The future of ‘ground rents’ in the UK has been well-debated. Campaigners and Members of Parliament alike have regularly taken to the stage to tarnish such rents as ‘unfair’, while landlords and property managers continue to see them as an obvious necessity.
But with the Ground Rent (Leasehold Reform) Bill published earlier this month, the future of these rents is now up in the air. The new Bill will be part of the biggest reform in 40 years and aims to give existing leaseholders the right to extend by 990 years.
It may also see a ban on ground rents for all new-build flats by spring 2022. The reasoning for these changes? To offer leaseholders more control over their homes. ‘Peppercorn rents’ would also be enforced, meaning landlords can ‘sought nothing more than a peppercorn’, with fines for those who ignore it.
Campaigners argue that the new Bill will be fairer as it will make homeownership cheaper, less bureaucratic, and fairer by stopping freeholders from increasing ground rent. Leaseholders will also be able to buy a freehold more cheaply. But the evidence suggests that not all leaseholders agree. A survey by the Savanta Group showed that 70% of leaseholders are satisfied with the current rights and believe taking on additional responsibilities “would be a disaster”.
This seems to indicate that many blocks will move to a system where a managing agent is appointed but responsibility is handed to a resident’s management company (RMC). The Bill doesn’t look at the dynamics of buildings or how RMCs might work in practice. On the ground, Directors often do not have the time or expertise to manage a block effectively.
The Bill as it stands seems to be throwing out the baby with the bathwater. Everyone understands the need for better regulation to stop unscrupulous behavior. Some professional freeholders who do not maintain their blocks to a high level and cause difficulties. But having a professional company run the block makes a lot of sense. It means that you have experienced experts running an operation, which is standard practice in most sectors. Much talk has been about a professional director on an RMC, but this is not cheap, and the cost would fall on the residents.
There must be a middle ground. A creative solution that involves a fixed affordable ground rent, linked to inflation would allow professional freeholder to take on the building safety and management responsibilities, without the need to fight with your neighbours.
The need for better regulation is not a need for a complete rewrite of how things are run, especially when the majority are not in favour of the new law would. Freeholders may not be popular, but in the vast majority of cases, they are effective. At this stage it looks as though the Bill will pass without significant change, however, the nuance of neighborhood relations may mean that a creative solution could be more effective.
Joseph Gurvits is the co-founder and managing director of Y&Y Management, a property management firm in north London.
What is not being tackled by this are the existing leases with ground rents doubling every 10 years. Sorting that out will mean depriving some landlords of the prospect of windfall profits/ransom value but until this nettle is grasped, thousands of leaseholders will be stuck with unsaleable properties.
Instead we have a sledgehammer (fines for raising an invoice) so that the politicians can look tough. Simply make the charges unenforceable. Hell, we don’t even have such fines for raising phoney or inflated invoices.
The author is absolutely right about throwing the baby out with the bathwater. With no ground rent income, many freehold companies, whose only asset is the one freehold, will forever be on the verge of insolvency and any leaseholder, brave (or foolish) enough to become a director, had better acquaint himself or herself with the law relating to wrongful trading and be prepared to bale out the company if there is a shortfall e.g. in service charge recovery.
Ground rents doubling every 25 years keep in line with inflation but rather as the Tenant Fees Act did far more than was necessary to deal with abuses, this new legislation will do more than necessary for new leases and less than necessary for older ones.
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The law must be changed to take into account existing leases with high ground rent. It should be set to ZERO!
Our block of 30 apartments are paying in excess of £30,000 p.a in ground rent.
Since the increase the owners are struggling to pay their service charges, sell their property or obtain refinancing mortgage.
This is not the only issue, the increase in ground rent has had a big impact on financial upkeep /maintenance of the building and future building works.
Grossly unfair.
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The answer is commonhold, such that leaseholders have control over expenditure. The vast majority of freeholders and managing agents provide a poor service and are generally hopeless. Once commonhold is obtained leaseholders can choose their own agent and change them if necessary. To say that 70% of leaseholders are satisfied with their rights is absurd. Very few leaseholders (and most freeholders!) have no idea of their rights.
A survey carried out by Propertymark a few years back revealed that 94% of leaseholders would never buy another leasehold property.
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