Following on from the announcement of a sector “Pledge for leaseholders” by Secretary of State James Brokenshire on 28th March 2019 the Chair of the Communities Select Committee, Clive Betts MP, has been quick to respond.
Chair Betts welcomed the government’s work but strongly cautioned against the pledge in a letter sent to the Secretary of State:
“It is disappointing that the Government has not yet taken a more vigorous approach to tackling the serious failures in the leasehold system. Despite the catalogue of problems highlighted in our report, they have chosen to trust the developers and freeholders who created these onerous leases in the first place to decide how to make the system fair. Given the evidence we heard from leaseholders during our inquiry, we know it will be difficult for them to trust developers and freeholders to deliver on such pledges anyway.
“The Government’s approach to ground rent is a particular concern. There is no inherent value to this system, which in the worst cases prevents leaseholders from renewing a mortgage or selling their home. This is not about doubling ground rent alone, and there are plenty of examples of RPI-based mechanisms having the same effect, particularly where ground rents increase above 0.1% of the value of a property. The Government should accept this and ensure that ground rents are capped at an affordable rate through legislation.
“We do, however, welcome that the Government has accepted our recommendation to prevent freeholders from recovering their legal costs through the service charge, even when they lose. This will go some way towards alleviating the risks to leaseholders in bringing service charge, or other, challenges to tribunal.”
The state pension is linked to the RPI or average earnings whichever is the greater and is reviewed every year.
If ground rents linked to the RPI are seen as onerous and unfair could the same argument be used to attack the state pension?
Why a ground rent of £400 on a flat worth £1.5 million flat exceeding the £250 threshold makes the property sale prospects challenging is simply incredulous
Informed intelligent buyers should in the face of a high ground rent make a reduction in their offer so their mortgage is slightly less so the savings in their mortgage offset the ground rent- the MHCLG believe that buyers can’t think that way notwithstanding they will be advised by solicitors and valuers over a two-three month period
Stephen your arguments in several posts seem to be predicated in the market behaving in a totally rational way.
Unfortunately, there is a considerable amount of evidence which suggests developers are able to sell without offering any level of discount reflective of their being a ground rent -especially when the help to buy scheme means it’s not sometimes possible for the consumer to make a choice other than to buy newbuild. We have provided evidence to MHCLG that sometimes developers had been able to command a premium selling leasehold rather than freehold with leasehold houses in some locations – but not anymore.
It’s not the fact the proposed changes to RPI are bad but the fact that on a number of properties the ground rent rates are at a level where they are above 0.1% of the property value and moving to RPI will mean they may well stay that way for a long period of time.
Since a number of the offers made by the developers are also to convert to RPI increases for the entire length of the lease rather than doubling in the first 5 review periods would you not agree its likely to place the leaseholder in an even worse position.
Can I suggest your use of the £1.5 million home with a ground rent of £400 is hardly a normal example of flats or leasehold houses around the country? At that level, it’s not breaching the 0.1% rule.
There are sites where the smaller flats have GR >0.1% which makes them difficult if not impossible to sell if they have 10 year doubling terms. So even though it may still be possible to sell the more expensive flats on the site they are inevitably impacted by the estate agents view that some flats can’t be sold.
While you may believe you would be able to calculate the level of discount you might offer for a property based on its ground rent I am sure you know the market does not work like that for 99% of buyers. All properties are sold for whatever the vendor can obtain and different potential buyers will place different values on different elements of the property. How you would value a view may be very different to someone else?
Would you hold a differing view if the NPV of the rent was calculated using a defined discount rate set by the government and for that figure to be shown next to the premium and with the SDLT calculated on the combined figure
This would ensure that onerous clauses cannot be slipped in.
Lessees being given the right to lower the rent either in full or part using a defined discount rate