Brokenshire pledges to set new ground rents to zero
Not £10 …
But retirement house builders can keep on churning out ground rents in their time-expired house builder business model
The long campaign of the Leasehold Knowledge Partnership to reform the ludicrous leasehold system in England and Wales was triumphantly vindicated today with a series of announcements by Communities Secretary James Brokenshire.
The government has been persuaded by our arguments that new ground rents be set to zero – but retirement house builders who lobbied hard to keep producing ground rents – even though they are increasingly irrelevant to their businesses – succeeded in getting an exemption.
Mr Brokenshire says: “Today I can confirm we will go ahead with our original plan to reduce ground rents on future leases to zero, as opposed to a cap of £10 per year.”
This is a major shift in gear from government, which had been deluged by lobbyists for the ground rent sector to keep the leasehold racket going.
This means the fears of outfits such as ground rent funds Long Harbour, Wallace Estates, the Tchenguiz Family Trust and others that the Leasehold Knowledge Partnership’s campaigns were an “existential threat” have been realised.
With new ground rents set to zero, and the Law Commission reviewing the process of easing enfranchisement and helping leaseholder empowerment through right to manage and commonhold tenure, this adds up to a devastating assault on speculations in residential freeholds.
Our response is: Well done, Mr Brokenshire.
A dark cloud in this is that this is a policy statement from a Communities Secretary at the point where the prime ministership is changing.
Well, let’s hope Mr Brokenshire stays in post to see all this through.
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Sir Peter Bottomley, Jim Fitzpatrick and Sir Ed Davey, chairs of the All Party Parliamentary Group on leasehold and commonhold reform, write:
Officers of the influential All Party Group on Leasehold and Commonhold Reform welcome this initial follow-up to the powerful Select Committee report on Leasehold and Commonhold abuse and opportunity.
Government and parliament are making significant progress to help and to protect vulnerable residential leaseholders.
We shall continue to raise problems that we believe still need solving.
We will cooperate with government, confident that if we work cooperatively, everyone will win, except for the sharp, the brutal and those who exploit leaseholders and their households.
In addition to our Secretariat, the Leasehold Knowledge Partnership campaigning charity, we include in our thanks many in the media who have helped to bring problems to public attention.
From the MHCLG
Leasehold axed for all new houses in move to place fairness at heart of housing market
Pernicious ground-rents on new leases to be reduced to £0 – preventing leaseholders being charged soaring fees for which they receive zero benefit All new houses to be sold on freehold basis unless there are exceptional circumstances – ending unscrupulous practice of unnecessary leaseholds Immediate action to ban Help to
Implementing reforms to the leasehold system
GOV.UK uses cookies to make the site simpler. Consultation outcome This consultation has concluded The government’s consultation ‘Implementing reforms to the leasehold system’ looked at how a number of measures to tackle unfair practices in the leasehold market should work in practice. The consultation received over 1,200 replies, demonstrating the strength of interest in the issue.
FOR IMMEDIATE RELEASE
LEASEHOLD AXED FOR ALL NEW HOUSES IN MOVE TO PLACE FAIRNESS AT HEART OF HOUSING MARKET
· Pernicious ground-rents on new leases to be reduced to £0 – preventing leaseholders being charged soaring fees for which they receive zero benefit
· All new houses to be sold on freehold basis unless there are exceptional circumstances – ending unscrupulous practice of unnecessary leaseholds
· Immediate action to ban Help to Buy being used to support leasehold houses – stopping taxpayers’ money being used to fund unjustified sale of leasehold houses
All new-build houses will be sold as freehold in a bold move to tackle unfair leasehold practices and prevent future home-owners from being trapped in exploitative arrangements, the Communities Secretary said today.
In a wide-ranging speech to the Chartered Institute of Housing conference in Manchester, the Rt Hon James Brokenshire MP confirmed plans to abolish the selling of new houses as leasehold properties and reduce ground rents for new leases to zero – putting cash back into the pockets of future homeowners.
To stop freeholders and managing agents taking as long as they want – and charging what they want – to provide leaseholders with the vital information they need to sell their home, Ministers will introduce a new time limit of 15 working days and a maximum fee of £200 to make the home buying process quicker, easier and cheaper.
The Secretary of State has also instructed Homes England to renegotiate Help to Buy contracts to explicitly rule out the selling of new leasehold houses, other than in exceptional circumstances, to protect new home buyers from unscrupulous charges.
And where buyers are incorrectly sold a leasehold home – saddling them with a property that could ultimately prove difficult to sell – consumers will be able to get their freehold outright at no extra cost.
The measures announced today demonstrate the Government’s commitment to ensure decent and fair housing for the people and communities that need them, as it strives to deliver 300,000 new homes a year by the mid-2020s.
Other important proposals unveiled include new proposals to make it easier for renters to transfer deposits directly between landlords when moving; extra funding for 19 new garden villages; and radical new measures to speed up planning applications.
Communities Secretary Rt Hon James Brokenshire MP told the Chartered Institute of Housing conference:
“We have long recognised that we have a responsibility to confront unfairness in the leasehold market. Last year we consulted on proposals including the leasehold house ban and ground rent reduction.
“Today I can confirm we will go ahead with our original plan to reduce ground rents on future leases to zero, as opposed to a cap of £10 per year.
“And we will legislate to ensure that in the future – save for the most exceptional circumstances – all new house will be sold on a freehold basis.
“We are committed to taking bold action to reform the sector and will be pressing ahead as soon as parliamentary time allows – helping us delivery our promise to make the home buying and selling process quicker, cheaper and easier.”
The government’s proposals have already had a fundamental impact on the housing market since they were unveiled, with the sale of leasehold houses falling from eleven per cent to just two per cent this year.
Plans for deposit passporting
More than four million people live in the private rented sector, yet when moving home, some tenants can find it a struggle to provide a second deposit to their new landlord – risking falling into debt or becoming trapped in their current home. Ministers want to understand the scale of this problem.
Ministers are inviting proposals to make it easier for renters to transfer deposits directly between landlords when moving from one property to the next.
Freeing up deposits and allowing a renter’s hard-earned cash to follow them from property to property – as they move to take that perfect job, to move nearer to family, or find a place that suits their changing needs – will create a fairer housing market that works for all.
New garden communities to be created
An extra 19 garden villages will be created across the country, with the potential to deliver 73,554 homes, it has been announced today.
The government is providing £2.85 million to support the development of plans for housing from County Durham in the North to Truro in the South West.
Each of the projects will be given £150,000 to progress planning applications and specialist reports needed before homes are built.
The new settlements include a dementia-friendly community village at St George’s Barracks, in Rutland, which would allow the elderly to live safely and independently in their own homes.
Planning bureaucracy cut
Councils will be able to approve planning applications more quickly under radical new measures to remove bureaucracy from the system.
The new Accelerated Planning Green Paper, to be published later this year, will dramatically improve the planning process.
This is part of a renewed and refreshed focus on making sure planning authorities have the resources they need to act for the benefit of homeowners – delivering a better service, faster than ever before.
Leasehold changes
New measures will also be taken to prevent developers selling leasehold houses through the Help to Buy Scheme – preventing taxpayers’ money from directly supporting the unjustified sale of leasehold houses.
The Communities Secretary has today instructed Homes England to renegotiate contracts with all Help to Buy developers to explicitly rule out the building and selling of leasehold houses, other than in exceptional circumstances.
This all comes as a further eighteen leading property developers, managing agents and freeholders – including Crest Nicolson and Keepmoat Homes – have signed up to the government’s industry pledge, committing them to freeing existing leaseholders trapped in onerous deals where ground rents double every ten or fifteen years. This takes the total number of signatories to over 60.
New Homes Ombudsman
The Government wants to see more good quality homes that people are proud to buy and proud to live in – and a New Homes Ombudsman, will protect the rights of homebuyers and hold developers to account.
Today Ministers have launched a consultation on redress for purchasers of new build homes and the New Homes Ombudsman. This seeks views on the detail of the proposed legislation and how a new homes ombudsman can be delivered and will run until August 22.
They are also exploring the options to appoint a New Homes Ombudsman in shadow form – someone to work closely with industry, consumer groups and Government to ensure improvements and standards are delivered quickly and help shape the future scheme
£2 billion long-term affordable homes funding
The Communities Secretary opened the bidding process for £2 billion in long term strategic partnerships to deliver additional affordable homes with funding available until March 2029.
This marks the first time any government has invested such long-term funding in new affordable homes through Housing Associations, supporting the development of more ambitious long-term plans to build the homes this country needs.
These new bids will continue to build on the over 430,000 affordable homes delivered since 2010.
ENDS
Related posts:
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ITV News says 45,000 leasehold houses sold in last five years. LKP claims £300-500m new home freeholds sold every year
Leasehold houses to be banned and future ground rents set to zero, announces Sajid Javid
Brokenshire demanding action for 100,000 trapped in toxic leasehold homes five months ago
Can this possibly be good news?
Leaseholders to sue government over fire safety measures
Dear Mr Brokenshire,
I understand your time as Housing Minister may be drawing to a close.
That being the case, I would like to put on record my thanks for all that you have done.
Yes, much more is needed, but you have done much to advance the cause of the leaseholder.
Dear Michael,
Thank you for your comments and the hundreds of others you make on LKP. If it wasn’t for you and a handful of others there wouldn’t be any comments
Jim x
A freeholder writes …
If this ever comes to fruition you will have the blood of future leaseholders on your hands and I will ensure you are held to account for it
You can print that
Regards,
Mark Hawthorn
CEO
Landmark Investments
Sebastian O’Kelly, LKP director, replies (copied to the Secretary of State):
Thanks Mark.
And please pass on our appreciation to your fellow investors in residential freeholds with predatory lease terms whose greed, aggression and stupidity helped bring this about.
And, yes, you can print that, too.
S
And more …
Luckily there are millions of leaseholders, myself included, without issue
If proposals do go ahead it will simply mean a hell of a lot less flats are built and our housing crisis rapidly expands. There are absolutely no winners, only losers
Regards,
Mark Hawthorn
CEO
And Sir Peter Bottomley adds:
Dear Mark Hawthorn,
Do come in for a discussion.
Builders sell homes at a market price.
Ground rents are not needed.
Peter B
Do consider how homes are created in other non-ground rent countries.
Did not Squire Javid make similar announcements back in 1066?
Please wake me up when an actual leasehold reform bill is tabled by the government.
Meanwhile I’m keeping my parsnips safe in the fridge unbuttered.
Nice sunshine, mind.
Paddy what was announced by Sajid in 2017 was a set of proposals which had to follow a consultation process. This one has seen not one but two so that should. make it far more difficult for developers and freeholders to argue their human rights have been breached.
Now the consultations complete the next phase is for government to bring forward legislation -which may happen next year. If we’re to get a change of government before then I doubt that different government would agree with what is proposed.
I am happy to take my share of the blood, Mr Hawthorne, so please do not leave me out?
A bad day for The British Virgin Isles, The Cayman Isles, Jersey and Guernsey
Kindest regards,
Michael Epstein (not to be confused with Michael Epsteinthwaite?)
What about existing leaseholders with Help To Buy loans with outrageous ground rents sanctioned by this government ?
Typical fudge
No it’s not fudge. Fixing what happens next is key. Fixing existing stock is what the CMA is now looking at.
Perhaps we could have a day of the glass being half full?
Luck is not a factor. Hope is not a strategy. Fear is not an option – James Cameron.
But politics is a shark infested sea.
We’re gonna need a bigger glass.
Martin,
This announcement is brilliant news.
Even though I’m an existing leaseholder (now freeholder) and this announcement doesn’t affect me, it is fabulous to see the government acting and stopping more people falling into the same trap.
Well done to all who made this possible.
This is a momentous day. Zero ground rents for future leasehold properties is the start of the end for leasehold. Huge congrats to Seb and Martin for all your hard work to help make this happen. Now onto sorting the problem for those of us stuck in this mess… thanks to Mr Brokenshire for having the resolve to stick to zero ground rents in the face of strong opposition from the sector.
Shame JB has missed an opportunity to kill ground rent on retirement properties. Donations and lobbying seem to make it ok to carry on extorting money from vulnerable older people. Ground rent is a charge for no service but has been deliberately positioned to confuse as a charge required for communal services. It is not. Next round of changes needs to sort this out…
Jo, The damn has burst. It will sweep away the ground rent for retirement developments..
Not just the ground rents, but the proposal to allow freeholders of houses to go to the FTT to challenge maintenance costs and have the managing agent replaced is very significant and will go a long way to thwart the outrageous exploitation of those that “own” a home on a leasehold development..
The key issue that needs to be defined and appreciated is “what is an onerous rent ?”.
At present there appears to be a rule of thumb that if the rent is greater than £250 or more than 0.1% of the value of the property it will adversely affect the flats value with lenders declining to lend. This will of course effect existing lessees and ultimately also impact on lenders who hold security for mortgages over leasehold property.
It is my constant claim that as the ground rent is for no service that the obligation to pay a ground rent must be seen as a financial burden placed on the property and there needs to be a defined way of valuing that obligation so that it can be reflected in offers made by purchasers.
I see a similarity with the Consumer Credit Act which requires loans to state the APR. Before 1975 a lender could offer terms and only more financially sophisticated people could evaluate the terms of one loan against another. By lenders having to state the APR it helped consumers make informed choices.
In theory as the ground rent increases then the value of the leasehold property should decline. Therefore, the ground rent is in effect an interest payment in return for a discount off the premium paid for the lease. Therefore, there should be in place some valuation tool to help lessees decide what the implications are for signing up to a lease. The NPV achieves this and if this had been in place and SDLT applied to the premium and the NPV of the rent the 10 years’ doublers would have been challenged by purchasers before they committed themselves to such terms. The NPV of the ground rent reserved to have been shown next to the premium paid in the lease and in particular in Box LR7 in the prescribed clauses section of the lease. For example, a ground rent of £350 doubling every 10 years for the first 6 anniversaries would have a NPV of £31,797 if discounted at 6% and such a sum compared to say a premium of £250,000 say for the property would have made purchasers and their professional advisors sit up and take notice and negotiate.
Rather bizarrely the greater the ground rent the less likely it is to be onerous. If a flat worth say £300k if sold on a token is sold instead with a ground rent of £5,000 linked to the RPI every 10 years the purchaser would take advice on its implications and offer around £150,000 for the flat. Having then moved in to the flat we would all agree that the lessee cannot then claim the rent is onerous. The reason of course being that in defining what is an onerous rent you have to look at the overall package.
Equally the idea that a rent over £250 regardless of who much a flat is worth impinging on the sale prospects of a flat is somewhat incredulous. A RFL licence on a car can easily exceed that figure and will of course rise in line with inflation if not more and sales of modest cars are not blighted by such a tax. A night in town going to the Theatre and a meal afterwards would easily exceed that figure. Ladies will spend a multiple of that sum on a handbag, the depreciation on a computer/TV will easily exceed such a sum per annum So to suggest paying £350 per annum instead of £250 per annum on a flat worth £250k will blight its sale prospects is without foundation in my opinion. What it should do is start to make people think a bit more about their outgoings and start to think about reflecting an adjustment in what they offer. Hence my proposal that the NPV of the ground rent be disclosed
I believe it is in nobody interest to have a simple definition of an onerous ground rent. I believe that valuers need to consider the ground rent terms when valuing a flat and if the ground rent is high then an adjustment needs to be made to the value of the flat. The adjustment will not make a flat unsaleable and neither should it make it un mortgagable. If legislation is in place to extinguish just the rent or reduce the rent by a certain amount in return for compensation, then a lender can be confident that their security can be adjusted if necessary to remove a rent if it was considered a problem in the future.
I would add that if legislation was introduced to enable just the rent to be removed or partially extinguished it would not require a valuation of the property and would simply need a deed of variation to record the adjustment in the rent. If prescribed discount rates were given by the government with an online calculator to assist and the whole exercise could be done very easily .
The types of ground rent that should be regarded as onerous are those where the rent cannot be determined on a defined formula so no accurate valuation of the liability can be determined. If linked to the RPI then as it is a defined formula, there should not be an issue. Although I think it would be better if ground rents were linked to average earnings so as to allay the fear of ground rent may rise because of inflation way beyond average earnings and make payment of the rent burdensome .
It has been reported recently that many young buyers are citing negative issues about leasehold as part of (not the sole) reason why they are trying to purchase freehold houses. Therefore, it is important that there is a measured debate about the problems on leasehold. If a near hysteria breaks out over ground rents on leasehold property, then existing lessees and lenders will lose out as property prices on leasehold with normal ground rents will be seen in a negative light.
You and your friends in the sector have made the case for ground rents with government for three years now, and have lost.
If they are set to zero in new builds, that will be a massive change to the leasehold system.
I suppose individual leaseholders could use ground rents to borrow money, as happens in some high value older properties in London which have short leases. But it is a dangerous practice, as you risk losing the property and all equity if you fail to pay it.
But the wider ground rent racket going forward is destroyed by this announcement – assuming it is realised – and that is a very good thing.
Stephen,
I still do not see why any third party (often offshore) should see my property as a valuable income stream?
i still do not see why if I have a dispute with a third party offshore investor I could end up having my home taken away?
Your argument appears to suggest that a higher ground rent leads to a cheaper purchase price? Where is the evidence for this ? Name the developments?
Is it not the case that lenders in granting a mortgage need to be satisfied that their loan can be paid back and that in the event of a default the asset covers the loan?
Therefore,under this criteria lending on new build over a 25 year term was less likely to have been an issue for the lenders?
That a first time buyer cannot sell was not seen as an issue provided the purchaser kept up with the mortgage payments?.
My message to the offshore freeholding investor vultures is that “feeding time is over” Time to move on. I am sure these investors will soon source new forms of exploitation?
You are right to ask for evidence that leasehold properties are sold at a discount.
The APPG reviewed the Land Registry database and concluded:
– “there is no consistent discount for selling leasehold.”
– “there is some evidence that developers may now even be seeking to sell leasehold houses at a premium over their freehold equivalent”.
https://www.leaseholdknowledge.com/wp-content/uploads/2017/04/AllPartyParliamentaryGroupLeaseholdReportApril27.pdf
(Page 8)
Stephen,
Yes, if new new property has a zero ground rent, than older properties with a substantive ground rent will become less attractive to purchase unless heavily discounted.
This then makes the lease “onerous”, so it will have to be changed?
Shall we use the Scottish formula for conversion? It appeared to work well their?
Posted on the About Firstport website,, a note to the Proxima GR properties accounts, warning that any changes suggested by the Law Commission if implemented “would materially reduce the level of income generated by the portfolio and would be a significant threat to the company”
I take that to mean that any attempt to simplify and reduce the costs of enfranchisement or lease extensions and treat leaseholders fairly would undermine the freeholder’s business model?
This is great news hope to see the legislation passed soon.
There is the matter of the existing millions of leasehold properties liable to ground rent, so when will this be reduced to zero ?
Who is going to compensate freehold owners for lost ground rent, which leaseholders accepted, and undertook to pay, when they purchased their properties with legal advice?
The ruling affects future ground rents. Existing ground rents have to be paid. (Although there is a mis-selling inquiry by the CMA and the Law Commission is tasked with making enfranchisement easier and cheaper.)
Dear Admin,
If new leaseholds don’t have ground rent there will be a two tier system within leasehold.
Perhaps there could be a settlement for existing leaseholders to pay ground rent for a further 10 years and then pay nothing.
What may have been legal in the past, may with the passing of time become illegal.
We are reliant on government to listen to the Law Commissions recommendations and pass legislation to help existing leaseholders. I hope this will happen.
There is an established formula for very small rent charges which the government sort to abolish in 1977
Presently rent charges will expire in 2037 and the interest rate used is 1.75%
Use is made of National Loans Fund interest rate available from the UK Debt Management Office
Interesting point Admin,
So, should compensation be based solely on ground rent income? And if so over how many years of “loss” of ground rent income should it be based?
Many of the freeholders have secured loans against not just the ground rent income, but also against the income streams the freeholds can produce such as for placing insurance or charging for permissions?
So provided the leasehold was purchased in a fair manner, I would suggest a maximum of 10X the current annual ground rent, with legal costs fixed at £200?
I do not suggest..any compensation for loss of secondary income.