Ground Rents to be capped at £250

The government is reportedly planning to introduce a cap of £250 per year on ground rents for leaseholders, as part of a compromise between Michael Gove’s proposals for leasehold reform and the concerns raised by the Treasury. Instead of completely abolishing ground rents, as initially suggested by Gove, leaseholders will continue to pay them, but they will be phased out over a 20-year period.

This decision follows a power struggle between Gove’s Department of Levelling Up and the Treasury, with Rishi Sunak ultimately intervening to reach a compromise. The proposal is seen as a partial victory for Gove’s plans, although it represents a compromise between both sides.

Under the new plan, leaseholders will benefit from a cap on ground rents, providing relief for those struggling with high payments or unable to sell their properties due to onerous lease terms. However, the phasing out of ground rents may lead to increased costs for leaseholders seeking to extend their leases or purchase the freehold, as they may need to compensate freeholders for lost income.

The proposed changes aim to address concerns about the impact of ground rents on leaseholders while also considering the financial implications for pension funds and insurance companies invested in freeholds. A sudden removal of ground rent revenue could destabilize these investments, potentially affecting pensioners’ savings and individual pension pots.

While the government’s decision is seen as a step towards addressing issues in the leasehold system, some argue that further measures are needed to fully honor the Conservatives’ 2019 manifesto pledge to end new leaseholds. Ultimately, the proposed changes aim to strike a balance between the interests of leaseholders and investors while ensuring the stability of the property market.

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