Plans to set ground rents at a ‘peppercorn rate’ are reported to have been dropped amid opposition from freehold campaigners and pension funds. The ambitious overhaul of England’s leasehold system looks set to hit the buffers after Treasury officials quietly axed part of the reforms, The Times reports.
The Housing Secretary, Michael Gove, has been pushing for leasehold reform saying leasehold is ‘outdated feudal system that needs to go’.
However, it appears that the Treasury and Number 10 have vetoed crucial aspects of the proposals because pension funds have invested between £15 billion to £40 billion in buying the freehold of apartment blocks.
The new leasehold law would see that investment being hit and, in turn, pensioners being significantly impacted. Ministers are also worried about the potential impact on the investment of new developments.
The Sunday Times reported that Housing Secretary Michael Gove is struggling to get support from the Treasury to push through reforms that would have effectively set ground rents at zero to support leaseholders.
A spokesperson from the National Leasehold Campaign (NLC), said “we know that thousands of leaseholders have responded to the Government’s ground rent consultation, explaining in their droves why existing ground rents need to be reduced to a peppercorn to avoid the inherent unfairness of a two-tier system now that ground rents are limited to a peppercorn on new build properties. It is extremely frustrating that, if the rumours are true, the Treasury and the Prime Minister have been hoodwinked by sector lobbyists who have no regard for the leasehold misery faced by millions of leaseholders across the country. It also seems they are running scared from legal challenges funded by freehold investors with skin in the ground rent game and deep pockets.”
The NLC said "retrospective action on ground rents would have no material impact on pension schemes, and those pension schemes that do have ground rent investments should be reassessing them, adding, no reputable company with a responsible and ethical investment strategy would invest in ground rents if they saw first-hand the misery they cause and the deplorable sales tactics that have led so many leaseholders to have onerous ground rents. With a General Election looming, abandoning a manifesto commitment that would help thousands of leaseholders is just pure folly.”
Harry Scoffin, founder of the anti-leasehold campaign group Free Leaseholders, told the newspaper: “In 2019, 13.9 million people voted for a Conservative manifesto that pledged to restrict ground rents to a peppercorn. If these reports are true, Rishi Sunak is stabbing leaseholders and his own voters in the back. He is siding with rent-seekers, middlemen and extortionists against homeowners, and betraying a whole generation of young people whose only chance of homeownership is to buy a leasehold flat. Leaseholders are captive consumers and get no benefit from ground rent — those are not my words, but those of the Competition and Markets Authority.”
There are around 10 million leaseholders living in England and Wales who have the right to live in their homes, but the property or land is owned by a freeholder landlord.
A segment of these leaseholders is burdened by hefty ground rents that either double or rise in accordance with the retail prices index rate of inflation, resulting in annual costs in the thousands.
Mr Gove’s strategy included a bid to lower all ground rents to a zero or ‘peppercorn’ rate.
He anticipated this would motivate landlords to sell the freehold to leaseholders and eventually eliminate the leasehold system. This provision was meant to be added to the bill following a consultation that concluded in January.
This move would have surpassed the cap on ground rents for new homes, implemented in 2022, and the 1993 reforms that allowed leaseholders to decrease their ground rent to a peppercorn when extending their lease by 90 years.
But the proposal was discreetly withdrawn after Mr Gove and officials from the Department for Levelling Up, Housing and Communities encountered strong opposition from the Treasury.
There was also a vigorous lobbying campaign by pension funds. There also appears to be some pushback from Number 10 over the proposals and Mr Gove is now urging the Treasury to accept a compromise, which would cap all ground rents at £250 per year.