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Contentious Ground Rents Could Cling On In New Leasehold Bill

High rise flats under construction in Maidenhead (Alamy)

4 min read

Leasehold campaigners are concerned the Leasehold and Freehold Bill will not cap ground rents to peppercorn rates, a measure that would significantly ease the financial burden on leaseholders. 

A leaseholder is a tenant who has paid to live in a property for a select period of time, and often includes apparent homeowners. Government data suggests long-term leaseholds usually last between 99-125 years. Once the agreement ends, the property returns to the landlord, who owns the home and the plot of land. Government data suggests there are almost five million leasehold properties in England, which makes up 20 per cent of the current housing stock. 

Ground rent is a payment made by the leaseholder to the freeholder for using their home and the land around it. A consultation on ground rents – which will close on 17th January – has been looking into ways to limit the charges which leaseholders pay. A peppercorn rate is an industry term used to refer to a payment of no financial value. In practice, if ground rents were set to a peppercorn, the leaseholder would not pay any ground rent. 

Leaseholder groups have told PoliticsHome this would help reduce the income streams of freeholders and radically reform the sector. But a number of freeholders are concerned by suggestions that ground rents could be significantly capped or even abolished. Mick Platt, Director of the Residential Freehold Association (RFA), told PoliticsHome that “retrospectively” capping ground rents on existing leasehold properties would be an “unjustified interference” by the Government on the market.

Platt claimed the policy could lead to multi-billion-pound compensation claims being made and the British taxpayer losing out on billions of pounds.

“DLUHC should instead focus on regulating the sector which would ensure legitimate investments are protected, while ensuring additional costs and responsibilities are not passed onto residents,” Platt told PoliticsHome.

Sebastian O’Kelly, Director at Leasehold Partnership, told PoliticsHome he did not “in all honesty” believe the Government would set ground rents to peppercorn rates. He said he believed capping ground rents to such a rate would "seriously" impact the income streams of freeholders.

He told PoliticsHome the consultation on ground rents was set up for the Government to listen to legal challenges it may get – and attempt to “ward” them off.

Research by the RFA shared with the Financial Times suggested UK pensions funds have more than £15billion invested in ground rents.

Ground rent charges on leasehold properties were partly reformed under the Leasehold Reform (Ground Rent) Act 2022. The Act capped ground rents on new leasehold flats to a peppercorn. However, existing leaseholders are still paying ground rents and are often charged with extortionate costs.

Leasehold campaigners and MPs have called for this provision to be extended to existing leasehold properties. However, many are also concerned that this will not happen – and it remains unclear how the government will proceed on the issue once the consultation is completed.

Katie Kendrick, founder of National Leasehold Campaign, told PoliticsHome she was unsure whether the Government would commit to setting ground rents to a peppercorn rate or abolish them entirely. She believed ground rents collected by freeholders were “money for nothing”. 

“The only option which is viable [for leaseholders] is to set all existing ground rents at zero [or a] peppercorn,”she said. 

Bob Blackman, Conservative MP for Harrow East, told PoliticsHome there has been real pushback from the freehold industry over capping ground rents. However, he urged the Government to legislate for ground rents to be fixed at peppercorn rates or abolish them entirely.

“[Ground rents] are an absolute nonsense. There’s no real responsibilities that someone charging ground rents has. It doesn’t supply a service,” he said. “It’s just a means of making money effectively without providing a service on the back of it.”

“This really escalated from all the greediness of the doubling of ground rents and the escalation of ground rents over a period of time.”

Sir Peter Bottomley, Conservative MP for Worthing West, told PoliticsHome ground rents “paid for nothing” and gave “bad landlords” an incentive to “behave badly” and overcharge their tenants.

“It provides opportunities of suffering for leaseholders. Ground rents should be abolished, we should treat people decently and take away temptation," he added.

The Freehold and Leasehold Bill has reached Committee Stage. Once the Bill is amended it will be reprinted and the Bill will return to the floor of the House of Commons for the report stage for MPs to consider further amendments. MPs will then vote again at the Bill’s third reading. 

Matt Pennycook, Labour's Shadow Housing Minister, has put forward an amendment on abolishing forfeiture of a long lease. This will reduce the threat of leaseholders losing their home if they fall behind on their ground rent or service charge payments.

A DLUC spokesperson previously told PoliticsHome they believed many leaseholders faced “unfair” ground rents for no guaranteed service. They added that they are still consulting on a range of options to address the issue of ground rents.

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