The Need for Ground Rents Reform

A survey of members of ALEP (Association of Leasehold Enfranchisement Practitioners) reveals that 80% agree that residential ground rents can have a negative or undesirable impact on the sale of leasehold properties.  ALEP represents over 1,200 solicitors, barristers, and surveyors working in leasehold enfranchisement, and the survey is part of the government’s ongoing consultation on ground rent reform, seeking views on limiting the ground rents that leaseholders are required to pay.

81.8% of ALEP members agreed that residential ground rents can negatively impact the sale of leasehold properties, while 18.2% disagreed.

The key problems identified by members regarding ground rents for leaseholders include difficulties in buying or selling a property due to unfavorable mortgage terms (70%), lack of clarity about ground rent payment terms when purchasing the property (43.2%), and uncertainty about how much ground rent will increase (31.8%).

Potential solutions favored by ALEP members include capping ground rent at a percentage of the property value (38.6%), capping ground rent at an absolute value (27.3%), and capping ground rents at a peppercorn (20.5%).  ALEP members believe that capping ground rent at a peppercorn, the government’s stated preference, would significantly benefit leaseholders but have a disproportionately negative impact on freeholders and investors.  If a ground rent cap is introduced, 75% of ALEP members believe that compensation should be paid to freeholders and/or intermediate landlords.  A majority of ALEP members (70.5%) support exemptions to ground rents being capped, including leases for home reversion plans or ‘rent to buy’ arrangements, business leases, and long residential leases where the current freeholder negotiated an agreement.

Regarding the mechanism for increasing ground rents, 47.7% of ALEP members suggest increasing ground rents by a pre-determined index link, such as the Retail Price Index (RPI).

ALEP’s Director, Mark Chick, emphasizes the need for precise drafting in any reform or restriction on ground rents, especially for existing leases, and highlights the importance of professional advice when purchasing a leasehold property.  ALEP’s feedback suggests that issues related to ground rents often result from a lack of professional advice during property purchases.

ALEP’s website provides a tool to help individuals find a suitable leasehold enfranchisement practitioner in their area.

 

ALEP’s members’ answers appear below:

 

Think about how leaseholders experience ground rent. What do you see as the key problems that ground rents are causing for leaseholders?

  • That the property cannot be bought or sold because mortgage providers do not like the ground rent terms (70%)
  • That the full terms related to ground rent payments are not initially made clear when buying the property (43.2%)
  • That leaseholders do not know or understand how much their ground rent will increase (31.8%)
  • That ground rent payments get more expensive over time (27.3%)
  • That leaseholders do not know or understand when their ground rent will increase (27.3%)
  • That leaseholders have to pay a ground rent payment for no clear service given in return (25%)
  • That ground rent payments are unaffordable (6.8%)
  • No problem (2.3%)

 

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