On January 29 Communities Secretary James Brokenshire met leaseholder groups to gauge opinions on the government’s reform of ground rents.
Mr Brokenshire emphasised to the meeting that he had not moved from setting ground rents as low as zero, as pledged by his predecessor Sajid Javid.
He also indicated that he did understand – as some politicians have not – that peppercorn ground rents mean ground rents of no monetary value.
Philip Rainey QC explains what is a peppercorn ground rent:
Not £10 or, as some of the monetising bamboozlers in the sector like to pretend. Still less, £200 or £250pa over, say, 999 years.
Sebastian O’Kelly, director of LKP and www.BetterRetirementHousing.com, welcomed the Secretary of State’s clarification and urged him also to drop the exemption of retirement housebuilders to a ban on ground rents.
“If ground rents are wrong in the wider leasehold market, they are also wrong in retirement housing.”
Volume retirement house builders argue that they are essential because they cannot easily sell off-plan, like other developers, as buyers want the properties immediately. The retirement developers have also argued that the ground rents level the playing field with other developers because they build unprofitable communal areas: kitchens, lounges, office for the house manager, disability scooter storage etc.
It has been argued that these spaces add up to 30% of the whole building, which prompts a hollow laugh from community retirement operators who say 5% might be a bit more accurate.
There is little reason to pander to the retirement house builder lobbying, argued Mr O’Kelly, as they have done a pretty hopeless job of meeting retirement housing demand: only 2% of over-65s in the UK live in designated retirement properties, which is far less than North America or Australasia.
“The sad thing is that retirement housebuilders were thinking creatively of new models of tenure and operations when they though the game was up with selling off ground rents last summer.
“There was some genuine creative thinking. And a very influential chunk of the retirement market, the Association of Retirement Community Operators, who actually manage complex sites for the long term-term, have publicly stated there is no need for them. As have major investors coming to the sector such as Legal and General.”
Mr O’Kelly added: “There is a division in retirement housing between the community operators and the volume retirement house builders. The former relies on event fees on resale; the latter make a last-ditch plea to continue selling ground rents to speculators.
“There is not an ideal model, but there is more interesting thinking and hope for an expanded retirement housing sector with the retirement community operators.”
The annual conference of ARCO is a curious amalgam of outfits, such as Goldman Sachs and US private equity investor Blackstone seeing opportunities in this sector, along with organisations such as the Extra Care Charitable Trust and the Methodist Housing Association.
There will be – and there are already – issues with big event fees The conference of the Association Retirement Community Operators in central London last week offered a fascinating alternative vision for the retirement housing sector to the one that we have. The organisation represents providers who build and manage their own sites, as …
There are issues with event fees: the business models of the operators rely on the key event, resale of the property – almost always prompted by the death of the owner – is not too long delayed.
Other groups at the meeting included the National Leasehold Campaign, the Elderly Accommodation Counsel, the HomeOwners Alliance, representatives of Audley retirement leaseholders, some random RTM directors, and the chair and CEO of the Leasehold Advisory Service.
It was a positive meeting, holding out the hope that the argument for ending the creation of new ground rents is not lost.
LKP attaches here a briefing note of Philip Rainey QC, a leading barrister in landlord and tenant, explaining what a peppercorn ground rent is in law.