Last week it was the turn of the financial investment sector to give evidence in front of the Housing Select Committee which is scrutinising the draft Commonhold and Leasehold Reform Bill (CLRB).
Previous written submissions to the Department of Housing, Communities and Local Government had provided a clear indication of the main points that would be raised, and those submissions had not held back on their criticism of the draft Bill. These criticisms included the opinion that the capping of ground Rents was not a ‘proportionate reform’ and is poorly targeted. The submissions also pointed out that the measures in the Bill risked inflicting needless damage on Britain’s reputation as a safe place for investment, where the Rule of Law will be upheld.
Unsurprisingly, these points formed the basis of the oral evidence provided last week as representatives from the Association of British Insurers, UK Finance, TheCityUK and Nationwide formed the panel to give evidence before the committee members.
Key amongst the criticism of the Bill was the issue of the retrospective changing of the terms of legal contracts that, in the panel’s opinion, fundamentally changes the deal between parties. It was claimed that this called into question the UK’s commitment to international and human rights law and that it damages the international reputation and appeal of the UK as a place of investment. This point will have set off some alarm bells given the recent Judicial Review by Freeholders on Human Rights grounds.
The panel stated that the key concern from the pensions industry revolves around retrospection and that the ground rent cap will materialise in a transfer value out of the pension system of between £10 and £12.5 billion, claiming this is not a proportionate or fair response. They also made the point that leaseholders are not a homogenous group, with 41% being private landlords – so in effect money is being taken from pensioners and being delivered as a windfall to landlords, with most value going to leaseholders in the most expensive properties, often in London.
The panel went on to make the point that the ‘blanket approach’ taken by Government results in a government intervention that will wipe off billions of pounds without any compensation. While the Labour Party manifesto at the last election clearly said that it would address unfair ground rents, panel members argued that the Bill goes way beyond that, and ultimately will provide a £5 billion windfall for private landlords.
In a more conciliatory part of the session, the panel made a point of saying that investors are on board with addressing bad practices when it comes to ground rents, but believe the blanket approach in the Bill goes too far. They argued that there needs to be a better analysis of the composition of the leasehold market and actions need to reflect the breadth of that composition to arrive at a reasonable figure for the cap. This should be based on who the owners are, what they use the property for and how valuable the property is. They confirmed that there is a register of leaseholds coming in the summer which will provide the data to start doing that work and there is a strong argument to have different numbers depending on the property, rather than the proposed one size fits all approach.
When it comes to lending, the Director of Mortgages at UK Finance welcomed the fact that the Bill provides mortgage lenders with certainty over ground rents which helps with affordability assessments and provides surety for borrowers. But he went on to warn of the potential unintended consequences for the pensions sector. The Nationwide representative said that they haven’t seen ground rents as a significant barrier for lending on leaseholds, and confirmed that the cap of £250 would fall under the limits of the majority of cases that they see on a day-to-day basis.
The strongest point made by the panel was that the Bill raises questions about ‘the predictability and certainty of the UK’s legal framework’ and raises questions about the confidence of investors making long term decisions for pensions in the UK. The ABI representative stated that retrospective action is extremely unusual in the UK, and that this is an unprecedented scale of intervention that the government is contemplating. She went on to point out that with a greater risk of legal uncertainty about investing in the UK, investors will expect to earn higher premiums, pushing up the cost of borrowing.
Some of the MPs on the committee did not seem overly convinced about the argument concerning the damage to UK PLC’s reputation for investors, given the 40-year timescale for the change and the fact that investments in the economy and infrastructure were very different to investments in freeholds.
Moving on to the issues around implementation, the panel spoke of the need to clearly explain and educate people about what commonhold is, which could take a couple of years. It was also reiterated that LAFRA needs to be implemented before any conversions from leasehold to commonhold, so it would be sensible to use a phased approach, starting with new build flats. The Government must make sure that the transition is managed effectively, as the devil will be in the detail.
Interestingly, the panel members were very keen to stress that the Bill has missed an opportunity to introduce the regulation of managing agents to hold them to minimum standards. They argued that lenders need assurance that the management company, particularly in a large block, has the expertise, knowledge and insight to discharge their responsibilities correctly. Lenders also need to be made aware in advance of any changes that may be made to the block.
So, while the arguments made by investors were predictable give their written submissions, they did not hold back in pointing out the extent of the transfer of value and the potential impact that this would have on the reputation of the UK as a place to invest in future, across all sectors of the economy. The call for a two-tiered approach to the ground rent cap was made strongly, and they argued that this would be in line with Labour’s manifesto commitment.
The oral evidence to the committee will conclude on Tuesday 24 March with an appearance by the Minister of State Matthew Pennycook MP, where committee members will explore potential improvements to ensure commonhold associations work effectively, as well as issues surrounding making commonhold the default tenure, and will delve into the government’s expected timetable for introducing the legislation and the related implementation of the remaining provisions of the Leasehold and Freehold Reform Act.
Mark Chick
23 March 2026
