Many people will have seen the rumour/ announcement in yesterday‘s Sunday Times: Leasehold dream over as Gove plan quietly crumbles…
Mark Chick, the firm’s Senior Partner, considers the details behind the headlines.
This article was first published on Mark’s blog: Leasehold Reform News.
The Times / Sunday Times does have a good record of being an unofficial / official source of these things – after all that is where details of the Leasehold and Freehold Reform Bill first appeared in November 2023.
If this is right, then it may well be that the recommended outcome of the DLUHC consultation on ground rent may not be the banning of ground rent for all existing leases.
But is this actually a surprise? After all a total ban was only one of the options for reform on which the Consultation sought views.
To many commentators this won’t have come as that much of a surprise given the noted potential issues with the possible need to pay compensation which have been highlighted by various human rights experts; there is also the question of interference in existing contracts.
Aside from some of the more political comments, there has been a ban on ground rent for all new leases following the Leasehold Reform (Ground Rent) Act 2022.
What the article does not make clear is which of the other options for reform are still on the table – don’t forget the consultation mentioned a 0.1 % (or higher cap), a freeze, as well as the option of a cap at £250 for all current ground rent. Mr Gove’s team are still lobbying for the £250 cap apparently.
A cap at £250 would be a significant step forward for all leaseholders – and would reduce the value of freeholds where the ground rent exceeds this level. Whether government feels this can be delivered without the risk of a challenge on human rights grounds remains to be seen.
However, one thing that I am not clear about is why one of the options for reform as not a more surgical strike on ‘bad’ ground rents (the high doubling rents, or the ones like the example that the article mentions) – and to seek to deal with these alone as a first step.
There are other possible options too – like a phased-in ban or reduction, which, crucially, would give the market time to adjust. These were not mentioned in the Consultation but were among the suggestions made by respondents.
What the official outcome of the Consultation will be, we do not yet know – but it does seem that an outright ban may not be on the cards. The question then is what recommendations will the Consultation make? Betting money might be on a cap at a fraction of capital value – especially given that the draft bill uses a 0.1% cap in its valuation model. However, we will have to wait and see … As they say, watch this space.
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The above is accurate as at 25 March 2024. The information above may be subject to change.
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