Watchdog says that ground rents not legally or commercially necessary

The Competition and Markets Authority (CMA) says government may have to step in to protect leaseholders, as thousands in England and Wales remain trapped in contracts

  1. Government Consultation and Potential Caps:
    • The government, led by Housing Secretary Michael Gove, is considering capping existing ground rents, possibly reducing them to a nominal “peppercorn” level.
    • Hundreds of thousands of leaseholders are affected by rising ground rents, which can make it challenging to sell or remortgage properties.
  2. Opposition and Legal Challenges:
    • The proposed changes have faced opposition from groups like the Residential Freehold Association and the British Property Federation (BPF), which argue that making changes without compensating freeholders could lead to legal challenges and taxpayer liabilities.
    • Critics contend that the proposed reforms could jeopardize property rights and market stability.
  3. Competition and Markets Authority (CMA) Findings:
    • The CMA has concluded that ground rent is neither legally nor commercially necessary, and that statutory intervention may be required to protect consumers.
    • Concerns have been raised about unfair lease terms and the potential for ground rent escalation, particularly in “modern leaseholds” where ground rent often doubles periodically or increases with inflation.
  4. Settlements and Improvements:
    • Several freehold investment companies have reached settlements with housebuilders to offer improved terms to leaseholders, including removing doubling ground rent clauses.
    • These settlements aim to benefit hundreds of households and address concerns about escalating ground rents.
  5. Ownership and Investment:
    • Some freehold investment companies are owned by UK pension funds and managed by investment funds, raising questions about ownership structures and financial interests.
    • Critics argue that ground rent has primarily served as an additional profit scheme for developers and investors, rather than providing tangible benefits to consumers.
  6. Response from Stakeholders:
    • The Leasehold Knowledge Partnership and National Leasehold Campaign advocate for the abolition of residential leasehold in England and Wales, viewing ground rent as a profit-driven mechanism.
    • The British Property Federation emphasizes the importance of protecting leaseholders facing significantly escalating ground rents, while also recognizing the rights of ground rent investors, many of whom are pension savers.

Overall, the passage highlights the complexities of ground rent reform and the need to balance the interests of leaseholders, freeholders, investors, and policymakers in the housing market.

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