Peppercorn rents are the only option to align new and existing leaseholders

A public consultation has opened on proposals to cap ground rents in England and Wales as the UK Government begins its latest action to reform the sector. Legislation is already in place in the Ground Rent Act 2022 to ensure that new residential leases are restricted to a peppercorn ground rent, and this new proposal sets out options to extend this protection to existing leaseholders.

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Demonstrating the influence of our long-standing campaign for leasehold reform, the consultation document referenced Propertymark research on the impact of ground rents on the property market, outlining that 78% of members reported that a leasehold property with an escalating ground rent will struggle to sell, even if priced correctly.

The Department for Levelling Up, Housing, and Communities (DLUHC) seeks responses from agents, property professionals and the wider public on five proposals to determine the best way forward to benefit leaseholders.  The outcome of the consultation will inform the content of the Leasehold and Freehold Reform Bill, recently announced in the King’s Speech.

1. Setting ground rents at one peppercorn per year 

In theory, the freeholder could still demand the ‘peppercorn’, but in effect, it would mean that there was no ground rent to pay. Implementing this option would bring existing and new leases into alignment and would be the most advantageous option for leaseholders. There is some concern that it would result in freeholders and institutional investors leaving the market, but the wider impact that may have needs further investigation.

2. Capping ground rent at an absolute maximum value  

Although this is a simple option it does not resolve the issue of leaseholders paying a charge without receiving a transparent service in return and does not deliver fairness and equality between new and existing leaseholders. It would also mean that rents currently under the threshold would be allowed to rise.

3. Capping ground rents at a percentage of the property value

Potentially this option could offer more balanced impacts on freeholders and leaseholders, but DLUHC acknowledges that it would be more complicated to implement and enforce. As with an absolute value cap, it fails to address the key issues with current ground rents.

4. Capping ground rent at the amount it was when the lease was granted 

The effects of this approach on individuals could differ in seemingly arbitrary ways. For instance, two people currently paying similar ground rent could have widely different caps depending on what the value was when the lease was issued.

5. Freezing ground rent at current levels

The consultation paper itself states that this approach would fail to provide the immediate support needed to some of the leaseholders facing the most excessive costs. It wouldn’t address any of the existing problems for leaseholders, although it would prevent any future increases in rent over the life of the lease.

Representing our members

Leasehold reform has been a key Propertymark campaign since 2017.  We will respond to this consultation on behalf of our member agents, and you can add your views by emailing [email protected].

We also strongly encourage individuals to respond and add their expertise and experience directly. The consultation is open until 21 December 2023.

Virtual Roundtable with DLUHC

Given the significance of this consultation we have organised a round table event on Wednesday 6 December between 11:00 and 12:00. Officials from DLUHC will attend and members can reserve a place by contacting our Policy and Campaigns team on [email protected].

It is positive to see the UK Government getting on with the job of reforming the leasehold system and this consultation is the next step in this process.

Propertymark has long argued that policymakers need to do more to create a level playing field with those who already own a leasehold property, so we look forward to working with our members and responding to this consultation to ensure that the Leasehold and Freehold Bill doesn’t leave any leaseholder behind.

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Timothy Douglas Head of Policy and Campaigns | Propertymark