Today will see an announcement that leaseholders are set to pay a maximum annual ground rent of £250 for a duration of up to 20 years, as part of a revision to the Leasehold and Freehold Reform Bill.
Michael Gove, the Housing Secretary, has scaled back the bill’s initial promises due to push back from the Treasury, with The Times outlining this report.
Rather than being reduced to a nominal ‘peppercorn’ amount, as initially promised in the Conservative party’s 2019 manifesto, ground rent will be limited to £250 per year.
Gove, who criticized the leasehold system as archaic last year, has encountered resistance from the Treasury in his reform efforts.
The Treasury’s concern is based on the fact that pension and insurance funds have heavily invested in ground rent collections, and an internal review has suggested such reforms could result in a loss of investments worth up to £37 billion, potentially resulting in compensation demands directed at the government.
Data from the Department for Levelling Up, Housing and Communities, released last May, indicates that there are about 5 million leasehold residences in England, making up 20% of all housing in the country.
Mark Chick from the law firm Bishop & Sewell and from the Association of Leasehold Enfranchisement Practitioners, says the original reform plans could have led to substantial compensation claims against the government.
He notes that while some people believe the cap doesn’t go far enough and that a total ban on ground rents would be preferable, human rights considerations have played a role in shaping the present proposal, avoiding a policy that might have led to hefty compensation costs for the government.
Chick also highlights that some speculate the £250 cap might eventually be removed gradually over time, raising questions about when and if it would reach zero – changes that would greatly affect the value of freeholds in the long term. The government appears to be weighing property control and deprivation rights to find an equitable resolution.
“A twenty-year limit is not ideal, but it’s a middle ground. We need to explore the detailed language of these amendments. There has to be a definite conclusion,” Chick declares.
