Ground rent on residential properties should be capped, but not abolished according to the results of the recent Government consultation.
In July 2017 the Government paper ‘Tackling unfair practices in the leasehold market’ raised a number of questions regarding the ownership of leasehold houses, especially new builds. A large proportion of houses in the UK are leasehold and often the leases contain onerous ground rent charges, where the ground rents increase quickly over the term of the leases, which can ultimately leave these properties ‘un-mortgageable’.
The consultation had an overwhelming response, with over 6,000 people responding (95% of which were individuals). Whilst a large percentage believed there was no justification for ground rents, the majority felt that they should be limited rather than abolished. It was recognised that ground rents are often used by landlords to cover their costs and so setting ground rents at zero could lead to a decline in the quality of service.
Another point raised in the consultation was that of whether the ‘Help to buy’ scheme should be offered on leasehold houses. The Government has made it clear that it does not wish to support the sale of leasehold houses and has written to all developers to strongly discourage the use of ‘Help to buy’ equity loans for the purchase of leasehold houses.
Whilst no specific proposals have yet been made, the Government has picked up the key points in the consultation, promising to bring forward the legislation to prohibit new residential long leases from being granted on houses and to reduce the ground rents to zero. In response to the concerns raised by respondents regarding a decline in service quality, they state that “Costs incurred by landlords for overseeing and appointing a managing agent, or carrying out wider services, can be recovered through the service charge or a marginally higher sales price” to improve transparency.
However, with these changes only promised to be addressed “as soon as Parliamentary time allows” and the Government focus largely on Brexit, it is unclear when these changes could in fact come into effect. It is therefore important for developers and landlords to take early advice regarding their options now to avoid problems at a later date.
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