it is NOT part of the consideration for the lease. It is, as they say “money for no service”
This business of ground rent being a part of the purchase price of a property is a creative and imaginative defence of ground rent, BUT total rubbish.
Are you able to articulate your point better? Simply hurling another puerile insult from behind your keyboard achieves nothing. An observer might conclude that I have won my argument and that you are throwing a tantrum.
So if I offer a flat which would sell for £250k with a peppercorn rent, but offer it for £50k with a ground rent of £8,000 per annum linked to the RPI every 5 years would you argue still that the ground rent is not part of the overall purchase package.
That deal would appeal to me as I get a better return on my capital, it may well appeal to certain types of buyer. It will of course not appeal to others. But it was an option until 2022.
Provided the leaseholder receives professional advice, then I really do not see anything objectionable about such a deal, particularly as the leaseholder can at a later date buy out that ground rent be extending the term
But the campaigners would want that ground rent struck down to a peppercorn, and the example shows the absurdity of such claims
Stephen, the £250k OR £50k with £8,000/year ground rent scenario you describe is extreme and unusual, to the point of being contrived, but I am sympathetic to the argument that such a ground rent should not be peppercorned, IF it were an agreement between professional investors. Indeed, I believe the legislation contained exceptions for commercial leases. I also think such a deal should be investigated as potential SDLT avoidance. It would not be appropriate to market such a property as “for Sale” on a retail site like zoopla / rightmove.
I put to you the more realistic case that this hypothetical £250k flat is offered at £250k, with a ground rent and escalation clause structured to be as valuable as possible while avoiding detection from the buyer, solicitors or mortgage lenders.
You seem to suggest Premium and ground rent are interchangeable, two sides of the same coin. I understand the argument in theory, but look at how the market functions in practice: How come Rightmove don’t require the ground rent or the review clause to even be displayed on listings? How is a buyer to determine if a property is in their budget, if all they can see is the premium? The logical conclusion is a buyer is invited to assume that the ground rent term is negligible (if it weren’t, it would be shown on the listing). I put it to you that in reality the majority of ground rents have been “sneaked” into leases, taking advantage of “normal peoples” (and I include high street solicitors in that) inability to calculate NPV of escalating ground rent.
I regret to see the success the freeholder lobbying efforts have had on the bill. Hopefully a future government will return to the matter. at least it looks like we will get the 0.1% cap in the enfranchisement calculation. and who knows, maybe a favorable deferment and cap rate?
Luca,
What a first class reply.
The calibre of contributors to this web platform continues, with notable obvious exception.
This evenings Granada Reports news featured ground rents, and amongst other contributions quoted the recent CMA report which said ground rent is “neither legally nor commercial nesecerry”.
This issue appears to be attracting widespread popular support for the abolition of the ground rent “gravy train” and its associated leasehold – fleecehold fraternity.
In a nutshell, Right to Manage gives you the legal right to appoint a managing agent of your choice, who simply take over the former managing agents various duty’s on your behalf.
The selected MA works for you and not the landlord.
There are many reputable managing agents out their who would no doubt welcome you as a valued customer.
I agree, it could be seen as SDLT avoidance if there was a term in the lease that enabled the buyer to immediately cancel the rent upon payment of a defined sum within days of completing on the deal. But the key thing is that there are no artificial steps in the transaction, I proposed . It could well make commercial sense to pay a modest premium and a higher rent – depending on where your capital was invested
I have always maintained that the NPV of a ground rent should be shown next to the premium in Box LR7 of the lease and for SDLT to be paid on the total, therefore ensuring that the financial burden imposed by a ground rent is understood by the purchaser. The discount rate used to value the rent to be set by the government from time to time
It is clear that ground rent is really deferred consideration and that is why it is for no service as the lease of course makes clear that the ground rent is not used to maintain the building. The reality is that the developer gets more than the premium. But the realisation that the developer got more than the premium does not make the ground rent somehow wrong. There are very few instances where a seller is restricted on what price they can seek for their goods. There is no set mark up that a developer can charge – it is the free market in operation. Therefore, to amend a contract previously agreed, by perhaps a previous leaseholder, to cap or remove that rent is really ground breaking a could open the floodgates for consumers to challenge any purchase made at any time. What happens if a developer pre 2022 built 6 identical flats and sells 4 immediately. Realising the demand is so strong ups the ground rents on those flats by an extra £350 but keeps the price the same. Can those leaseholders claim that the ground rent they are paying compared to their neighbours is for no service and should be cancelled ?
I do think that where a buyer of a new property goes into a sales office places a reservation fee and then instructs solicitors and valuers and then sometime later the lease with its ground rent and review terms is disclosed is capable of a challenge where the rent and it review are out of line with generally accepted levels . But certainly not in the case of a buyer of a property at auction who sees the legal pack before engaging with professionals and neither in the case where the ground rent was shown or disclosed to a second hand buyer before they spent monies on professional fees
So some buyers will have known the ground rent terms before purchase and others may have felt press-ganged into signing up – but a solution that eradicates all ground rent with no compensation was hardly an equitable way to deal with the problem and will of course result in a challenge under Human Rights
I think the initial rent should stand as that was clear for the purchaser to see BEFORE they entered into the contract and all future rises to be what was planned in the lease or if lower the movement in the RPI – this gets rid of pernicious rents which entrap leaseholders but respects our contract law saves 95% of leaseholders less than 85 pence per day and the Government from paying out £30bn in compensation – a sum the government if it had it would enable them to ease the social housing crises by building 175,000 homes at a cost of £175,000 each . Leaseholder would know that the ground rent they initially agreed to will remain constant in real terms