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Ground rents capped but leaseholds to stay, Michael Gove to announce

Oliver Wright, Policy Editor - May 11 2023, The Times

Millions of leasehold homeowners will have their ground rent capped at “peppercorn” rates, ministers are to pledge, after backing away from wider reforms to England’s “feudal” property system.

The housing secretary Michael Gove had previously pledged to abolish leaseholds in England and Wales and replace them with a new form of commonhold ownership. But the plan has been put on hold amid concerns over the legal complexities of a new system that would affect nearly five million households.

Instead Gove is expected to unveil a new package of measures that will cap the amount freeholders are able to charge their existing leaseholders at about 0.1 per cent of the property’s value. At present many owners of leasehold flats have to pay an annual ground rent of between £300 and £700.

There will also be new rules around service charge fees and a ban on adding commission to buildings insurance.

Ministers claim the new rules will “remove the income stream” from freehold properties, which have become an increasingly popular investment for companies and pension funds. There has been widespread criticism that leaseholders are being exploited by unscrupulous freeholders and have limited powers to seek redress.

“This will provide new protections for leaseholders against unfair charges while we set a pathway to commonhold ownership,” a government source said. “People should not be forced to pay into a vacuum for a home that they already own.”

The new measures build on previous government reforms that banned the payment of ground rent for new leasehold properties. A ground rent is often paid by owners of leasehold properties on top of their mortgage, with some facing high charges and unexpected increases.

This is because they only own a lease, which gives them the right to use the property, but not the land it is built on. People can extend their lease or buy the freehold, but this can be complicated and expensive and involve legal fees. Very few other countries still have leasehold systems but around 20 per cent of homes in England are leasehold properties, many of them flats in cities.

The changes are a U-turn from a repeated pledge by Gove to entirely abolish the leasehold system, which dates back to the 11th century. This year he said he would “absolutely” maintain his commitment to change the law. “I don’t believe leasehold is fair in any way,” he said. “It is an outdated feudal system that needs to go. And we need to move to a better system and to liberate people from it.”

However, as first reported by The Guardian, legislation due in the autumn will fall short of that.

In the Commons, the Labour MP Justin Madders said ministers were reneging on a “a firm government commitment. “If there is a U-turn on that, that would represent a massive betrayal for the millions of leaseholders up and down the country,” he said.

Karolina Zoltaniecka, co-founder of the Commonhold Now campaign group, said the planned package would represent nothing more than “sticking plaster reforms” and would “do nothing to hand control to the paying leaseholders”.

The Department for Levelling Up, Housing and Communities said: “We are determined to better protect and empower leaseholders to challenge unreasonable costs.

“We have already made significant improvements to the market - ending ground rents for most new residential leases, and announcing plans to make it easier and cheaper for leaseholders to extend their lease or buy their freehold.

“In line with our manifesto commitment, we will bring forward further leasehold reforms later in this parliament.”

Investment Synergy - So... yet another u turn on housing policy that needs more forethought and understanding on impact - to the leaseholders... to the investment and pension companies that will lose revenue, impacting return for the funds and those invested... no easy answers.

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