Ground Rents U-turn hailed ‘a victory for common sense’

What appears to be another government housing policy U-turn - this time on ground rents - is being hailed as “a victory for common sense.”

Recent media reports have stated that the government has now abandoned plans to reduce ground rents to ‘a peppercorn’, a statement originally trailed in November’s King's Speech and which may have been included in the Leasehold and Freehold Reform Bill and in a ground rents consultation which closed earlier this year.

However, the U-turn appears to have come amid concerns that the plans could wipe out between £15 billion and £40 billion of investment, effecting pensions and others. In addition to the ground rents issue, government lawyers have warned that making retrospective changes to property rights could leave ministers open to legal challenges.

ALEP - the Association of Leasehold Enfranchisement Practitioners, a professional body representing over 1,200 solicitors, barristers and surveyors - says thesis good news. 

“It may well be seen as a victory for common sense. In many quarters there was consternation as to the possible impact that an outright ban might have … The wider policy considerations have clearly been considered here and perhaps quite rightly so, rather than the government getting entangled in a human rights challenge 'after the event' at potentially no small cost to the taxpayer” explains Mark Chick, a director of ALEP.

 “There are a number of other options as discussed in the consultation and this piece of news does not say which of these other measures may find favour, save that to say that the prospect of £250 cap might still be on the cards. There are various other options that might come out of the consultation such as a per entage cap or a freeze on current levels and we eagerly await the formal outcome of the consultation, which we might now guess will be soon.”

ALEP member Clive Scrivener adds: “There are some sensible heads at the Treasury and in Downing Street. They have confirmed what many independent experts in the sector believe; that the government cannot just wipe out ground rents which are payable under long leases. The current law (Leasehold Reform Housing and Urban Development Act 1993, as amended), has given leaseholders the rights to reduce their ground rent payments to a peppercorn and extend their lease term by 90 years plus the existing unexpired term for the payment of a premium value (compensating the landlord for their loss of ground rent income and reversion), for over 30 years. 

"Although leaseholders may feel aggrieved at having to pay a premium, it is important to remember that anyone purchasing a  leasehold flat is advised by their conveyancing solicitor and should be fully aware of their obligations under the lease including any ground rent which might be payable and any review terms.”

Earlier this year ALEP conducted a survey in which 81.8% of members agreed with the statement that ‘residential ground rents can have a negative or undesirable impact on the sale of leasehold properties’, while just 18.2% disagreed.