DEADLINE DATE FOR CONSULTATION RESPONSES IS NOW 17 JANUARY 2024
The government’s leasehold reforms are now moving fast and it wants to include a cap on existing ground rents without prompting a judicial review from the freehold punters who have bought them up.
The government is offering five options to remove ground rents, and wants to know which leaseholders would prefer.
This means yet another consultation, and it is essential that leaseholders respond: those who have seen sales fall through; mortgages refused; living in retirement sites; or have been pursued with eye-watering fees from debt collectors because the ground rent demand either was sent to the wrong address, or wasn’t issued at all .
LKP is urging that all ground rents be set at a peppercorn in order to avoid the creation of a two-tier market, and that leaseholders should choose this option.
The government website announcing the consultation reads:
“We understand that freeholders, collectively, would very likely lose revenue as a result of implementing a cap on existing ground rents. The scale of this loss may be dependent on which option of a cap was taken further. Regardless of the option taken forward, we would not expect to compensate freeholders for lost revenue, nor do we expect freeholders would be able to capitalise this lost income stream through other means.”
The government is consulting not because it is unaware that ground rent games are gamed by big freehold owning funds like Long Harbour, Tchenguiz Family Trust, Wallace Estates, E&J Estates, Pier / Regis and all the rest of the private equity gameplayers – some of the richest people on the planet, and usually offshore – represented by the Residential Freeholders Association.
The government is also aware of unsavoury characters like Martin Paine, who does a bit of trickery when leases need extending to return doubling ground rents back to the date when the lease was first issued, resulting in poorer families facing ground rents of £8,000 a year.
Sir Peter Bottomley described this gentleman’s trickery as “turning the sleaze of lease into an artform”.
Nonetheless, his unfortunate victims should respond to the consultation
The essential way to respond is to fill out the online survey here:
https://consult.levellingup.gov.uk/leasehold-reform/38011950/
Michael Gove, secretary of state for housing, announces the consultation saying:
“There is no legal requirement for these ground rents to be reasonable or linked to any service provided.
“While a freeholder or investor may see ground rent as a useful income stream for a leaseholder it can appear to be simply an annual reminder that you do not own the land your home stands on, that your lease on it is finite, and that there is a payment for the privilege of staying there.
“It is a historical anachronism, already eliminated for new leases, and we now wish to take action to help those with existing leases.”
A core argument in favour of a ground rent cap is that leaseholders should only pay for costs from which they gain material benefits. Service charges already exist to cover the cost of delivering management and maintenance of the block.
The government states: “We believe that more frequent inflation linked increases [in ground rent] which were previously rare, have become the common ratchet by which ground rents increase.”
The government sets out five options:
- capping ground rents at a peppercorn
- setting maximum financial value for ground rent
- capping ground rents at a percentage of the property value,
- limiting ground rent to the original value when the lease was agreed
- freezing ground rent at current levels
The government document points out that investors in ground rents contract out the management of their sites to third party management companies: “So, from the outset, leaseholders are faced with a complex management structure that they have had no say in, all because of ground rent.”
The average ground rent according to the English Housing Survey 2021-22 was £298.
It is stated that 78% of estate agents in Propertymark (formerly National Association of Estate Agents) reported that a leasehold property with an escalating ground rent will struggle to sell, even if priced correctly.
But an escalating ground rent is the scenario faced by the majority of leaseholders who have bought a new build property after 2000.
The Competition and Market Authority (CMA) estimated in February 2020 that this affected 670,000 new-build leasehold flats and over 100,000 new build leasehold houses.
Option 1: Capping ground rent at a peppercorn
“This would remove the obligation to pay a financial ground rent from a given date. In theory the freeholder could still demand the ‘peppercorn’, but in effect it would mean that there was no ground rent to pay.
“This proposal would align ground rents in existing and new leases. It also has historical precedent– before the 20th century, instead of requiring a financial ground rent, many ground rents were set at a ‘peppercorn’, to save the freeholder having to collect the nominal rent. Additionally, this approach would also protect leaseholders from being required to make a payment for no explicit services in return.
This is interesting:
Through the Building Safety Fund and the Cladding Safety Scheme, the government already provides funding to freeholders who need to remediate cladding on their blocks (if they are the party with the legal right to carry out the works to the building). For non-cladding related defects, we understand that freeholders may need to raise funds to meet such costs and that contributions from qualified leaseholders are firmly capped and spread over 10 years. However, we are also aware that many freeholders who are responsible for these buildings have other avenues available to raise funds to meet their remediation obligations. If evidence exists that freeholder’s ability to meet their obligations will be detrimentally impacted by a peppercorn cap on ground rents, we encourage stakeholders to share it
Option 2: Capping ground rent at an absolute maximum value
“This would mean that there would be an upper financial value that ground rents could rise to. Ground rents which are currently below that amount would be permitted to rise to that value, but never to exceed it.
“We see merit in the simplicity of this option, in that it would be clear to freeholders and leaseholders alike over the highest financial value which could be charged for a ground rent. It would also put an end to some of the most troubling examples of current practice while having lower impacts on freeholders and investors than a peppercorn.
“However, this option would not achieve a fundamental change to the ground rent practices and eliminate the anachronism of ground rents for existing leases. It would fail to resolve the issue of leaseholders paying a charge without receiving a transparent service in return and does not deliver fairness and equality between new and existing leaseholders.”
Option 3: Capping ground rents at a percentage of the property value
“.. there was no consensus on what an onerous ground rent term is in practice nor on what percentage of the value the cap should be set at. At a high level this option would likely have lower impacts on freeholders than a peppercorn but lower benefits for leaseholders.
“The percentage that we hear called for most often is a cap of 0.1% of the property value, on the basis that ground rent above this can adversely affect a person’s ability to get a mortgage on that property, according to the criteria set by some mortgage providers.
“We have concerns that pursuing this approach could be difficult to implement and enforce, in practice requiring a programme of valuation …”
Option 4: Capping ground rent at the original amount it was when the lease was granted
“This option would provide for ground rents to revert to, or remain at, the initial level provided for in a lease. To achieve this, we could legislate to prevent any further escalation beyond the initial amount set out in the lease. This means that there could be no rise in the financial value for the lifetime of the lease.
“This option has merit in that it recognises that there is a contract entered into between the leaseholder and freeholder to pay rent and sets the ground rent obligation to the level that the leaseholder is most likely to have been aware of.
“It may be relatively simple to implement …
Option 5: Freezing ground rent at current levels
“This option would provide for ground rents to remain at the value provided for in the lease at the date that such a measure was implemented …
“This has the advantages of being simple to understand and implement and respects the existing contract … It might also have lesser impacts on the revenue and business models of freeholders than other options and would remove concerns from lenders about future escalations becoming unaffordable for leaseholders with mortgages.
“However, like the other options that continue with a material ground rent, this option does not guarantee equality between new and existing leases and does not fix the problem of leaseholders paying a financial ground rent for no clear service in return.”
“We understand that freeholders, collectively, would very likely lose revenue as a result of implementing a cap on existing ground rents. The scale of this loss may be dependent on which option of a cap was taken further. Regardless of the option taken forward, we would not expect to compensate freeholders for lost revenue, nor do we expect freeholders would be able to capitalise this lost income stream through other means. Where freeholders incur legitimate costs for service provision, they should be met through the service charge.
Regardless of which option government chooses to pursue, we would seek to override existing leases with new terms to apply only to future ground rent payments. This means that following implementation of legislation, leaseholders who receive ground rent demands which exceed the limits of our chosen cap would be able to refuse to pay them.”
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Freeholders face £27.3bn fall in asset values if ground rents reduced to peppercorn, says government
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Minister Rachel Maclean claims leasehold reform will be ‘a generational transformation’. Hugely welcome changes, but it’s scaled back as the government runs on borrowed time
“The best way to respond is to fill out the online survey here”, in what way the best? I have just tried to complete the online survey and then realised it was a typical God awful government survey. There were six options as to preferences on ground rent. Having selected in order, each is then dealt with and the need to go into detail and respond to questions. I got as far as dealing with my first option before realising I would have to go through the same procedure with other five options. It would have taken an age to complete. I am sending an email.
Agree. Just completed the online survey. Had to answer questions on evbery option having given my preference at the start.
Therapeutic, mind.
Used the RTM questions to off-load on the shambles that is the 2002 legislation in practice having helped manage one for ten years. After Triplrose and Settlers Court, it cant work far as I can see. Maybe that’s the plan?
Odd the RTM question appeared given that RTMCs have no responsibility for ground rents. Perhaps they forgot?
If only I could believe a human will read my efforts and not simply compute the options ticked.
It will certainly be read.
I hope you’re right but how can you be certain?
And what is so difficult that ground rents can’t be abolished altogether.?
Michael Gove states
“For centuries, ground rents were typically small sums, even a peppercorn. But in this century, we have seen an increase in these rents, often rising at frequent intervals. ”
This is profoundly wrong. The ground rent in the Victorian and early part of the twentieth century was often between £1 to £5, and many regard this as evidence that rent is only supposed to be token peppercorn sums. Swaths and swaths of Victorian terraced houses in the industrial heartland of England have rents of £1 per annum, representing more than a week’s household income for those living in them at the time they were granted.
Please abolish leasehold system and this service charge is complete robbery by management company and freeholders.People should be given RTM
Abolish ground rent to make it easier to sell our properties (flats). It’s Unjust that we have ploughed hard earned money to purchase a lease as a means of securing a home and to as in my case bequeath to my grandchildren.
Onerous ground rents are immoral to state the least.
Please abolish this feudal system! I feel very disappointed that my lifetime of effort to improve my financial status has been swept from under me. At 62 years of age, having worked all my life I now find that I’m unable to progress any further in life because of this outdated and clearly, one sided system.
I don’t understand the hysteria about paying a ground rent. It was agreed contractually as a term of the bargain for a lease. Especially if fixed or reviewed 25 yearly or 33 yearly. There is nothing inherently wrong in the reserving of a ground rent and it should not affect enjoyment of the flat.
Disagree. It creates the feeling of a landlord tenant relationship and that then enables the managing agent to treat the real owners. The leaseholders, like dirt and not consult with them properly. Especially if the managing agent has ties with the freeholder like Ballymore for example, the contractual relationship was made unfairly as flat Omar’s had no choice but to agree. Agree different for leasehold house owners who could have brought freehold. commonhold with no ground rent or lease length is the only answer..
Owners not Omar’s
Fred aka Stephen
I’ve completed the survey and provided detailed answers. It is worth the time to complete as this our opportunity to end the rip of of escalating ground rents. The more leaseholders that respond, and with examples of how ground rents negatively impact ownership, the better.
A lease is not a bargain! Leases have been sold as just anohter form of home ownership. FLats are not sold to this day as Lease For Sale but Flat For Sale. How that meets trading standards I don’t know.
My lease is now wiorth less than its original price indexed just for RPI let alone HPI. Values have crashed way below so-called graphs of relativity – take your pick of those, the tribusals seem to.
Ground rents have been abolished for new leases. Now all we need do is give the land “Lords” our firstborn or our new wives to compensate for losing their existing profit for no effort.
It wont come cheap that’s for sure.
Survey asks about bringing all “freeholder management functions” into the service charge regime (Q12). Did the author read a lease? What ‘freeholder management functions’ currently fall outside the service charge? Would that be individual debtors fees, or sales pack fees? Or consent fees? Why not charge all flats an equal share for those too, eh? You can’t manage what you can’t measure and I’m not convinced the civil service who make these surveys understand leasehold in practice.
The argument could be put that ground rents had started to increase in the last 30–40 years as a percentage of income or the value of the property. However, current rents are still far lower in percentage terms to income and property values than they were in the early 1900s. Therefore, the tradition of having a meaningful ground rent was returning and therefore perhaps the argument should be that the leaseholder paid too much for the premium for the granting of the lease. The remedy of this is far too complex and fraught with problems to unpick, and therefore it appears the government considers it easier to scrap the part of the contract (i.e., the ground rent) where its terms are set out very clearly in a lease which is examined by the leaseholder’s solicitor before contracting into it.
I am also of the view that the Government is abusing the trust of leaseholders. It has rapidly changed track (following 4 dreadful by elections result) from a capping of rents at £250 or 0.1% to abolishing them without compensation
It will grab the attention of the 5 million potential voters, but the reality is that there will almost certainly not be enough time, or it will be subject to a judicial review or a trip to Strasbourg where based on the advice Catherine Callaghan KC ( to whom they consulted upon the idea of £250 or 0.1% of capital value) was of the view that a successful challenge would be successful. Presumably, her view would be even stronger if it had to opine on a zero rent
So I think the Government is playing to the gallery in the final act before the curtain goes down . If they were truly committed, why did they leave it to the last minute ?
An amendment was proposed in the Leasehold Reform (Ground Rent) Act 2022 to cap existing rents at a peppercorn and this was rejected
Comment.
I am aware of many reputable Landlords who are actively encouraging their tenants to support Right to Manage, with the ultimate objective of getting rid of specific property managing agents.
It has been made clear to me that those Landlords are fed up with astronomical and totally unjustified increases in service demands, which inevitably reduces their return on investment and harms their business.
I believe that all reputable Landlords affected by the above should give serious consideration to following suite, and protect their investment and follow the above example.
LEASE are useless. I would like to think that Martin will make a difference, but how do you change a long standing culture and staff who do not listen?
I booked a call with LEASE and have just finished the conversation. The female I spoke with disregarded the questions I asked and spouted forth on different issues altogether. Conclusion, poorly trained and not very bright staff at LEASE.
I just completed the survey. It does go on a bit , but at least it appears reform is likely to happen.
I commented that the worse option by far would be capping at a percentage of the property value as the valuations involved will allow the usual bad actors to charge extra fees and it will cause uncertainty and delays when buying and selling properties. Any option needs to be kept simple . They should get rid of forfeiture at the same time.
I would go for a fixed ground rent on existing leases, probably at a maximum of £250 a year with a reduction to a peppercorn to be introduced at a future date set by the legislation, no later than 14th October 2066. That would be 1000 years after the Battle of Hastings, and the feudal landlords have had enough fun in the meantime.
I think the capping of pernicious rents ( i.e. those that rise by an amount greater than inflation, i.e. 10/15 year doublers or conflate rateable value with rentable value, i.e. the handiwork of Mr Payne) and the introduction of a sunset clause of say 60 years – the same way that rent charges were brought to an end would deliver beneficial reforms. Such proposals would respect contract law and our reputation as a safe country to do business. Abolishing all current rents with no compensation would put us on an equal footing with Zimbabwe of some 20 years ago.
A measured nuance view could well achieve the goal of making lease extensions cheaper and respecting the human rights of those who have bought these established income streams for some 300 years.
Capping the playability of rents at a peppercorn rather than just in their enfranchisement seems a highly provocative stance. In fact, so provocative that you are left wondering whether there is any genuine sincerity in the proposal. For sure, it will be challenged all the way to Europe. As the average amount is some 76 pennies a day, it would seem incredible to mount a claim that it is in the public interest that such a small rent goes without compensation, notwithstanding the enormous damage it would have on our reputation as a stable country to do business in. In the meantime, the Tories are behind leaseholders championing their cause, getting their votes, and, in the end, delivering nothing, either blaming the European Court or the fact they run out of time.
If there were genuine sincerity, changes would have been proposed in the Leasehold Reform ( Ground Rent ) Act 2022. This idea of capping the payability of rents to nil with no compensation is a new proposal has popped up after four heavy by-election defeats and flies in the face of the legal advice they have been given on its interaction with Human Rights .
It is my understanding that the only Country’s on Planet Earth who pay ground rent are England and Wales, I had no idea that the citizens of Zimbabwe were inflicted with this rip off “money for old rope” swindle.
Have I understood the previous post correctly or missed the point entirely?
I applaud you Sir for tenancity in defence of ground rents. Just wish to comment on a few points…
“,,,respecting the human rights of those who have bought these established income streams for some 300 years.”
Single use plastic has been an established income stream for a long time? Not 300 years, mind. Children working down mines and in factories must have saved a bob or two for a long time. Cigarettes sold to children presumably offered a nice little earner long time since.
If losing the human right to an ‘enjoyed income stream’ is the measure of just law, it would be a rather strange world. No need to mention slavery.
Carrying wooden planks in the Met area was banned? Luckily Eric Sykes and Tommy Cooper managed to exercise their ‘human right’ to make us laugh.
“…enormous damage it would have on our reputation as a stable country to do business”.
Take off-shore beneficial ownership of leasehold somewhere else, I say.
We are entitled to our opinions. Income streams, not so sure?
If you believe that the government can defend the idea of capping ground rents at a peppercorn without any compensation then you will need to articulate yourself a bit better than you have above – it flies against the legal advice given by Cathrine Callaghan KC a leading human rights advocate
When the leasehold Reform (Ground Rent ) act 2022 was going through parliament a proposal to cap all rent at a peppercorn failed on the first reading
We are at a watershed moment – should this proposal go through we would in effect be seeing the end of the trust we have in our contract law .
The idea that a contract considered for several weeks with a solicitor advising where a rent of 78 pennies a day can then several years later be considered unfair and be abolished is really quite sobering – next there will be claims that retailers and manufacturers who make more than a certain level of profit should have to refund consumers many years later for offering no service in return for the final hundred or thousand pound of the retail price
Paddy,
I enjoyed reading your articulate and highly structured response to the above it was a pleasure to read.
The Freeloaders will, in my opinion, go to any lengths or means to justify “money for old rope” The victims of Freehold / Leasehold know that we are simply an income stream and that must end, if anyone deserves compensation it is we, the Victims.
How can you be a “victim” if you are paying what you agreed to pay when you took on the lease
The arguments that ground rents be abolished from those on this site fall under the following categories
1) Because the lease was written in legal speak it was not clear what they had to pay and how it rises over the years.
2) It is for “no service” – which of course it is. Its a pure profit stream to the freeholder. The freeholder/developer states clearly BEFORE the leaseholder buys, that they want £200,000 for the flat and a regularly income stream of £300 per annum rising by say inflation. The leaseholder with their solicitor reviews it, possibly challenging the terms of the lease which may or may not result in a change to the proposed terms , but then signs it. AFTER having signed the lease, several years later there are cries that the rent is just too much profit for the freeholder/developer and the rent should be cancelled. No calculation is put forward to show how much profit the freeholder/developer made in the transaction to support such a fanciful claim
3) it is throw back to feudal England and should go
4) The developer/freeholder is getting two bites of the cherry and its just wrong and greedy
5) the leaseholder had no choice but to sign up inorder to get on the housing market as prices were rising
6) Ground rents were only ever peppercorns or a pound or two – profoundly wrong a £1 was the average household income in the 1900’s in industrial parts of England – in fact ground rents were a great deal higher in those days then there were by 2022
These arguments are weak and can give the impression that leaseholders are not prepared to be honourable and pay what they promised to pay when they signed up to the lease. Had there been a more measured debate then the hysteria which has broken out which has spooked mortgage lenders may not have happened. Because in so many cases mortgage lenders have dictated terms which have effected leaseholder from selling. Yet the subject matter is a liability of less than 78 pennies a day
There is an argument around pernicious rents that need to be addressed and they should be capped. But there are changes that can be made in the enfranchisement process which could indeed make it cheaper, quicker and easier to extend the lease or buy the freehold, without interfering with the legitimate rights of the freeholder to receive the income that they are contracted to receive.
Nobody has yet put forward a rationale case on this website for the capping of rents at a peppercorn which considers the issue surrounding A1P1 of the human rights without recourse to flippant sound bites. There could be an interesting discussion about how ground rents could interrelate to the Consumer Credit Act 1974
Who does not remember the Payment Protection Insurance (PPI) scandal. The mis-selling controversy in the United Kingdom which affected Millions, which was eventually put right at a very substantial cost to the lenders.
Freehold is no different except that the payment of ground rent is in return for absolutely no goods or services, we all pay for something that we “Do not need, want or asked for” In my view this is actually much worse than the PPI scandal.
At no point did the Lenders demand compensation for being found liable for mis-selling of PPI, or consider going to Court bleating about their human rights being affected. They did what the Court instructed as you would expect.
The tired worn out argument that its always been this way so It must be alright, fly’s in the face that England and Wales are the only Country’s on Earth that have not abolished this feudal archaic Law and consigned it to history’s dust bin.,
If Freehold is such a good idea why was it not taken up in its present form in say, the USA, Canada, Australia and other advanced Nations? The answer is simply their Governments had more sense and presumably listened to their Citizens.
The fundamental difference between PPI mis-selling and the claim that ground rent was mis-sold was that the purchaser of a leasehold property had legal representation and considered the deal over a period over a few months.
The next point is that the ground rent terms make it patently clear that it is for no service. The PPI claimed to offer benefits to the policyholder. The ground rent is an integral part of the deal and has to be looked at, at the same time, as the premium.
You have not produced any evidence that the premium the freeholder received on the granting of the lease and the value of the ground rent stream created results in an obscene profit. And if it is an obscene profit, what law should be invoked to enable the deal to be unpicked and have the rent cancelled.
What if the developer had made a loss on the building of the flat, and the value of the ground rent stream helped mitigate some of the loss, but not all of it. The leaseholder clearly paid a lesser price for the property than what it cost, and the ground rent is in return for a bargain price ( i.e. getting the flat for less than it cost to build) .
This idea that the ground rent should be abolished without any compensation is predicated on the idea that the freeholder/developer is making too much money out of the deal and that this should be pruned back . Why is the argument that the rent is fair, but the premium was too much and ask for a capital sum back rather than the rent being cancelled
If this idea of abolishing ground rent with no compensation were to succeed, does this open the floodgates for having other deals unpicked. I bought a new car a few months ago. Can I ask the retailer and manufacturer for a breakdown of their costs and if I feel the profit is too much seek a refund ?
Who knew it would happen!
Today saw the first reading of the Leasehold and Freehold Reform bill with second reading tomorrow. Press release on gov.uk but I haven’t seen a draft bill, innit.
Be still my beating heart. The main thing is that Stephen is pleased by what follows. I fear he may be. Oh, the cynicism of my old age…
Stephen is clearly a Freeholder. Scared he’s now going to lose his “human right” to destroy others lives.
I have read the Draft Bill.
Buried in it is an interesting clause (page 97):-
(7) The notional annual rent must not be used in step 1 if—
(a) no premium was payable on the grant of the lease being valued,
or
(b) the lease being valued was granted on the basis that—
(i) the premium was lower, and the rent was higher, than each
would otherwise have been, and
(ii) the value of paying the lower premium was (at the time of
the grant) broadly equivalent to, or greater than, the
capitalised value of the extra rent.
(8) It must be assumed that sub-paragraph (7)(b) is not applicable unless it is
shown to be applicable
If the solicitor and the purchaser peruse the deal carefully, they will be aware and come to the conclusion that the premium and the ground rent form an integral package. The ground rent will of course be for “no service” as it is a financial burden. They will become even more apparent the larger the rent.
Therefore, the default position must be that the financial burden of the rent was reflected in reaching an agreement and that the premium was blunted/reduced by the imposition of the ground rent. Otherwise, the deal would not have gone ahead.
The cases where this argument would not apply is where the leaseholder can claim that the whole transaction was conducted in a cackhanded way by the leaseholders’ solicitors with poor advice. Further the freeholder spotting such behaviour was able to strike a better deal.
Therefore, in every lease extension the landlord will advance the argument that the premium reflected the ground rent, and the lessee will plead ignorance and blame poor professional advice. All of this will cost the leaseholder in professional fees and undermine the key government aim of making it easier, quicker, and cheaper.
I would have thought that the original ground rent be used and on every review the rent either rises as originally planned in the lease or by the RPI (if that produces a lower result). This will remove the pernicious rents ( i.e. the 10 year doublers and those that seek to conflate rateable and rentable) . At the same time protecting our world respected contract law terms
Fox/Paddy rather than engage in puerile comments lets have a focused debate about the propose Bill