This is the main course on the leasehold reform menu
Government opens consultation on rates for future lease extensions and freehold purchases
If you fill in one consultation, make it this one: savings to individual leaseholders could amount to tens of thousands of pounds
Tell the government to set these rates as high as possible – ie cheaper for leaseholders
By Liam Spender
Last week the government published two consultations – with a deadline of September 23 – and a response to the 2024 consultation on establishing balance in legal costs and service charges standardisation.
The first of the two consultations considers how to fix the prices payable for future lease extensions and freehold purchases.
All leaseholders should respond given how important this is for the success of the leasehold reforms, and particularly relevant will be the experiences of leaseholders who paid to extend their leases under the present system
The deferment and capitalisation rate consultation is here:
Leasehold enfranchisement valuation rates
This consultation seeks views on exercising the powers contained in the Leasehold and Freehold Reform Act 2024 (“LFRA 2024”) that allow the Secretary of State to set the capitalisation and deferment rates.
The second consultation asks how to deal with exceptions from the rule that both sides will bear their own costs when dealing with future lease extensions and freehold purchases:
Leasehold enfranchisement process costs
Seeks views on exceptions to the rule that parties pay their own process costs in leasehold transactions under the Leasehold and Freehold Reform Act 2024.
The response to the 2024 consultation sets out how the government will implement a new package of leaseholder protections in Part 4 of the Leasehold and Freehold Reform Act 2024:
Government response to the Strengthening leaseholder protections over charges and services consultation
The leasehold system is blighting millions of lives. The leasehold system is a barrier to a fair and efficient modern residential property market. The leasehold system is an anachronism in the twenty-first century. That is why this government made a clear and unambiguous commitment in its manifesto to act where previous governments had failed and finally bring it to an end.
The written statement from Housing Minister Matthew Pennycook is here:
Written statements – Written questions, answers and statements – UK Parliament
Information from UK Parliament on written questions & answers, written statements and daily reports.
The trio of publications follows comments made by the responsible minister, Matthew Pennycook, before the Housing, Communities and Local Government Select Committee in March 2026 and again in a speech at the Institute for Government in April 2026. The government is keeping to its promised timetable, but there is still uncertainty as to how the change of Prime Minister will affect the rest of the plan.
Leaseholders will be fed up of hearing the word consultation, particularly one appearing to revolve around whether a percentage rate should be set at 5% or 6%.
For individual leaseholders potentially tens of thousands of pounds depend on where that percentage is set.
It is no exaggeration to say that the consultation on the future rates is the most important consultation in the whole leasehold reform agenda.
The decisions made in response will determine the prices payable for lease extensions and freehold purchases for years to come.
It is vital that leaseholders comment. For the freehold lobby will surely be pouring resources into making sure their voice is heard.
The Leasehold and Freehold Reform Act 2024 is based on years of work by the Law Commission, which made recommendations in 2020. The recommendations were that buying a freehold or extending a lease should be made cheaper and easier.
The Leasehold and Freehold Reform Act 2024 achieves that by imposing the Standard Valuation Method on most of these transactions.
The Standard Valuation Method fixes the variables used to calculate the premium. It replaces today’s drawn-out and expensive process of leaseholder and freeholder appointing surveyors to argue over rates, comparable prices, relativity (of the surveyor – and not the Einstein – kind). The ultimate aim is to produce a calculator that should give the price payable without needing a surveyor at all.
Importantly, as mentioned in my article on 4 July 2026, the Standard Valuation Method does not apply in all cases. The most significant exception is where the premium is lower and the ground rent higher than would ordinarily be the case.
Quid pro quo leases: The freeholders’ blade to neuter ground rent reform
It is crucial that the so-called quid pro quo lease exemption being considered by the government does not become a Trojan horse the freeholders use to neuter the effect of all these valuable reforms.
The Leasehold and Freehold Reform Act 2024 also makes other changes to improve the position of leaseholders.
Most significant is that marriage value, 50% of which is currently payable to the freeholder where a lease has 80 years or less to run, will no longer be payable.
There will be a cap on the amount of ground rent that can be taken into account when determining the price payable. This is 0.1% of the freehold value of the property.
In addition, statutory lease extensions will move from being 50 years for houses and 90 years for flats to 990 years for both. Any lease extension will also reduce ground rent to a peppercorn, which is zero monetary value.
The requirement that the leaseholder meets both side’s professional costs will also be removed in most cases, except where only a small premium is payable.
None of these changes are currently in force.
In written ministerial statements the government has said that serious drafting errors will need to be remedied before the 2024 Act can be brought into legal effect.
The plan is that all of these changes, and the new rates applicable, will be brought into effect alongside the proposed Commonhold and Leasehold Reform Act. This is expected in 2027.
The Commonhold and Leasehold Reform Act will also reduce ground rents to £250 a year, falling to a peppercorn after 40 years. This change will further reduce the price payable on a lease extension or freehold purchase.
This consultation is therefore a critical step along the path to achieving the promise of quicker and cheaper leasehold extensions and freehold purchases. If the deferment and capitalisation rates are reduced then the promise of effective leasehold reform will not be delivered.
Set out below are some thoughts on each of the three publications.
This follows the article published by Dr Alexander Hamilton on 18 July, which is a must-read to understand the economic implications of setting the rates:
Leasehold valuation rates: the government consultation where numbers matter more than slogans
The consultations are open until 23 September 2026.
Leaseholders are likely to struggle to answer the highly technical questions on the deferment and capitalisation rates, but they can nevertheless give valuable information by, for example, setting out their own experiences of the current system and how reducing the deferment or capitalisation rates would make such situations worse.
How is a leasehold extension or freehold purchase priced?
Currently the law allows the leaseholder of a flat the right to a statutory extension of 90 years and to reduce the ground rent to a peppercorn. The leaseholder of a house currently has the right to an extension of 50 years but must agree to a modern ground rent, which is typically very expensive because it is a percentage of the unimproved land value.
Modern ground rents have proved controversial. In 2017 following pressure from LKP and then Housing Secretary Sajid Javid the National Trust agreed to stop modern ground rents on their houses.
A majority of qualifying leaseholders of flats in most types of building can also exercise the right to force the sale of the freehold to them.
In all three cases, the law requires that the freeholder is compensated for transferring the freehold or for the extended leases.
This compensation currently consists of the payment of a premium and the payment of all the landlord’s transaction costs. The process is often protracted.
There is evidence that freeholders, their solicitors and surveyors are often aggressive in the way they price these extensions. Very often the leaseholder, who feels he is having to pay to buy his flat again, can feel forced into paying much more than he wants to pay to avoid having to go to a tribunal, or delaying a sale.
The leaseholder also has to meet all of the freeholder’s professional costs, which are often a multiple of his own.
The calculation of the premium depends on three main variables.
The first is what the present value of the ground rent is when converted to a lump sum.
The right to receive a ground rent of £125 for 100 years if paid in a lump sum today is not £12,500 (£125 x 100). That is because of the time value of money: money in hand today is worth more than the promise of money paid in instalments over 100 years.
A lump sum invested today can also generate compound returns over time. Working out the value of a long-term payment stream as a lump sum is called discounting.
In mathematical terms, the discounting is performed by applying a rate to convert all of the future periodical payments into a present value.
For example, a ground rent of £250 a year for 100 years converted to a lump sum at a fairly typical capitalisation rate of 6% would be worth £4,132.
The deferment rate is a more difficult concept.
Think of it as the payment required to compensate the freeholder for being delayed from recovering the property for another 50 or 90 years. This compensation is required because a lease is a wasting asset. The leaseholder only enjoys the right to exclusive possession of the leased property for the term of the lease. Eventually it will expire. At the end of the lease the property goes back to the freeholder. Extending the lease extends the time the freeholder has to wait to get the property back.
In mathematical terms, the deferment compensation is calculated by working out the freehold vacant possession value of the flat with its current lease term and applying a rate – the deferment rate – to compensate the freeholder for having to wait another 50 or 90 years.
In most cases the leaseholder of a flat is expected to pay a deferment rate of 5%.
If the flat has 82 years left on its lease and is worth £250,000 then applying a deferment rate of 5% over the additional 90 years results in a payment of £4,505.
Increasing the deferment rate to 6% reduces the payment from £4,505 to £2,103 — a saving for the leaseholder of £2,472.
Adding the capitalised ground rent (£4,132) to the deferment compensation (£4,505) produces a total premium payable of £8,707. With a reduced deferment rate the premium falls to £6,235. Significant value therefore depends on how the deferment and capitalisation rates are set.
The consultation is seeking views on both of them.
The calculations above may suggest a degree of mathematical precision that is not appropriate.
In fact, both the capitalisation and deferment rates are the product of a valuer’s professional judgement. The deferment rate is also the product of a 2007 court case known as Sportelli.
What is Sportelli?
In Earl of Cadogan v. Sportelli the owners of flats, houses and groups of leaseholders looking to buy their freeholds were in dispute with the Earl of Cadogan and The Howard de Walden Estate and another freeholder over how much it should cost.
The properties in question were all in prime central London, specifically in Cadogan Gardens, Cadogan Square, Marylebone and Kensington. The amounts in dispute are not stated, but were likely to be in the millions.
At least one of the flats had a very short lease. The facts of the case are far removed from the average price of a flat outside prime central London.
The case illustrates that the law has often been made by wealthy landlords and leaseholders who have both the means and need to litigate. The new system of fixed rates should avoid the need for this in the future.
In Sportelli, the freeholders argued that because the yields on a wide range of investments had fallen they should be compensated at deferment rates much lower than the then prevailing 6%.
The freeholders argued for deferment rates of between 3.5% and 4%. The leaseholders argued for deferment rates of between 5.5% and 6.25%.
The opposing sides called their own experts in economics, finance and property valuation to try and prove their respective cases.
The hearing lasted 12 days.
The Lands Tribunal decided that it was appropriate to depart from the prevailing deferment rate of 6%. Ultimately, it adopted the reasoning of the leaseholder’s experts in finding that the appropriate deferment rate was 4.75% for houses and 5% for flats. Although a small percentage change, it had the effect of significantly increasing the premiums payable by leaseholders.
Sportelli takes the risk-free rate, which was the real return on government bonds over a long period (2.25%). From that the Tribunal then subtracts the likely real growth rate in house prices (2%) before adding a risk premium (4.5%). A further 0.25% was added to the premium for flats to reflect the difficulties in maintenance and management relative to houses.
Sportelli has come to be considered the lodestar of leasehold and freehold pricing.
It has not been overturned in nearly 20 years and was argued extensively with economic, financial and valuation experts being deployed by all parties.
Attempts to challenge it since have failed on the basis that they did not present the type and volume of expert evidence required to justify moving away from Sportelli.
But why keep Sportelli?
The government consultation on how to set the rates is accompanied by a report from the Government Actuary’s Department (“GAD”). GAD is the body responsible for advising the government on how to deal with its own long-term liabilities, such as public sector pensions. These liabilities involve making similar judgements to those used in setting the deferment and capitalisation rates. The GAD report is worth reading in full:
https://assets.publishing.service.gov.uk/media/6a4e5092895317eadc3545c9/Annex_A_-_leasehold_reform_-_deferment_rate_report.pdf
The GAD report conducts two exercises. The first is to see if it can replicate Sportelli using data up to the end of 2025. GAD concludes it cannot because of changes in the way inflation is measured, changes in house price growth and the need to re-assess whether the risk premium is still appropriate.
GAD’s attempt to update Sportelli produced a much lower deferment rate, of 1.6%. Using the example of our £250,000 flat above this would increase the deferment element of the premium from £4,505 to £68,132 and the total premium to £72,155.
GAD does not recommend this calamity for leaseholders.
GAD also considers what applying Sportelli as a template would produce today. It concludes that it would lead to a deferment rate of 6.05% for houses and 6.3% for flats.
The GAD is careful to emphasise that this is a question of judgment, so there are a range of possible values.
In his own article, Dr Hamilton makes a number of incisive points that Sportelli is an unsatisfactory basis for determining the compensation paid to freeholders.
He argues that using Sportelli overcompensates freeholders because it does not reflect the market reality of ground rents as an asset class.
Specifically, the traded prices of between 12-16 times current ground rent imply deferment rates higher than 5% and perhaps above 6%.
We may also add that the deferment rate calculation also gives no credit to the leaseholders for bearing all of the cost of maintenance of the buildings via the service charge before they return to the freeholder.
There are also reasons to doubt that the risk premium is the same for flats now as it was in 2007.
As Dr Hamilton argues, ground rents are no longer a stable passive investment stream.
There are liabilities for freeholders under the Building Safety Act 2022.
It is also possible that ground rents as an asset class have fallen out of fashion as interest rates have begun to normalise and higher returns are available elsewhere.
For example, in its May 2026 market commentary the ARC Time Freehold Income Fund says “as gilt yields increase, investors generally require a higher return, which in turn places downward pressure on capital values”.
Other developments also point to ground rents becoming a riskier investment.
These include the proposed £250 ground rent cap, litigation over the 2024 Act and the removal of the automatic right to recover legal costs from leaseholders through the service charge.
Ground rents will also disappear entirely after 40 years.
Taken together, those changes should increase investors’ perception of risk and therefore justify a higher risk premium.
There are also examples of freeholders becoming insolvent, which is likely to further disrupt any market in ground rent investments.
In 2006 Vincent Tchenguiz created the Fairhold Securitisation. This turned the ground rent income from approximately 19,000 flats and warden apartments built by McCarthy and Stone and sold to Vincent Tchenguiz into £392 million of loan notes.
By 2015 Fairhold was unable to refinance the loan notes and was struggling to cover the cost of inflation swaps it had entered into as part of the original deal. In 2015 UBS terminated one of the swaps and this triggered payments of £311 million due on early termination.
This led to a “workout” during which creditors re-negotiated the debt.
In 2020 Fairhold, having been bailed out by its creditors, became known as Fernando.
As part of the restructuring the creditors took losses of between 27% and 43% on their loans.
In its most recent financial statements, Fernando says that it lacks the cash to pay all of the interest due on its borrowings and is in discussions with its lenders about a consensual refinancing of the debt pile, which now stands at around £800 million and is due to be repaid in October 2026.
Perhaps unsurprisingly, Fernando’s most recent financial statements also say that it is lobbying the government to treat all retirement property leases as “quid pro quo leases” so they are exempt from the £250 ground rent cap.
That experience illustrates that ground rents are not the low-risk asset class assumed by some valuation models, including Sportelli.
The market evidence therefore sits comfortably alongside Dr Hamilton’s criticism of Sportelli and the GAD’s willingness to reconsider the appropriate risk premium.
The GAD’s report acknowledges some of these points. It says that it will need to look again at the evidence received in the consultation before giving advice on what it thinks the final deferment rate should be.
How does keeping Sportelli relate to the freeholders’ judicial review?
In 2025 a group of large freeholders brought judicial review proceedings against the government over the Leasehold and Freehold Reform Act 2024.
The freeholders say that the removal of marriage value, the cap of 0.1% on ground rents that can be taken into account in determining the price payable and the end to the leaseholders’ obligation to pay all transaction costs interfered with their human rights.
Specifically, the freeholders’ argument was that the government was taking their property away from them without market value compensation. They claimed this was a breach of Article 1, Protocol 1 (“A1P1”) of the European Convention on Human Rights.
In October 2025 the freeholders’ judicial review was dismissed in its entirety.
The Divisional Court found that the government was entitled to enact a broad programme of land reform and that it had considered the changes carefully and balanced the interests of leaseholders and freeholders fairly so there was no breach of A1P1.
Crucially, the Divisional Court doubted that the freeholders’ right to receive compensation was a property right at all, finding that the government could change the terms of a statutory scheme of compensation if it deemed it in the public interest to do so.
In any event, the changes made were a fair balance between leaseholders and freeholders.
The freeholders are now appealing. The appeal hearing has not yet been listed but is due before the end of April 2027.
As part of their appeal the freeholders will apparently say that the Divisional Court got its decision so badly wrong that the Court of Appeal should not only review the decision but actively reconsider the issues afresh.
The legal advantage of the government using Sportelli as a template, even if it means increasing the deferment rate to 6%, is that it is an approach derived from a long-standing legal precedent.
It is therefore more likely to be found as allowing the freeholders’ a measure of fair market value compensation than adopting a completely different approach to establishing the deferment rates, however attractive that may be for other reasons.
The freeholders chose to bring their judicial review before the government had set the new deferment and capitalisation rates.
It remains to be seen whether the freeholders would seek to challenge the deferment rates and capitalisation rates if they are left as they are now, or perhaps even reduced slightly. A challenge is much more likely if the government plumps for a deferment rate of 6% instead of 5%.
The freeholders will (again) argue that this is a breach of A1P1 because it is not giving them a measure of market value compensation for their assets.
They may even try to say that if the government was acting rationally and applying Sportelli that it should reduce the deferment rate to 1.6% because that is where they will say the data lead and any decision to increase the rate is irrational, if not perverse.
Any such challenge should be brought by means of a fresh judicial review, which will involve years more litigation.
What about the capitalisation rate?
Sportelli does not deal with the capitalisation rate.
As the consultation paper notes, approximately 88% of all current lease extensions and freehold purchases are completed at capitalisation rates of between 6 and 7%.
Linz Darlington, a surveyor representing leaseholders in lease extension work, has previously written for LKP suggesting that data from ground rent auctions supports a capitalisation rate of 9%.
https://www.leaseholdknowledge.com/why-it-is-going-to-be-so-important-to-shout-in-2025-and-loudly-when-government-sets-the-leasehold-deferment-rate/
The consultation also asks whether the capitalisation rate should actually be three different rates to reflect the different types of ground rent review clause.
Rate 1 would deal with fixed ground rents.
Rate 2 would deal with ground rents with stepped increases (doubling every so many years).
Rate 3 would deal with ground rents linked to inflation (RPI).
Regardless of the option chosen, the capitalisation rate should reflect the fact that freeholders are commercial organisations with commercial costs of capital and who will most likely reinvest their lease extension proceeds to generate commercial returns. The capitalisation rate should reflect those factors. And the higher the rate the better for leaseholders.
The second consultation: what are process costs?
The Leasehold and Freehold Reform Act 2024 ends the requirement on leaseholders to pay all transaction costs for solicitors and valuers when extending their leases, buying out their ground rents or participating in a collective freehold purchase. The government calls these “process costs”.
There are exceptions to this rule. Where a leaseholder withdraws from a transaction, the premium payable is very small, or where the landlord / freeholder is required to accept leasebacks of flats not participating in a collective purchase then the leaseholders are still required to pay process costs. These are capped amounts. The government is consulting on these capped amounts and when they will apply.
For individual lease extensions with small premiums, the government proposes the exemption will apply when the premium is £1,500 or less, excluding VAT and other costs like Land Registry fees.
Leaseholders may be required to pay up to £1,500 plus disbursements and VAT toward the freeholder’s costs. For ground rent buyouts the limit is proposed at £750 before disbursements and VAT.
For collective purchase transactions, the government proposes that where there is a small premium the freeholder can recover its costs of dealing with the transfer of the freehold.
The proposal is that these arrangements apply when the premium is less than £1,500 plus £250 for each flat. If the premium is less than that the leaseholders may have to pay up to that amount toward the freeholder’s costs.
Another exception to the ban on costs is for collective enfranchisements where the freeholder is required to take leasebacks of non-participating flats.
At the moment in collective purchases the participating leaseholders have to cover the costs of buying out the ground rent of non-participating leaseholders.
In the future they will be able to avoid these costs by requiring the freeholder to keep (leaseback) those flats. In those cases the government proposes that the freeholder can still collect its costs, which will be limited to £1,000 plus £250 per leaseback flat
There is something troubling about the fixed cost provisions for leasebacks.
For example, at a very large site with, say, 400 flats where only the minimum number of leaseholders (201) participates, the freeholder could claim costs of £1,000 plus £250 per non-participating flat (199), so £50,750 plus VAT and disbursements.
That is very unlikely to reflect the actual cost to the freeholder because he is likely to only need one lease dealing with all of the leasebacks, probably a headlease over the leaseback flats instead of an individual head lease over each leaseback flat. Even if individual headleases are required, they are likely to be standard form documents differing only in the property address.
As to failed transactions, the government consults on various options such as fixed amounts and sliding scales.
The government also consults on whether Resident Management Companies and other nominal landlords who do not receive ground rent income should also have some of their costs reimbursed.
What does the government’s response paper say?
Also published on 15 July was the government’s long-awaited response to last year’s lengthy consultation on how to commence Part 4 of the Leasehold and Freehold Reform Act 2024.
Part 4 contains a raft of new leaseholder protection measures, such as reform of litigation costs, standardised accounting and service charge demands, a new regime for major works costs notifications and requirements that freeholders and managing agents publish a transparent tariff of fees.
Part 4 also contains new rules limiting payments landlords and managing agents can take from insurance. All of these changes significantly redress the balance in favour of leaseholders. They do, however, require leaseholders to take steps to enforce these rights.
The centrepiece of these reforms is the end to the Kafkaesque situation in which leaseholders’ money is used by landlords to fight leaseholders’ claims over service charges, because many leases will allow landlords to dump their legal costs via the service charge.
The ban on that will hopefully come into force no later than early 2027. It is long overdue.
What happens next?
The Part 4 measures are due to be laid as a package of 6 statutory instruments when Parliament comes back in the Autumn.
There will then be transitional periods of between three and 12 months before the new rules come into legal effect. The transition period will be three months for the ban on cost recovery via the service charge and 12 months for accounting and other changes.
The deferment and capitalisation rate consultations are limited to questions about methodology. The results will feed into a decision-making process.
The government has committed to the new rates being in force when the promised Commonhold and Leasehold Reform Act is in force. That is currently expected at some point in 2027.
The bottom line
For perhaps the first time in decades, leaseholders have an opportunity to influence the economics of enfranchisement before they are fixed for years to come. If leaseholders do not respond, others certainly will.
Related posts:
How scam values on equity release loans affect leaseholders. And YOU need to stop it …
Leasehold and Freehold Reform Bill: the most important part of the enfranchisement bit is missing
Removing freeholders’ development value in enfranchisement – as the Law Commission recommended – is vital to reform and conversion to commonhold
Sort out enfranchisement, or existing leaseholders will be left behind in the commonhold future
Leasehold reforms: respond to government consultation over ground rents before 17 January (because those legging you over will certainly be doing so)
Leasehold valuation rates: the government consultation where numbers matter more than slogans
You state
“Specifically, the traded prices of between 12-16 times current ground rent imply deferment rates higher than 5% and perhaps above 6%”
Ground rent investments with unexpired terms well in excess of 100 years traded at auction on those sorts of multiples, although values increased significantly where the rents were index-linked.
Freeholds subject to short leases traded, up to 2018, at around 100% of the enfranchisement value for London properties and around 70% for those outside London.
With respect, your comment is incorrect because it conflates deferment rates with capitalisation rates.
With respect Stephen you might assume Liam does understand.
I will also suggest the 12-16 times multiple did apply to gr that increased in line with inflation for many years and that was the “punt” that investors made knowing the government was not looking at other income streams that came with the territory’.
The evidence for the one sided gamble has been looking government in the eye for years.
I have always found it odd that valuers who are supposedly all meant to act in the public interest -as RICS members – often only seem to see with one eye.
Maybe everyone should go see Odysseus?
Quite correct. Freeholders and their bought advocates have done very well out of trying to bundle unwanted financial products into people’s homes. Clearly that is and always was a very risky strategy and should be reflected in the need for the cap and on capitalisation and deferment rates.
The case for standard valuation rates is that the current case by case approach disadvantages leaseholders as compared to the freeholdes and their bought valuers and barristers – who are absolutely in on the leasehold game for their billable hours. So why are we even considering the outputs of that flawed process as evidence for the new? Find a fair compensation that allows leaseholders to affordably enfranchise and freeholders to recoup some cash and work backwards from there.
“Freeholds subject to short leases traded, up to 2018, at around 100% of the enfranchisement value for London properties and around 70% for those outside London.”
I disagree. It was more like 75% to 90% (at most). In other words, assuming people did not extend immediately after declining the RFR, the ground rent buyer had a 10% discount, plus 5% first year growth, ie 15% profit after one year, minimum, up to more like 30% discount, plus 5% first year growth, plus 10% capital growth = 45% profit after one year
Excellent article Liam. One nitpick however – you wrote:
“The leaseholder of a house currently has the right to an extension of 50 years and to reduce the ground rent to a peppercorn.”
I don’t think that’s correct – lease extension on houses does not reduce the ground rent to peppercorn. Quite the opposite, in fact – it turns it into a “modern ground rent” which is anything but. I’ve always found it weird that the Leasehold Reform (Ground Rent) Act 2022 did not address this.
Many thanks for this point. You are correct and the article is amended.
Martin,
Where you and I differ is that I regard ground rent as a legitimate profit stream which is fully disclosed in the lease before the purchaser commits to buying. The developer derives part of the development profit from the sale premium, with the balance represented by the future ground rent income stream, which may subsequently be sold. Without knowing the overall profitability of a particular development, and given that the ground rent forms part of the contractual package accepted by the purchaser, I believe that arrangement should generally be respected.
Prior to the 2022 reforms, developers routinely factored the capital value of the freehold and its associated ground rent income into their appraisal of what they could afford to pay for development land. In many cases, the freehold interest was sold before even 50% of the flats had been disposed of. That demonstrates that the ground rent stream was an integral part of the financial package underpinning the viability of the development from the outset.
I fully accept that where rent review provisions are capable of producing increases substantially in excess of inflation, there is a pernicious element that requires reform. Equally, I would argue that very large initial ground rents often cease to be simple profit streams and instead become financing mechanisms. Provided they are not abusive or excessive, I believe there remains a legitimate case for preserving them.
My view is that if the Government wishes to deliver comprehensive leasehold reform before the next General Election, it will need to adopt an approach that is unlikely to provoke a successful challenge under Article 1 of Protocol 1 (A1P1). I believe the following measures would achieve meaningful reform for leaseholders while also making lease extensions substantially more affordable:
Ground rent reviews: All existing ground rents should revert to the initial rent agreed when the lease was first granted, on the basis that this was demonstrably affordable at the time of purchase. Thereafter, any future increases should be limited to inflation, whether measured by CPI or RPI. This would immediately eliminate 10, 15 and 20-year doubling clauses and ensure that ground rents never increase in real terms over the life of the lease.
Lease extensions: Leaseholders should have the right to extend the lease term while retaining the existing ground rent. This would dramatically reduce the cost of lease extensions. Most leaseholders have little objection to continuing to pay the equivalent of around £1 per day, but they do object to having to find, for example, £10,000 or more simply to extinguish a £350 per annum RPI-linked ground rent.
Professional costs: Leaseholders should no longer be liable for the landlord’s legal and valuation costs, except where a leaseback is involved or in other limited circumstances involving only nominal ground rents.
Mortgagee rights: Mortgagees in possession should have a statutory right to extend the lease or acquire the ground rent, thereby protecting their security.
Sunset provision: There should be a sunset clause of approximately 50 years, after which the remaining value of the ground rent interest would fall away.
Right to challenge excessive initial rents: A leaseholder who remains in occupation of a property subject to a particularly high initial ground rent should have the right to apply to the First-tier Tribunal to determine whether that rent was properly reflected in the original premium paid. However, that right should not pass to a subsequent purchaser, who can reasonably be expected to have seen, understood and priced the ground rent into their purchase decision.
These proposals would remove the need to investigate historic quid pro quo arrangements between developers and investors. In practice, very few leaseholders would be disadvantaged compared with a blanket £250 cap. Those who might be affected are more likely to own higher-value properties carrying correspondingly higher ground rents and are not the principal group that leasehold reform is intended to protect.
Most importantly, these proposals would clear the decks so that legislative attention could be directed towards the issue that causes the greatest detriment to leaseholders: the management and control of service charge expenditure. In my view, that is where the most pressing problems lie and where meaningful legislative intervention is most urgently required.
I am a 77 year old pensioner living in a ground floor apartment with a courtyard garden at RAGAN COURT RAVEN SQUARE ALTON HAMPSHIRE GU34 2GB. The property was built in 2017 by a Developer Suneet Jain of GB Builders Ltd/Mera Real Estate. This Developer is governed by no “body”. He belongs to no Government Body, his developments are disguised by Building Regulations where he can manipulate Approved Building Inspectors. Since 2018 the roof of Ragan Court began to fail. He never installed the original Sarnafil single ply roof system but instead an inferior GRP system. The flat I purchased in March 2021 had suffered a leak through the roof but wasn’t declared during the sale process. In Dec 2021 the roof leaked again with water coming through the Lounge downlighter. This was not dealt with until I took legal action, a patch repair was done with no work guarantee at which time I discovered all the roof areas of the building had failed at some point with poor patch repairs. The patch repair in June 2022 failed and I had to reinstate legal action alongside a group of 9 other residents. EHDC were involved from 2023. This prompted the Developer/Freeholder to issue a Section 20 for total roof replacement along with 4 balconies. The LHs disputed the subsequent £240,000 global service charge. The Developer has deep pockets, the LHs have not. He finally carried out the works without the consent of the LHs using a roofing contractor known to him. During the Section 20 process the option of 3 roof quotes was reduced from 3 to 1 without the LHs consent. During that process from receipt of the V3 Tender which was for an Alwitra Single Ply Membrane with a 25 year Insurance Backed Warranty [1.5mm membrane] a V4 was submitted to 3 contractors which reduced the Alwitra Single Ply Membrane to a 20 year Insurance Backed Warranty [1.2mm membrane] without advising the LHs. When Stage 2 of Section 20 Estimates were circulated to the LHs and they sent their Obs and Responses these were ignored. There was no Stage 3 Section 20 officially advising the LHs of the choice of Contractor – who was known to the Developer when it should have been a totally independent contractor. There is no recourse anywhere for the original poor workmanship and installation of the original roof which should not have failed so prematurely. The Building Inspector chosen for the 2017 build went bankrupt in 2018 as did Alpha Insurance who the Developer chose instead of an A rated Insurer to provide the 10 year Latent Insurance Policy. The new roof has been installed – the cost of which is now in dispute. Mediation with the Developer failed he effectively wanted to blackmail us and hasn’t provided the Insurance backed Warranty until the service charge is paid in full. He offered a discount only if we exonerated him from any further responsibility for the roof and agree that the Section 20 Process was carried out correctly otherwise he would issue Court Proceedings. Some were prepared to accept the offer which was responded to by the Group of 9 legally [I did not respond which simply removed the offer] but the Group’s response was ignored by the Developer & his solicitors PMLS and we have been waiting since to see whether the Developer/PMLS issue Court Proceedings. Only 5 of the 13 flats are LH Owner Occupied including mine. I cannot afford legal fees for Court Proceedings so alone I have issued an FTT Application as a Litigant In Person to [1] dispute replacement of the roof as cyclical repairs and maintenance but instead was due to the original poor construction/installation in 2017 and also The Developer’s negligence in taking any action for 3 years during which time I have collected bowls and bowls of water coming through the ceiling of my flat [2] to also dispute the quality of the installation of the new roof and balconies in 2025 and the £240,000 global service charge of which my percentage is £24,960. I have written to my MP Damian Hinds and Matthew Pennycook to no avail. All they do is refer LHs to the LAS and refer to Government Bodies – none of which this Developer belongs to. Perhaps my comments above will reach someone with ears willing to hear and get involved in supporting cases such as mine. In 2018 I suffered a stroke. I wonder whether this sword of damaclese hanging over my head will be the death of me!!! I wanted to fill in the form referred to at the beginning but got lost in all the waffle. When dealing with ordinary lay people everything needs to be concise and to the point. I just want a link to the form
Dear soul, your letter made tears! I think you should go to the government ombudsman and let them take it on.
As a leaseholder not a property lawyer this is not a helpful article. It will not encourage me to respond to the consultation. It will mean I will need to do a lot more reading to focus on the key points before attempting the consultation.
Agreed. This is an interesting article but far too detailed and complex for most leaseholders to be able to read, fully understand and form a useful response to the consultation. Mention ‘Sportelli’ to most people and all you will get is a blank look.
Thanks for the information but for any significant level of response, a summary of the recommended actions would be useful.
Re service charge invoices can someone please confirm what the proposal is for getting the invoices. I do not wish to travel hundred plus miles to eg firstport HQ to view them when they could be easily emailed. but my reading of the gov. statement says this archaic process will be retained! can someone please clarify.
horrified that retirement homes may be excluded from the GR capping! is this a likely outcome? what is the justification for singling out retirement homes – the resales of which are on their knees. these leaseholders are the absolute most vulnerable (and most exploited) and must not be abandoned.
This article is far too long for the normal leaseholder to understand. I would be happy to respond to a questionnaire if you could provide a model answer with the reasoning behind the answer and the impact on me as a leaseholder. However, I do not have the time, or the knowledge to plough through technical documents before answering a government consultation. Sorry .
I would echo Neil Peter’s comments. I have had a look at the government consultation form and the questions being asked go over my level of understanding. A model answer and impact on me as a leaseholder would definitely help.
I am desperate to respond to the consultation but I haven’t got a clue how to. Please tell us how you think we should respond to each question. We don’t have to do as you say so we still enter into it with free choice but I for one would be more comfortable responding based on advice provided by you than trying to guess my way through the form. Without your guidance I’m not able to respond and my voice is therefore lost.
they can’t tell you how to reply as that would invalidate responses. but there is very relevant info. in the article which will help you. you dont have to answer questions you dont understand.
Thank you. everyone for the work put into this stream !!
(Much of life seems to be encapsulated; err still thinking)
The tenor of the notes concerned ‘about’ complexity.. …unfortunately also apply to me, together with the suggestions for partly pre-organizing and simplifying the process of making useful Responses.
Peter.
You state we MUST respond but you write in language which nobody on this site could possibly understand let alone set out in writing the answer to the questions
Tells us what to say so we can fill in the boxes – better still give us a completed form so we need only sign it and send it in
I agree
Whilst I hold differing views to the LKP I do think you and some of the other posters on here fail to appreciate that they give their time freely to help leaseholders
Stephen,
I completely agree with you that LKP “give their time freely to help leaseholders”. Very well said.