Queen’s Speech 2021 – Leasehold Reform (Ground Rent) Bill

I have said in the past that some Parliamentary draftsman wakes up and thinks: "It would be a good idea to fine landlords £5000. What offence can we create for them?" Well, here we go again. If you are going to make charging ground rent unlawful, simply legislate that it is not payable and that if paid it can be recovered with interest at 12%? Instead, we will have vicious legislation. Who else is fined £5000 for demanding money that is not due to them?
On a separate note it is not a good idea to abolish ground rents altogether. They provide a reason to keep the freehold company going and allow a cushion if there is a problem collecting service charges. If a freehold company can only recover service charges but make no profit, it will always be on the brink of insolvency. It is not good for leaseholders to have to deal with their freeholder becoming insolvent. I suppose we will have to wait until a few large blocks of flats find that the freeholders are wound up and some leaseholders end up subsidising free riders who don't want to pay running costs, such as preparing accounts and making annual returns.

Ian do you think this legislation might cover the £250 and £100 ground rent thresholds causing a property to be defined as an AST?

Hi Mike
We will have to see the Bill when published. The statement refers to "new, long residential leases" so it may not catch existing leases with doubling rents. The AST problem will go away but that is not the Government's motivation.

The Government's aim here is to level the playing field with Commonhold ... their preferred alternative to Leasehold. But imposing a £5,000 fine is not the way to go. They should just ban ground rent over a nominal figure; e.g. £10pa.

The devil will be in the detail, so we await the actual Bill with interest.

Is the problem not so much the ground rents per se but the increasingly popular practice of escalating increases that gouge the leaseholder?

Reply to the comment left by Badger at 18/05/2021 - 08:29
That depends on how the rent reviews are written, Badger. Most reviews these days are 10 yearly and linked to Retail Price Index ... which maintains 'real value' and doesn't favour either party.

Reply to the comment left by BernieWales at 18/05/2021 - 11:03
As a leaseholder that has been on the wrong end of a number of these ten year revaluations I'm not so sure that I could agree that fair value is being maintained from my perspective!

Reply to the comment left by Badger at 18/05/2021 - 18:10
Well, that depends on the terms of your lease - which I assume you entered into without a gun to your head? And you were advised professionally by a competent and experienced lawyer?

Reply to the comment left by BernieWales at 19/05/2021 - 11:52Bernie the problem is indeed people not realising how compounding works. You may remember the story of the grain of wheat and the chessboard. The King agreed a reward of one grain for the first square, two for the second, four for the third then 8, 16, 32 and so on.
As a bit of fun I calculated that with a 999 year lease (granted in 1022 when King Harold ascended the throne) at an initial annual rent of one one-hundredth of a penny, doubling every 10 years the annual rent today would be £63,382,530,011,411,500,000,000,000 which is about 800 billion times the GDP of the entire world. All for one little house!
If it doubled every 25 years the rent now would be £54,975,581.39 and every 40 years a rather more manageable £1,677.

Reply to the comment left by Ian Narbeth at 19/05/2021 - 12:09
But remember Ian ... in 999 years, £54,975,581.39 will only buy you a skinny vanilla latte 🙂