And retirement ground rents are to be banned as well
Government press release below
The government is to ban new ground rents – including those in retirement developments – then set about implementing the leasehold reforms advocated by the Law Commission.
It will be a two-stage process, precisely following LKP’s recommended approach, which will see new ground rents banned in the upcoming session of Parliament.
This will have huge implications on how the agenda to reform leasehold is carried through.
The sector lobbyists – who have been busy on damage limitation today – would have relished a complex, all-embracing leasehold reform bill. This would have included lots of rabbit holes such as arguing over the fag-packet calculations for enfranchisement valuations, marriage value etc ad nauseam (all of which were dreamt up by chartered surveyors for London’s larger freeholders).
Instead, new ground rents are simply to be banned, with no exception, and once that happens the entire edifice of rip-off leasehold crumbles. The scene is then set for a far more consumer oriented reform of the communal ownership of residential property.
The reform timetable is explained by the excellent House of Commons library here:
On 21 December 2017, following a consultation exercise, the Government announced plans to tackle the growing problem of newly built houses sold as leasehold rather than freehold, and to limit ground rents on new lease agreements.
Banning ground rents deprives this racket of a future, which is a massive change.
It is excellent, too, that retirement developers such as Churchill and McCarthy and Stone failed to keep ground rents: they are particularly aggressive in retirement properties and wholly unjustified. Mortgage lenders would not lend on these products, which are instead bought by downsizers for cash.
It is solely due to the efforts of LKP that this initially successful lobbying from retirement house builders has failed.
As it happens, our hugely subsidised plc housebuilders were already abandoning ground rents as quietly as possible.
Barratt ceased introducing them to new flats in October last year. Countryside Properties plc, Bellway, Taylor Wimpey and the Berkeley group, which builds prime Thames riverside flats, have followed.
Five of the UK’s biggest housebuilders have scrapped ground rents on new flats, in a victory for future homeowners and campaigners who have long argued that the charges allow leaseholders to be exploited. Thousands of homeowners have been hit with inflated management fees and ground rents that rose by hundreds or even thousands of pounds a year on new-build flats and houses.
The reforms announced today advance the cause of commonhold and we await seeing a sunset clause, after which point all new developments must be commonhold.
It is good that there will be a commonhold council involving consumers – not the usual property sector stooges who have materially benefited from the rigged leasehold system for so long.
These reforms go a considerable way to addressing everything that LKP has campaigned for.
But let’s consider the context: household name developers are today toxic. They cheated consumers over doubling ground rents and, even worse, built dangerous buildings after the building sector fiddled the fire safety regulations. The current Grenfell Inquiry is shocking and may well lead to prosecutions.
Also, there is the Covid disaster: for the foreseeable future house building in the UK is going to depend on government and public goodwill and, almost certainly, public finance.
The boom-time property sector of the past 20 years is finished. So are its dodgy practices, of which leasehold is at the heart.
The case for housebuilders cleaning up their act is overwhelming: no one right now, even the Conservative party, is going to do it any favours.
As for the parasitical speculators in residential freeholds – often offshore and hidden – no one cares. Indeed, it would be an excellent notion to tax ground rents to help pay for the cladding remediation. .
We applaud the initiative this week of our MP patrons – Sir Peter Bottomley, Sir Ed Davey and Justin Madders – for freeholders to pay for the cladding works OR to hand over the freeholds to the leaseholders if they can’t or won’t.
Press coverage today
Housing Secretary Robert Jenrick unveiled new laws to help leaseholders today Changes will mean almost 4.5m people will be ‘thousands of pounds better off’ Rip-off charges which trap families in unsaleable homes are set to be banished Campaign groups welcome Housing Secretary’s ‘anti rip-off landlords charter’ Nearly 4.5million leaseholders in England will be ‘tens of thousands of pounds’ better off as a result of laws to be unveiled today by the Housing Secretary.
Millions of leasehold homeowners will be given the right to extend their leases to 990 years with zero ground rents under major government reforms to English property law. Robert Jenrick, housing secretary, announced plans on Thursday to bring forward legislation to tackle “cumbersome bureaucracy and additional, unnecessary and unfair expenses” affecting up to 4.5m leasehold owners.
Millions of homeowners will be able to free themselves from expensive ground rent s, potentially saving thousands of pounds, after the government announced what it described as the biggest changes to property law in 40 years. Leaseholders will be able to extend their leases to 990 years with zero ground rent under new legislation to be brought forward imminently.
By Kevin Peachey Personal finance correspondent Planned reforms of the controversial leasehold system in England are set to clamp down on high costs when extending a lease. The government’s proposals should help those with shorter leases fearing bills of many thousands of pounds.
And unhappy McCarthy and Stone:
And unhappy Wallace Estates https://www.propertyweek.com/insight/axing-ground-rents-is-a-bad-idea/5111887.article
07 Jan 2021 McCarthy Stone (‘the Group’), the UK’s leading developer and manager of retirement communities, notes today’s announcement by the Ministry of Housing, Communities and Local Government (MHCLG) regarding reforms to leasehold properties. The Group is disappointed to see that as part of these reforms MHCLG has reversed its previously announced exemption for the retirement housing industry from the zero rating of ground rents.
Government reforms make it easier and cheaper for leaseholders to buy their homes
STRICTLY EMBARGOED UNTIL 00:01 THURSDAY 7 JANUARY 2021
· Millions of leaseholders will be given a new right to extend their lease by 990 years
· Changes could save households from thousands to tens of thousands of pounds
· Elderly also protected by reducing ground rents to zero for all new retirement properties
Millions of leaseholders will be given the right to extend their lease by a maximum term of 990 years at zero ground rent, the Housing Secretary Robert Jenrick has announced today (7 January 2021).
Today’s measures come as part of the biggest reforms to English property law for forty years, fundamentally making home ownership fairer and more secure.
Under the current law many people face high ground rents, which combined with a mortgage, can make it feel like they are paying rent on a property they own. Freeholders can increase the amount of ground rent with little or no benefit seen to those faced with extra charges. It can also lengthen and lead to increased costs when buying or selling the property. Today’s changes will mean that any leaseholder who chooses to extend their lease on their home will no longer pay any ground rent to the freeholder, enabling those who dream of fully owning their home to do so without cumbersome bureaucracy and additional, unnecessary and unfair expenses
For some leaseholders, these changes could save them thousands, to tens of thousands of pounds.
Housing Secretary Rt Hon Robert Jenrick MP said:
“Across the country people are struggling to realise the dream of owning their own home but find the reality of being a leaseholder far too bureaucratic, burdensome and expensive.
“We want to reinforce the security that home ownership brings by changing forever the way we own homes and end some of the worst practices faced by homeowners.
“These reforms provide fairness for 4.5 million leaseholders and chart a course to a new system altogether.”
The government is also now establishing a Commonhold Council – a partnership of leasehold groups, industry and government – that will prepare homeowners and the market for the widespread take-up of commonhold.
The commonhold model is widely used around the world and allows homeowners to own their property on a freehold basis, giving them greater control over the costs of home ownership. Blocks are jointly owned and managed, meaning when someone buys a flat or a house, it is truly theirs and any decisions about its future are theirs too.
Professor Nick Hopkins, Commissioner for Property Law at the Law Commission said:
“We are pleased to see Government taking its first decisive step towards the implementation of the Law Commission’s recommendations to make enfranchisement cheaper and simpler. The creation of the Commonhold Council should help to reinvigorate commonhold, ensuring homeowners will be able to call their homes their own.”
Under current rules, leaseholders of houses can only extend their lease once for 50 years with a ground rent. This compares to leaseholders of flats who can extend as often as they wish at a zero ‘peppercorn’ ground rent for 90 years. Today’s changes mean both house and flat leaseholders will now be able to extend their lease to a new standard 990 years with a ground rent at zero.
A cap will also be introduced on ground rent payable when a leaseholder chooses to either extend their lease or become the freeholder. An online calculator will be introduced to make it simpler for leaseholders to find out how much it will cost them to buy their freehold or extend their lease.
The Government is abolishing prohibitive costs like ‘marriage value’ and set the calculation rates to ensure this is fairer, cheaper and more transparent. An online calculator will be introduced to make it simpler for leaseholders to find out how much it will cost them to buy their freehold or extend their lease.
Further measures will be introduced to protect the elderly. The Government has previously committed to restricting ground rents to zero for new leases to make the process fairer for leaseholders. This will also now apply to retirement leasehold properties (homes built specifically for older people), so purchasers of these homes have the same rights as other homeowners and are protected from uncertain and rip-off practices.
Leaseholders will also be able to voluntarily agree to a restriction on future development of their property to avoid paying ‘development value’.
Legislation will be brought forward in the upcoming session of Parliament, to set future ground rents to zero. This is the first part of seminal two-part reforming legislation in this Parliament. We will bring forward a response to the remaining Law Commission recommendations, including commonhold, in due course.
Notes to Editors:
· 1The Law Commission published their report on enfranchisement valuation ‘Leasehold home ownership: buying your freehold or extending your lease Report on options to reduce the price payable’ in January 2020 and their reports on enfranchisement, commonhold and right to manage in July 2020. These reports are available here: https://www.lawcom.gov.uk/project/leasehold-enfranchisement/
· A freeholder owns both the property and the land it stands on while leaseholders only own the property.
· Marriage value assumes that the value of one party holding both the leasehold and freehold interest is greater than when those interests are held by separate parties. Today’s announcement will remove marriage value from the premium calculation.
· ‘Modern ground rent’ is the rent (determined under section 15 of the 1967 Act) payable during the additional term of a lease extension of a house (under the current law). It is calculated by valuing the “site”, and then decapitalising that value.
· Many long leases specify an annual ground rent of a ‘peppercorn.’ A peppercorn rent is used in circumstances where it is deemed appropriate for there to be no substantive rent payable. Under the current law, any lease extension of a lease of a flat under the 1993 Act must be granted at a peppercorn rent. Today’s announcement means that both house and flat leaseholders will now be able to extend their lease to 990 years with a ground rent at zero.
· The formula used to work out the cost to leaseholders for buying the freehold or extending the lease includes a discount for any improvements the leaseholder has made and a discount where leaseholders have the right to remain in the property on an assured tenancy after the lease expires. These existing discounts will be retained, alongside a separate valuation methodology for low-value properties known as ‘section 9(1)’.