January 17th 2024
ALEP members agree with the need for ground rent reforms
The government are currently battling to ease ground rent pressures and members of the Association of Leasehold Enfranchisement (ALEP) are the latest group to support this.
As part of wider leasehold reforms, the government is currently running a consultation on limiting the ground rents – a fee that is set by the freeholder, separate from service charges, that the leaseholder pays as a condition of the lease. The consultation was due to end in December 2023 but was extended into this month.
Against this backdrop, ALEP, as well as the government, have launched their own consultation as the majority of members have agreed that ground rents can severely affect the sale of leasehold properties.
In a recent survey, which was conducted by ALEP, 70% of its members said some ground rents could cause problems when selling a house and 43.2% said that problems occurred because the full terms related to ground rent payments had not been made clear when the vendor purchased the property.
In addition, other concerns have been raised which include:
- 70% of people involved in the survey claimed property cannot be bought or sold because mortgage providers do not like the ground rent terms
- 2% claimed that the full terms related to ground rent payments are not initially made clear when buying the property
- 8% said that leaders do not know or understand how much their ground rent will increase
- 3% agreed that ground rent payments get more expensive over time
- 25% stated that leaseholders have to pay ground rent payment for no clear service given in return
- 8% agreed ground rents are unaffordable
- 3% of people included in the survey disagreed that there is a problem with ground rent payments
However, although ALEP agree with the government, they launched their consultation to identify which of the government’s proposals to rectify the issue were most appropriate. Members determined that the best potential solutions are capping ground rent at a percentage of the property value (favoured by 38.6%), capping ground rent at an absolute value (27.3%) or capping ground rents at a peppercorn (20.5%).
From this, the government claimed their preference was to cap ground rent at a peppercorn and whilst this will be beneficial to leaseholders, ALEP have stated that this decision will negatively affect freeholders and investors.
‘Ground rents currently provide a large source of stable income to not only investors but also pension funds and there is the potential if there were to be sudden, dramatic and wide-sweeping change for there to be knock-on effects in that part of the financial markets that seeks out fixed or stable income,’ Mark Chick, director of ALEP said. ‘There is a significant difference between capping ground rent at a percentage of the property value and capping ground rents at a peppercorn and so it is no surprise that ALEP members, concerned about the knock-on impact on the wider economy, favour the former.’
Mark added: ‘It is encouraging to see that our members largely support the government’s proposals for changes to ground rents. However, our members’ answers have to be seen very much in the light of the way in which the questions posed by the ground rent consultation have been phrased.
‘When considering the width of options available to government for reform in this area, one thing that our members might also wish to raise is the question of whether any reform or restriction could potentially be addressed at only the ‘problem’ ground rents (those doubling at intervals of less than 20 years), or where the level will become ‘onerous’ in a short timescale.
‘The work done with the Leasehold Reform Ground Rent Act 2022 shows that it is possible to draft quite precisely and cleanly to deal with ground rents for new leases. For legislation to seek to restrict or remove rents in existing leases (which may have been running for a good number of years) may run the risk of being disproportionate to the wider objective of discouraging ground rent and ultimately, leasehold as a form of land tenure.
‘What seems clear is that the proposals outlined in the ground rent consultation will need to be discussed in further detail and will require further work before progressing to legislation.’
Image: mastersenaiper
Government unveils ground rent reforms to save money for leaseholders