Leaseholders will continue to pay annual ground rent capped at £250 for up to 20 years in an amendment to the Leasehold and Freehold Reform Bill set to be announced this week.
Housing secretary Michael Gove has been forced to water down the reforms in the Bill following resistance from the Treasury, according to a report in the Times.
Annual charges levied on leaseholders will now be capped at £250 rather than being cut to zero, or “peppercorn” rate, as first outlined in the Conservative 2019 manifesto.
Last year Gove called the leasehold system a “feudal system that needs to go”.
However, the Treasury has come under pressure from pension and insurance funds, to argue that this policy should be watered down.
Several funds have invested heavily in ground-rent portfolios and an internal Treasury analysis suggests that up to £37bn of investment could be wiped out, which may lead to compensation claims aimed at the government.
There are an estimated 4.98 million leasehold dwellings in England, according to Department for Levelling Up, Housing and Communities data published last May, which is 20% of the English housing stock.
Leaseholders own the right to occupy their home but the building or land is owned by a freeholder landlord.
Some are trapped by onerous ground rents that are either doubling or increasing in line with inflation, costing them thousands a year.
Mark Chick, a partner at law firm Bishop & Sewell and a director of the Association of Leasehold Enfranchisement Practitioners, says that the original reforms would leave the government open to “significant compensation claims”.
Chick adds: “Some will say that this proposal does not go far enough and that the government should be aiming for a complete ban on ground rents.
“However, it seems very clear that the human rights considerations have been taken into account in coming to this proposal – and the realisation that a complete ban would more likely than not to lead to significant compensation claims having to be paid.
“The government no doubt wants to avoid having to pay a reported £27.3bn to compensate freeholders for lost assets.”
Chick also points out some reports say that the £250 cap could be “phased out over time”.
He says: “How long will this be? Will there be a reduction down to zero?
“Either would have a significant impact on the long-term value of freeholds. Government has clearly undertaken a balancing act between the human rights considerations of ‘deprivation’ and ‘control’ of property in seeking to find a balanced solution.”
Free Leaseholders founder Harry Scoffin adds on X: “On face value, an immediate £250 cap for all existing ground rents is a win for leaseholders.
“Twenty years is not great — but it’s a compromise. We need to see the way the amendments are worded. There must be a clear end date.”
