The leasehold limbo lingers on
Building safety took centre stage this week during the debate on the Leasehold and Freehold Reform Bill, with little light at the end of the tunnel for leaseholders facing huge bills to fix defects. Senior Public Affairs Officer Eleanor Bateman explains more.
Debate on the Leasehold and Freehold Reform Bill continued this week, and with no official announcement on ground rent, building safety took centre stage. But a pragmatic solution to ensure all leaseholders are protected from the costs of fixing defects did not make it into the Bill.
Reports that the Treasury has blocked proposals to cap ground rent at a ‘peppercorn’ (zero rate) remain unconfirmed: no response to its consultation on the issue was published, nor were any government amendments tabled for debate at the Bill’s committee stage sittings.
An extra day for debate has been scheduled for 15 May, however, giving another opportunity for changes to be made.
Word on the ground (rent)
As a reminder, the Secretary of State, Michael Gove MP, has condemned ground rent and, despite an open consultation proposing various options, made his preference to cap it at a ‘peppercorn’ well known.
This has understandably caused alarm for freeholders – both individuals who derive even a modest income from it and larger investors (including pension funds) for whom it can be a critical part of their finance agreements.
The rumoured compromise is a ‘phased’ cap at a peppercorn rate introduced over a twenty-year period.
But even this has been met with concern that lenders could demand early repayment of loans and risks the prospect of insolvency, with far-reaching ramifications for the wider economy.
So, is the abolition of ground rent worth these risks?
There has been much conflation of various fees and charges in the media – services charges, estate management fees and ground rent are often lumped together and treated as one problem to be solved. But is ground rent really the scourge it is perceived to be?
In a survey conducted by the NRLA earlier this year, just 3% of respondents said ground rent in existing leases should remain uncapped.
Most (44%) agreed with the Secretary of State that a peppercorn cap was the best option.
Of those who pay ground rent, 19% said that they pay more than £250 per property per year.
However, 69% said that they pay £100 or less per property per year, with 53% of these paying £50 or less.
A far cry from the exorbitant sums being quoted elsewhere, which could beg the question of whether reforms are going further than they need to?
Building Safety Act “delivering”
On building safety, multiple amendments were tabled that sought to overcome the failings of the Building Safety Act (BSA), which exposes millions of leaseholders to uncapped costs of fixing safety defects.
The BSA includes protections for ‘qualifying leaseholders’ but leaves others (those who own more than three properties in the UK; enfranchised leaseholders; leaseholders of buildings less than 11m in height; and leaseholders who extended their lease after 14 February 2022) exposed to uncapped costs associated with building safety.
The NRLA has supported the Earl of Lytton’s attempts to establish a Building Safety Remediation Scheme, which would award grants (subject to a survey carried out by a qualified assessor) to cover full costs of resolving building safety failures irrespective of ownership status or building height.
The proposal did not gain sufficient government support during consideration of the Levelling Up and Regeneration Bill, but is ever more critical as the Leasehold and Freehold Reform Bill strives to make it easier for leaseholders to enfranchise – potentially making them liable for costs as a ‘non-qualifying leaseholder.’
Despite this, the Government failed to accept the comprehensive and well-evidenced argument outlined by the Earl and the amendment was withdrawn as a result.
Though the Levelling Up, Housing and Communities Minister, Baroness Scott of Bybrook, gave assurances that the Government was “always willing to listen” to suggestions on how to improve legislation, they are not convinced that the scheme is needed.
Other amendments seeking protections for leaseholders of buildings under 11m in height (also currently excluded from remediation funding) did not make it into the Bill either, with the minister explaining that the Government’s 'assessment remains that extending leaseholder protections to [buildings under 11m] is neither necessary nor proportionate'.
While it has been a disappointing week for non-qualifying leaseholders, there was consensus amongst opposition parties that the problem will not be resolved without intervention.
The Earl of Lytton commented that “the agony for leaseholders will go on and on” unless the Government accepts that changes must be made and suggested he will bring the issue back for debate at report stage.
The NRLA will continue to work with affected leaseholders and support the Earl’s efforts to secure a workable solution.
More information
The NRLA has produced a factsheet addressing leasehold protections for landlords and whether you are eligible for help.
