The government’s recent announcement shows how it is committed to outlaw the sale of houses on a leasehold basis.
Very limited exceptions are likely to apply, but one would be where the developer’s interest was subject to a lease at the date of the consultation response.
The government is clearly trying to assuage recent public outcry over onerous ground rents by pledging to introduce legislation so that new leases of houses and flats will have a peppercorn ground rent.
In our experience, increases in line with RPI have generally been viewed in the market as a fair and reasonable standard and have formed part of developers’ business models, with the sale of the ground rent income being viewed as a legitimate route to additional income. However, lenders have been introducing restrictions on what they consider acceptable and while it does not make sense to include provisions in leases that will be rejected by lenders, prescribing that ground rents must be peppercorn is likely to result in an increase in house prices to compensate for the absence of ground rent income.
Prescribing that ground rents must be peppercorn is likely to result in an increase in house prices
The government has indicated it will be investigating what can be done to assist those with existing leases that contain onerous ground rent provisions. It will be interesting to see how it tackles this – clearly it would be a challenge for the market if it resulted in a two-tier system, where some properties have peppercorn ground rents and some a ground rent of a few hundred pounds per year. This is before you even consider the knock-on effect to businesses that actually operate in the acquisition and collection of ground-rent portfolios.
The government will legislate to ensure freeholders who pay charges for the maintenance of communal areas and facilities on a private or mixed-use estate can access equivalent rights as leaseholders to challenge the reasonableness of service charges. While this is positive, in our experience, freeholders on such estates are already afforded the same rights as leaseholders.
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