Government told to curb excessive ground rents and ‘disassociate’ from freeholders’ ‘Pledge to Leaseholders’ by Communities Select Committee

The Communities Select Committee has urged Housing Minister Chris Pincher to disassociate the government from the Freeholders’ ‘Pledge To Leaseholders’ and curb existing ground rents.

Public pledge for leaseholders

For existing leaseholders: 1. Identify leases within our portfolio which contain a clause whereby ground rent doubles more frequently than every 20 years, contact leaseholders to inform them, and offer to amend to one linked to RPI. 2.

The appeal comes in a letter dated March 9 from the chair Clive Betts MP.

The Communities Select Committee urged the government to introduce legislation to limit existing ground rents to 0.1% of the present value of a property, up to a maximum of £250 per year.

The ground rents “should not be permitted to increase above £250 over time, by RPI or any other mechanism”.

The Communities Select Committee findings were subsequently taken up by the Competition and Markets Authority.

Mr Betts writes:

“They too noted significant concerns around levels of ground rent and about the sales processes adopted for long leasehold houses. We support the CMA’s intention to open enforcement cases using their consumer law enforcement powers to pursue these concerns.”

Although the freeholders’ ‘Pledge to Leaseholders’ had been a lobbying exercise, it only achieved government backing in June last year.

Freeholders and developers recognised that doubling ground rents were unreasonable and proposed amending them to rise with Retail Price Inflation.

Nonetheless, LKP has been contacted by leaseholders with doubling ground rents who are being asked for considerable sums to amend their onerous leases.

In February two sisters who are buy-to-let investors faced demands of £30,000 to vary the doubling ground rents on three investment properties by Landmark Investments.

The figure was subsequently reduced to £15,000 by ground rent fund Long Harbour, which ultimately managed the site in Salford.

Long Harbour rebukes Mark Hawthorn, of Landmark Investments, for ‘falling below professional standards’ over email on doubling ground rents

But the Communities Select Committee expressed concerns:

“We are not convinced of the merits of the voluntary developer- and freeholder-led schemes that offer to convert leases with doubling ground rents to RPI-based review mechanisms, which have been supported by the Government.

“RPI-reviews may still see ground rents rise above 0.1% of a property’s value, which many lenders consider to be onerous. Most require RPI reviews across the entire length of the lease, as opposed to a defined initial period, while others demand high fees in exchange for removing onerous terms.

“These offers are not good value when compared to the Government’s proposed cap for ground rents on new leasehold properties.”

Mr Betts concluded:

“In light of the CMA’s findings, alongside those of our predecessor Committee’s report in 2019, the Committee now calls on the Government to disassociate itself from its Public Pledge for Leaseholders and encourage freeholders and developers to convert leases such that they never increase above 0.1% of the property value or £250.

“If freeholders and developers refuse to do so voluntarily, they should be forced to do so through the upcoming legislation announced in the Queen’s Speech, which the Committee awaits with a keen interest.”