Tory MPs and Housing Industry Leaders Clash Over Leasehold Reform
A number of Conservative MPs and housing industry leaders have clashed over a key part of the upcoming Leasehold and Freehold Reform Bill, after the Government promised to tackle "unfair" ground rents faced by 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.
Tenants who have purchased a lease on a home have to pay ground rent, which is a cost paid by leaseholders who use the property they are living in.
Michael Gove, the Levelling-up Secretary, has launched a consultation which included options such as setting ground rents at a “peppercorn rate”, which is of no financial value.
Gove's department is looking at other options to reduce ground rent payments. They include reducing ground rent payments to the level they were when the lease was granted, capping ground rents as a percentage of the home's value, and fixing ground rent at pre-existing levels.
But Ian Fletcher, Director at the British Property Federation, told PoliticsHome he believed if the Government set ground rents at peppercorn rates, the leasehold industry would be "obliterated".
"It would be a big step to take, and an unusual step in terms of Government not really respecting the rights of property," he said
"If the Government follows through with this, it will force a lot of freeholders out of the sector in those sorts of fire sale circumstances," he added.
Fletcher said setting ground rents to a peppercorn rate could cause massive disruption to everyday management and building remediation efforts and make freeholder's business models unviable.
Mick Platt, Director of the Residential Freehold Association, told PoliticsHome the proposal for a cap on ground rents would be a “massive own goal”.
“It will cost the taxpayer enormous sums of money to compensate investors while transferring the wealth to thousands of buy-to-let landlords and leaving ordinary leaseholders with burdensome legal responsibilities and escalating service charges,” he said.
“The Government’s own research shows there is limited interest from leaseholders for this kind of intervention. It’s time for Mr Gove to stop ignoring the evidence and start bringing forward sensible reforms that would actually improve the tenure,” he added.
However, other industry figures such as Sebastian O’Kelly, Director of Leasehold Knowledge Partnership, told PoliticsHome the idea of setting ground rents at a peppercorn rate would rightly kill off this "feudal parasitism".
"Setting ground rents to a peppercorn - which is of no monetary value - is a full scale assault on the only legitimate income streams in the leasehold sector. Sadly, there is an abundance of dodgy ones (many of which are also addressed in the Bill)," he said.
“It is essentially removing landlordism from flat ownership: the nonsense that home owners in England and Wales, alone in the world, have to pay out an annual income for the duration of the lease to an irrelevant and superfluous landlord,” he added.
The Leasehold and Freehold Reform Bill is set to receive its second reading on Monday.
Many Conservative MPs have campaigned and pushed the Government to adopt leasehold reform and reduce costs to leaseholders such as ground rents. Research suggests Commonhold Now, a former campaign group to end leasehold, found fewer than 10 Tory MPs have publicly opposed reforming or scrapping the leasehold system.
Bob Blackman, Conservative MP for Harrow East, told PoliticsHome he believed ground rents on leasehold properties needed to be “peppercorn or zero, it’s as simple as that.”
“I know they are twitchy as they can’t make money on it. Well, tough,” he said. “Ground rents are really attacks on leaseholders.”
“The other issue which has to be resolved is the transparency of service charges. There’s a risk of, instead of charging people ground rent, they'll charge exorbitant service charges without justification,” he added.
Sir Peter Bottomley, Conservative MP for Worthing West, and the longest-serving MP in the Commons, told PoliticsHome he hoped the Government would set ground rents to a peppercorn.
He added that he wanted landlords, who have leased out their properties, to be given every incentive to sell their freeholds to the leaseholders to avoid losing more of the home’s value.
“[Leasehold reform] will have massive support in the Commons. Scottish MPs may not vote for it because they don’t have the system anymore. Unless someone has a landlord interest they will support reform.”
One industry source previously told PoliticsHome they were concerned leasehold reform would come at the expense of more housebuilding, which has fallen precipitously in recent years.
Research from Centre for Cities, a think tank, shows a backlog of 4.3million homes needing to be built in the UK. It found England alone needed to build 442,000 homes a year to plug the deficit in 25 years, and 654,000 homes within ten years.
Nickie Aiken, Conservative MP for Cities of London and Westminster, told PoliticsHome she believed ground rents came across as a "feudal" charge.
A leaseholder on average spends between £200-£500 a year on ground rents, according to Tayntons, a solicitors' firm.
Aiken said people are prepared to pay for charges which are "reasonable" and "transparent".
"There's never the same type of transparency or understanding about what ground rent is," she told PoliticsHome.
The Bill has already caused some controversy after it was found the new leasehold bill would not ban leaseholds on new-build houses, as had been expected.
In November The Times reported the Bill had been written in a “huge hurry” after No 10 were deliberating over including it in the King’s Speech.
The paper claimed Government lawyers were not given the time to give the clause of banning new leasehold homes the green light.
Gove has been keen to abolish the system. He previously described leasehold as “an outdated feudal system that needs to go”.
A DLUHC spokesperson said: “Many leaseholders face unfair ground rents for no guaranteed service in return and we are consulting on a range of options to address this issue.
“The consultation is helping us to test proposals to avoid negative impacts on the courts as well as explore impacts on the freehold market and all options will be carefully considered before a final decision is made.”
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