An amendment is expected to be made by the government to its Leasehold and Freehold Reform Bill.

The Bill, put forward by Housing Secretary Michael Gove, proposed to reduce the ground rents to ‘a peppercorn’ – zero or thereabouts – but this led to resistance from the Treasury due to the impact on pension and insurance funds. Consequently it has now been suggested by government sources that ground rents will now be capped at £250 and phased out over at least 20 years.

The change is due to be incorporated via an amendment into the Leasehold and Freehold Reform Bill, which is making its way through Parliament.

Commenting on the imminent amendment, Mark Chick – a partner at Bishop & Sewell LLP and a director of the Association of Leasehold Enfranchisement Practitioners – says:  “Some will say that this proposal does not go far enough and that Government should be aiming for a complete ban on ground rents. However, it seems very clear that the human rights considerations have been taken into account in coming to this proposal – and the realisation that a complete ban would more likely than not to lead to significant compensation claims having to be paid. 

“The government no doubt wants to avoid having to pay a reported £27.3 billion to compensate freeholders for lost assets.

“It may well be that some will consider that £250 is perhaps an unfair figure when applied across the board – and that it does not reflect relative values whereas perhaps a 0.1% (or other percentage) cap relative to value might. If the cap at £250 is right, one can only assume that government has been swayed by the suggestion that resolving disputes about the fraction of value might cause cost and delay.

“However, for freeholders this is perhaps better news than an outright ban. I wonder whether there will be any differential between central London and elsewhere?

“[Press speculation] suggests that there will be a phasing out over time. How long will this be? Will there be a reduction down to zero? Either would  have a significant impact on the long-term value of freeholds. Government has clearly undertaken a balancing act between the human rights considerations of ‘deprivation’ and ‘control’ of property in seeking to find a balanced solution. We will have to wait for the formal outcome of the consultation to know what the true position is.”