Ungrounded Reaction
“Millions of homeowners to be freed from ‘rip off’ ground rents”, screamed the headlines last week after the Housing Secretary announced the government’s intention to begin implementing the recommendations of the Law Commission regarding leasehold enfranchisement.
We will need to wait and see whether these recommendations make their way on to the statute books (the Government has quite enough on its plate at the moment) but, to me, the headline writers are missing the point.
"Freeholders have a legitimate right to ensure that their investment is protected and not retrospectively damaged."
The Law Commission’s remit was “to review the enfranchisement process to make it simpler, easier, quicker and more cost effective, and to examine the options to reduce the price payable by leaseholders to enfranchise”.
Any measures brought in to simplify the complex valuation process are to be welcomed but freeholders should not all be tarred with the same brush and branded as “rip off” merchants. Many have a property portfolio, often paid for and not inherited, from which they derive a legitimate income, and they have a legitimate right to ensure that their investment is protected and not retrospectively damaged.
Leaseholders knew what they were buying. They would have received legal advice at the time of purchase. If the legal advice was poor, they have adequate remedies against their advisers. If their leases have fallen below 80 years (making it more expensive to enfranchise) then, again, they would or ought to have known this at the time of purchase and they may well have paid less for their leases as a result of their length.
The level of ground rents (and the frequency of the review pattern), has, especially in Central London, risen exponentially but flat buyers are not bound to accept those levels at the time of purchase and can either seek to negotiate those terms or pay less for their flats, to reflect the ongoing ground rent liability. Market forces will determine what developers can charge and a buyer is free to walk away and buy another flat, elsewhere, with a lower ground rent.
The Government should, of course, be free to change things going forward, but should not be allowed to rewrite existing contractual arrangements with retrospective effect.
"As ever, the devil will be in the detail."
Many freeholders with a ground rent portfolio will now look to try to sell; while buyers in new developments should ensure that their leases provide that the ground rents will be capped to a level which does not make their flats unsaleable or unmortgageable. Existing leaseholders meanwhile will doubtless watch this space.
As ever, the devil will be in the detail and we will keep a close eye on developments in the coming months.
This article is for information only and is not intended to amount to advice on which you should rely or take any action. If you wish to obtain legal advice in respect of the content of this article or otherwise, please contact Nick Green.