The government’s plans to cap ground rents in England and Wales could cost the taxpayer over £31bn, a trade body has warned.
The costs, equivalent to a 1% increase in income tax for the next five years, would result from the compensation that investors will be entitled to and will seek from the government, according to the Residential Freehold Association (RFA).
It says these investors include pension holders, charities and other institutions that receive ground rent income from their legitimate investments in freeholds.
The proposals will not only hit public finances, but will also drive professional freeholders from the market, creating “zombie buildings”, where there is no freeholder present, the RFA argues.
It also says the absence of professional freeholders will likely create a greater safety risk for residents, given there will be no steward with institutional experience to oversee the remediation of complex building safety issues in many cases, and in the case of an emergencies residents will not have the support of a freeholder during evacuation of unsafe buildings.
The trade body points to the government’s own research which suggests a majority of leaseholders are unlikely to favour the long-term consequences of the government’s proposals, given such a move will do nothing to reduce service charges for the maintenance and management of buildings.
Independent polling, commissioned by the RFA, has also found that only 18% of current leaseholders would be comfortable assuming the legal obligations for managing their building – and just 21% of people would be confident that agreement could be reached on building management and maintenance issues in complex blocks between residents.
Mick Platt, director of the RFA, commented: “It’s astonishing to see a British government consulting on the retrospective interference with the legitimate rights of property owners in this way and it sets an alarming precedent for UK plc.
“Mr Gove’s department has gone way beyond any reasonable attempt to reform the leasehold system and has consistently ignored calls for regulation. Instead, they have proposed a raid on investors that would hit the public finances and leave leaseholders in the lurch.
“Spending over £31bn to reduce consumer choice and leave millions of residents with management responsibilities they do not want would be a thundering own goal. The government has ignored extensive research, including its own, which shows there is simply no desire from a majority of residents, or the public at large, for the policy proposals they are pursuing.
“The government must respect the rights of property owners and ensure any leasehold reform is proportionate and delivers tangible benefits to leaseholders – from managing service charge levels to no new leasehold houses – instead of running a horse and cart through a huge area of investment in the UK economy.”
The analysis comes just days after the Global Investment Summit where Rishi Sunak announced £30bn of new investment in the UK from world-leading investors, the same sum the government will be driving out of the UK through its leasehold reform proposals, the RFA says.
So, the freeholders have decided the level of their compensation, and are using it as a scare tactic.
Pension funds should get out of this immoral business.
This is an unequal war between wealthy ground rent investors, and the leaseholders they hold in their grasping hands.
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Yeah lets compensate off shore companies that pay no tax anyway! Laughable!
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This really does reek of desperation. Threats of ‘Costs to taxpayers’ ‘ Zombie buildings’ and ‘legal challenges’ from a group of freehold lobbyists which was formed in 2023 to fight the leasehold reforms because they started to realise the gravy train was being derailed.
‘Independent polling’ commission by the RFA – Say no more. Turkeys and Christmas springs to mind. Strange how not one member of the National Leasehold Campaign with over 28,000 members were participants of this ‘independent polling’. But worry not Leaseholders are ensuring their voices are head in other ways.
The RFA may have deep pockets to commission fancy survey’s to manipulate the results to fit their agenda but it really is time to stop hitching a ride off leaseholders.
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Well said!!
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Well said.
To say leaseholders need ‘professional’ freeholders is laughable. There is nothing ‘professional’ about them, except it is their profession to buy up ground rents at low cost, and sweat those assets from every angle. I was Co Sec of a share of freehold management company, and I was hands-on. Yes, most of the other residents didn’t want to get involved in the day-to-day running of their property, but they did appreciate that their ground rent was reduced to a peppercorn, and their service charges were kept to a minimum because we were not there to make a profit at their expense. For example, we didn’t charge a management fee plus additional management fees on every piece of work, we didn’t delay their selling process and charge £400 for a simple sales pack containing information which was readily available in a couple of days, we didn’t take huge secret commissions for arranging the most expensive buildings insurance, we didn’t charge permission fees for keeping a pet guinea pig or changing their own kitchen, and any natural surplus we did achieve went into the sinking fund. But, the regulatory burden did become heavy, and we brought in our own professional managing agent to handle it. The big difference was, we were in control. If we thought they were overcharging for something, or the work wasn’t being done quickly enough or properly, we could and did push back. And just like those ‘professional’ freeholders, we could change our managing agent… and ensure any monies in the sinking fund were transferred to the new agent, because our name was on the bank account.
Gordon Brown raided the private sector pension funds, and no compensation was paid to ‘investors’ for the future loss of income. That ‘future’ damage to my pension was one of the reasons I decided to focus more on BTL. Freeholders have been given free rein to live off the backs of leaseholders for far too long. Their investment should be treated the same as any other financial investment. Enjoy the good times, but accept their is a risk you may lose it all.
Investing in ground rents may not be suitable for all investors. You may lose a substantial amount of
money in a very short period of time. The amount you may lose is potentially unlimited and can exceed the amount you originally invested. This is because ground rent investing is highly leveraged, with a relatively small amount of money used to establish a position in assets having a much greater value. If you are uncomfortable with this level of risk, you should not invest in ground rents contracts.
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Doubling ground rents have damaged the property market and it gets worse month by month! Time for ground rent to go so that we can get the sales market in London back on its feet. Its going to go one day so lets get on with it.
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A Merry Christmas for many leaseholders.
Homes are for people not financial institutions.
Their gravy train is slowly being derailed.
Frugal laws have no place the 21st century.
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I don’t have a problem with large companies providing homes, and treating the residents fairly, openly, and honestly. But these so-called ‘professional’ freeholders have not invested in the provision of homes, they’ve simply bought the ground rents, hide behind complex tax-efficient ownership structures, and facilitate the most egregious abuse of leaseholders via their appointed managing agents. We all know who they are!
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