The Prime Minister, Keir Starmer popped up on TikTok this morning to announce a major shake-up that the government calls the “beginning of the end for the feudal leasehold system”.
Ground rents are set to be capped at £250 a year, shrinking to a peppercorn cap after 40 years, under proposals set to benefit millions of leaseholders across England and Wales. The cap could come into force by late 2028.
In a video posted on the social media platform, the Prime Minister said: “Good news for homeowners, we’re capping ground rent at £250. That means if you are a leaseholder, and your ground rent is more than £250, you’ll be paying less.
“And I’ve spoken to so many people who say this will make a difference to them of hundreds of pounds. That’s really important because the cost of living is the single most important thing across the country.
“So this is a promise that we said we’d deliver and I’m really pleased that we’re delivering on that promise.”
Furthermore, new leasehold flats are set to be banned. According to the Ministry of Housing, Communities & Local Government (MHCLG), over five million leaseholders and future homeowners will benefit from “stronger control, powers and protections”, through the draft Commonhold and Leasehold Reform Bill published today, which the government says will “fundamentally rewire homeownership across England and Wales”.
Forfeiture, whereby leaseholders can lose their home and the equity they built up by defaulting on a debt as low as £350, will also be abolished, and a new enforcement regime will “rebalance” the system – making it fairer between landlord and leaseholder.
A new process to make it easier for existing leaseholders to convert to commonhold will also be introduced under a revamped commonhold model, where homeowners will receive a stake in the ownership of their buildings and be given a stronger say in the issues that affect them, with greater control over how the building is managed and the bills they pay.
The “reinvigorated” commonhold system will “ensure” it works for all types of developments, as well as mortgage lenders, with strong management rules in place around repairs and leadership, and greater rights for homeowners.
Steve Reed, the Secretary of State for Housing, said: “If you own a flat you can be forced to pay ground rents that can become completely unaffordable. We said we’d be on the side of leaseholders – which is why today we are capping ground rent – helping millions of leaseholders by saving them money and giving them control over their home.
“The leasehold system has tainted the dream of home ownership for so many. We are taking action where others have failed –strengthening home ownership and calling time on leasehold for good.”
Reaction
Justin Young, chief executive of RICS, said: “Today’s announcement offers greater certainty and clarity on the government’s proposed reforms to the leasehold system, including long-awaited action on ground rents. The publication of the draft Commonhold and Leasehold Reform Bill is a critical step in this process. RICS looks forward to working with members, MHCLG, and other key stakeholders to deliver the best outcomes for consumers and the market.”
Liam Spender, the lawyer behind the Leaseholder Action claim, said: “The £250 ground rent cap sounds the death knell for leasehold in England and Wales.Some will no doubt be disappointed that ground rents are not being eliminated immediately and are instead being phased out over 40 years.
“However, crucially the cap will make it cheaper for people to buy the freehold and to extend their leases, both of which are priced by reference to ground rent values. Ending ever increasing ground rents should also make flats easier to sell and mortgage because there is often a need to vary ground rent terms simply to get transactions over the line. Also welcome is the government’s promise to abolish forfeiture, which is the right of a freeholder to take back a flat with no compensation if as little as £350 goes unpaid.
“The government has set out an ambitious programme of wider reform, including stronger protections in relation to service charges. This includes ending the grotesque ability of landlords to charge their legal costs to leaseholders who dare to challenge them.
“Having delayed its announcement on ground rent, the government must now urgently deliver on its promises across leasehold, including ending the creation of new leasehold flats and enabling people to take real control of their homes through commonhold.”
Timothy Douglas, head of policy and campaigns at Propertymark, said: “We welcome today’s announcement from the UK government to cap ground rents and ultimately reduce them to a peppercorn rate. We know from our research with Propertymark member agents that leasehold properties with escalating ground rent will struggle to sell, even if priced correctly.
“Addressing ground rents for existing leaseholders is a key step towards a fairer leasehold system. It brings existing leaseholders on par with new leaseholders, and it tackles one of the largest barriers to selling leasehold properties.
“We also welcome steps to make it easier and cheaper to buy leasehold property and the ambition to transition towards commonhold, but agents and consumers will need clear guidance, education, and practical support to understand and navigate this change.
“A draft Bill provides a vital opportunity for policymakers to work with the sector to get the reforms right before legislation is passed into law. It is vital that the changes come in as soon as possible to support property transactions and that the costs are reduced for consumers.”
A spokesperson for the Residential Freehold Association (RFA), said: “The inclusion of a ground rent cap in the draft Leasehold and Commonhold Reform Bill represents a wholly unjustified interference with existing property rights which if enacted, would seriously damage investor confidence in the UK housing market and send a dangerous and unprecedented signal to the wider institutional investment sector.
“Property rights and contract law are fundamental drivers of domestic and global investor confidence in the UK. Instead of focusing on those reforms which address the issues that leaseholders care most about, the government’s draft Bill will tear up long-established contracts and property rights, which are pillars of the UK’s investment reputation.
“This is, despite the previous government’s own impact assessment showing compensation could exceed £27bn.The resulting forced exit of professional freeholders from the sector, will hinder building safety projects and disrupt the day-to-day lives of residents.
“We urge the government to instead focus on the reforms that would achieve real world benefits for leaseholders which they care most about, such as regulating managing agents, improving transparency and raising professional standards.”
Responding to the publication of a draft Commonhold and Leasehold Reform Bill, Florence Eshalomi, chair of the Housing, Communities and Local Government (HCLG) Committee said: “For too many leaseholders, the home ownership dream has turned into a nightmare as they’ve faced soaring ground rent hikes and unreasonable fees. Leaseholders and residential freeholders have been waiting too long for reform but this next step on the path to legislation is welcome.
“As a committee, we are keen to get on with our work as soon as possible. We want to closely examine the government’s legislative proposals and do all we can to ensure the draft Bill fulfils the government’s commitment to ‘bring the feudal leasehold system to an end’.”
Read next: Scotland’s proposed housing agency welcomed
Are you a social housing professional? Sign up for a FREE MEMBERSHIP to upload news stories, post job vacancies, and connect with colleagues on our secure social feed.
