Plans for leasehold reform face a major early stumbling block as analysis shows plans to retrospectively introduce a cap on ground rents could cost the taxpayer over £31 billion in compensation.
The costs - equivalent to a one per cent increase in income tax for the next five years - would result from the compensation that investors will be entitled to and will seek from the government. These investors include pension holders, charities and other institutions that receive ground rent income from their legitimate investments in freeholds.
The Residential Freehold Association claims that the proposals will not only hit public finances, but will also drive professional freeholders from the market, creating ‘zombie buildings’ where there is no freeholder present.
The absence of professional freeholders will likely create a greater safety risk for residents, given there will be no steward with institutional experience to oversee the remediation of complex building safety issues in many cases, and in the case of an emergencies residents will not have the support of a freeholder during evacuation of unsafe buildings.
Association director Mick Platt says: “It’s astonishing to see a British government consulting on the retrospective interference with the legitimate rights of property owners in this way and it sets an alarming precedent for UK plc.
“[Housing Secretary] Mr Gove’s department has gone way beyond any reasonable attempt to reform the leasehold system and has consistently ignored calls for regulation. Instead, they have proposed a raid on investors that would hit the public finances and leave leaseholders in the lurch.
“Spending over £31 billion to reduce consumer choice and leave millions of residents with management responsibilities they do not want would be a thundering own goal. The government has ignored extensive research, including its own, which shows there is simply no desire from a majority of residents, or the public at large, for the policy proposals they are pursuing.
“The government must respect the rights of property owners and ensure any leasehold reform is proportionate and delivers tangible benefits to leaseholders – from managing service charge levels to no new leasehold houses – instead of running a horse and cart through a huge area of investment in the UK economy.”
He claims that the government’s own research suggests a majority of leaseholders are unlikely to favour the long-term consequences of its proposals, given such a move “will do nothing to reduce service charges for the maintenance and management of buildings.”
Polling commissioned by the association also found that only 18 per cent of current leaseholders would be comfortable assuming the legal obligations for managing their building – and 21 per cent of people would be confident that agreement could be reached on building management and maintenance issues in complex blocks between residents.
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The idea of potentially having to assume responsibility for organising maintenance and management of blocks of leasehold properties is horrendous.
I own 5 leasehold flats and I am fully aware of the difference of opinion between leaseholders regarding maintenance and the differing ability to pay.
An outside management company organising everything is very different to neighbours bickering among themselves. Obviously I don't live in any of the buildings myself but I am aware of several of the owner occupiers in 3 of the buildings. There is no way I could deal with the dope smoking leaseholder who steals the hallway lightbulbs and terrifies new tenants in one building. The management company struggle with her but at least they're arms length.
In another building a lovely woman who is absolutely potless really struggles with the service charge. She just doesn't understand the charges are incredibly reasonable in that building compared with the others I own. The previous freeholder was very mindful of affordability issues in the block.
Another flat is in a block that is totally BTL. 4 flats with 4 different leaseholders and 3 letting agents plus me. That one has the added complication of a head leaseholder who would love to off load the headlease.
For a lot of leaseholders ground rent isn't a problem. My most expensive one is £30 a year.
It's service charges that really need controlling. One of my freeholders loves commissioning surveys at our expense for work he knows will never be done.
Freeholders also need to be compelled to carry out essential repairs. 4 of mine currently have water ingress problems that the freeholders have known about for months or years. 3 of them need pointing repairs, which is the freeholders responsibility. If I organised the necessary repairs I would be breaching the lease.
Similar issue with a town house I own Jo, a few years ago half the windows needed replacing because of poor maintenance by the management company. When I complained they came and said it was fine and I argued the point that painting shiny paint on shiny paint without a good sanding and preparation will not end well. In the end the windows had to be changed because they had rotted.
Annoyed the life out of me as windows would only rot because of not being maintained correctly and the house was less than twenty years old. Most of the complex then had odd windows some plastic and some wooden, then a demand came in for 3k off everyone to change all the windows to plastic!
Again due to the management company useless attention to detail everybody else has to pay. 5 years later different management company employed to take over the running and we have service charges 50 quid less a month and they pay attention to the whole complex.
You are right it is the service charges that need to be controlled and a level of accountability to their actions.
I wonder how many landlords on here know that if they are paying over £250, per year in ground rent, or £1000, per year if the property is in London. That if they fall just three months behind with the ground rent or just over £80, in arrears, that the freehold company can without warning take repossession of the property without going to the courts no matter how much or how long you have owned the property, and the law can do nothing about it.
For that reason Lenders won’t lend on leasehold properties without a variation to the lease.
Easy, now try to get that variation, it can cost you thousands. And you wonder why leaseholders of flats hate the freeholders. Big business rogue's.
I wrote to my MP on this issue and was assured that the abolition of limit is in the Rental Reform Bill.
Are you sure this is correct? My understanding was that because this becomes an AST S8 can be used, but the freeholder would still have to go to court to regain possession & paying the debt would remove the threat.
I don't believe this is mentioned at all in the RRM except that if ASTs no longer exist then ground rent cannot create one.
Peter Lewis.........
I feel that the £250pa (or £1,000 in London) theory that supposedly turns a lease into an Assured Shorthold Tenancy is effectively a myth. I have never heard of such a repossession taking place and I am certain that a judge would insist on a hearing , leading to an adjournment and rectification of the issue if such a repossession claim were made. Lenders are panicking because of over zealous legal advice basically. I do agree, though, that the law needs to be changed so that it specifically states that this should not be the case, just to tidy things up and avoid confusion.
If that is the case as you say, then why do all the lenders either insist on a variation of the lease ( which can cost thousands and take months to arrange because freeholders are just not communicating with the lease holder) or an expensive indemnity insurance, which does not protect the leaseholder but only the lender.
I have known quite a few property sales that have fallen through due to this exact reason. The law does not require a freeholder to communicate with the leaseholder. And there are hundreds if not thousands of disgruntled leaseholders out there that are getting fleeced weekly by greedy freeholders who drag the whole process out so that they can up the anti.
Freeloaders are panicking as they can see the leasehold gravy train coming off the tracks. Many leaseholders have doubling ground rent clauses which makes their flats unmortgageable and financially unviable.
Excessive fees for lease extensions will go if ground rents are set at a peppercorn, marriage value abolished, and the freescammers have to pay their own overinflated legal fees.
Investment? Less than 1% of freeholds are held by investment and pension funds. So no drama on crashing the economy there.
As for running your own building- get Right To Manage and a half decent agent. Been doing it for 20 years across six sites and 120 flats. No big deal.
Leasehold reform will happen. And the freeloaders only have themselves to blame.
We have one leasehold property in London and the service charges are way too high per sq m. More than Mayfair and Hyde Park properties, apart from charges for the gym, swimming pool, sauna, jacuzzi etc. The high service charges mean we cannot use it. With mortgage interest and maintenance, impossible to make a profit from renting it. Last 4 years rent have been fairly low, 2 years due to covid and then same tenant since 2022 with same rent. I believe rent will be higher when this tenant leaves, maybe next spring. During covid, the gym was closed, 2 staff, others were furloughed but the service charges increased by 20% each year. They keep saying, in future we will see the lowering of the fees. We also pay hefty ground rent. Maybe lower for 2024. In the 2 buildings there are more btl properties than owner occupier. Owner occupier without mortgages, some retired people, mainly foreigners.
Michael gove is an extremely arrogant person coming in and turning existing contractual relations regarding property rights upside down and all retrospectively (leasehold and rental reform). Can't wait to see the back of him. Rayner & Co are even worse though.
Michael Gove is doing his levelling up bit, for too long leaseholders particularly have suffered, especially where they have been unable to get right to manage. Leaseholders will no longer pay landlords costs, marriage value when extending their lease to 990 years, peppercorn ground rent , which of course is a fee for no service, what are they paying it for? will be gone, no right to regain a property if leaseholders cannot afford escalating costs that only the freeholder has control over. All sounds very fair to me, and levelling up has been too long coming.
All these trumped up excuses for Freeholders to keep their ‘gifts that just keep giving’ simply don’t wash. In other countries with abolished Freeholds none of the problems the RFA warn of have happened. Here most get their initial investment back in no time at the expense of defenseless Leasholders having to pay ever increasing Ground Rents, over inflated maintenance charges & extortionate costs to extend the period, without which they couldn’t even sell their highly expensive property. It’s an archaic injustice with no place in the 21st century. Compensation is a joke, they’ve made their money. Now is the time to commit residential Leashold to history!
How can you say "they've made their money". What about those who have bought in recent years and not had a chance to make their money.
While generally I would agree don't leaseholders go in with their eyes open '' A fool and his money and all that''
Leasehold flats are often significantly cheaper than freehold houses. It's a choice we make - pay extra for a freehold and do whatever maintenance you want or buy a cheaper leasehold and pay the ground rent and service charge. The amount of ground rent and if it rises is fully documented on the lease. The solicitor can spell out exactly what the score is with ground rent. Service charges are a different matter and are whatever the freeholder or management company think they can get away with. In my experience they either underdo it, which causes buildings to deteriorate or overdo it and commission all sorts of surveys for work they know will never happen purely to get their override on the survey fees.
Leasehold has its place and is a convenient form of ownership for people who don't want to get involved with organising building maintenance. Whether it's actually cheaper per month than buying a freehold house is uncertain and will depend hugely on the service charge.
The problem with that is that mortgage lenders only look at the purchase price and don't factor the service charge into affordability calculations.
I am a freeholder on a row of properties and a leaseholder on a different prop as well. It’s all to do with communication . And talking to the other party. I questioned the amount the ground rent was to be increased and it got looked at reduced to a very small inc. likewise I tried to sell my ground rents but my lease holders were not interested in buying . I only wanted 500.00 they had to pay their own costs- no takers. Since then all the block gave not paid any ground rent after several notice served. But I’m told I can’t take possession just wait for em to sell then get bck dated gr rent.
All fool them, the value of investments can go down as well as up, it’s the risk you take. Plans to introduce universal Commonhold have been mooted for some time & widely publicised. Controlling Leases by owning their Freehold is an unethical way to screw money out of people whose conveyancers probably didn’t make clear the unfairness & sinister implications of the lease they were lumbering themselves with when they spent everything they had & borrowed a fortune thinking their lovely home was all theirs.
Its not fool them at all. There is a current well established legal systemin place. People will lose out unfairly due to the government's interference. Either people who bought recently or years ago. If they want to implement this they should ban leasehold on new properties. Not do it retrospectively which is what this government think is acceptable.
It's not about screwing people.
yes I agree with your comments here 100%
Not sure why freeholder want ground rent. They make a lot by screwing the leaseholders over the service charges. Never give credit to services not provided or minimised.
The freeholders charge it because they can...at the moment, they purchase freeholds as a punt, to invest their money in people's homes, freeholders don't seem to get, widely speaking, that they have invested and their investment will not always go up, the glory days are going for freeholders, and they don't like it . Certainly freeholders will not be compensated, why should they be if their investment fails?
Freeholding should be called Freeloading, not content with taking a rent for doing nothing, then raising the ground rent each year for no reason, they also charge astronomical amounts for answering simple questions if you can get an answer out of them at all. And if and when you do get a decision you can bet it will hit your pocket. The majority of English, Welsh, Irish, but not Scottish flat owners are ripped off. At least Dick Turpin wore a mask, but most freeholders are big businesses making huge profits out of the little man for doing absolutely naff all
And no matter what some say on here, if your young, want to get on to the property ladder, live in the city and want a nice shiny place. You can only buy leasehold flats, and no they are not cheaper.
well your right there, also of course people are starting to NOT purchase leasehold properties, even if they fancy their chances they can't borrow the money, banks and building societies are not into risk... the market will get worse and worse if leasehold is not abolished here, anyway it's time we caught up with the rest of the world and switched to Commonhold, people that get a mortgage to purchase a lease deserve to part own the land it sits on and their part of the block, why not? I'd love to hear some justification for the leasehold tenure from freeholders, so curious to see what you have to say.
Denise Clark. There is a process for extending your lease and probably getting a Share of the Freehold.
Enfranchisement if the majority are wort their salt get together and do it. I have with others have got together and done it now all have all 999 year leases and an equal Share of the Freehold.
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