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.
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.”
“ground rent: we have significant reservations about Retail Price Index (RPI) linked increases to ground rent”.
I will never be satisfied until the whole business of leasehold is scrapped entirely, Scotland has done it and I see no reason whatsoever that this cannot be carried out in the rest of the UK. Leasehold is a scam, using hard working homeowners as “ cash cows” is nothing short of scandalous.
I totally agree that the leasehold scam should be stopped forthwith. I have owned flats in Paris as well as Rio de Janeiro. On purchase completion the flat is yours forever. Why this not the same in England and Wales is beyond me.
£250.00 ground rent per resident per-annum seems not an unreasonable sum to enable a management system to operate within a block of flats. Although the flat residents pay the house manager’s salary, an administration mechanism is required to select and advise a suitable manager for the post and to police internal alterations to the building. Such an administration requires financing. It is possible that the residents themselves could set up such an administration but I forsee insurmountable problems going down this route.
I am paying over £500 per annum in ground rent for living in a block of retirement flats built in 2007. Is this payment the highest in the property world?
It is high and you would not be able to buy a retirement flat with a mortgage because no lender these days would touch it. But, of course, all retirement property buyers are downsizing and pay cash.