Britain’s competition watchdog has declared that ground rent—the fee leaseholders pay to the property’s freeholder—is fundamentally unnecessary. This announcement has sparked discussions on government intervention to prevent consumers from facing skyrocketing costs. Michael Gove, the Housing Secretary, is at the forefront, proposing a drastic reduction of ground rent to a mere symbolic “peppercorn” amount, effectively making it zero. This comes alongside a consultation launched in early December aimed at reevaluating these charges.
A Trap for Leaseholders
A significant number of leaseholders find themselves in a precarious situation, bound by contracts that subject them to ever-increasing ground rents. These costs can double periodically or rise with inflation, complicating efforts to sell or remortgage their properties. Furthermore, falling behind on payments can jeopardise their property rights. This situation has led the government to contemplate intervention to mitigate the adverse effects on consumers, especially given the fierce opposition from entities like the Residential Freehold Association and the British Property Federation. The latter argues that any move to amend ground rents without compensating freeholders could lead to legal challenges and potentially burden taxpayers.
The Watchdog’s View
The Competition and Markets Authority (CMA) has been vocal about its stance, emphasising the lack of legal or commercial justification for ground rent. It also highlighted the absence of any tangible benefits for consumers, underscoring the need for statutory intervention. According to the CMA, the current system, which it describes as “anachronistic,” requires modernisation to alleviate the undue burdens placed on leaseholders.
The Feudal Fight
The term “feudal” has been used by Michael Gove to describe the leasehold system in England and Wales—a system where leaseholders are essentially tenants rather than outright owners of their homes, paying ground rent to the freeholder. Following an investigation into unfair practices launched in 2019, the CMA has supported over 21,000 leaseholders in seeking redress. Notably, the government took a significant step by abolishing ground rent for new leases in the summer of 2022, although the problem persists for many existing leaseholders.
A Historical Quagmire
The issue of leasehold homes is not new; it dates back to the 1990s when investors began acquiring freehold titles en masse. This trend coincided with developers increasingly opting to sell new homes on a leasehold basis, only to later sell the titles to investment firms. The emergence of “modern leaseholds” in the 2000s, characterised by rapidly escalating ground rents, has exacerbated the problem, often to the benefit of investors.
Towards Resolution
In a move towards rectification, the CMA has brokered settlements with several freehold investment companies, ensuring improved terms for leaseholders affected by doubling ground rent clauses. These settlements will revert ground rents to their original amounts, with no future increases, benefiting more than 500 households. This initiative represents a step towards addressing the systemic issues within the leasehold system, challenging the status quo and offering hope for meaningful reform.
The Broader Impact
The controversy surrounding ground rent and the leasehold system extends beyond the immediate financial implications for homeowners. It touches on broader questions of fairness, homeownership, and the future of the housing market in England and Wales. As discussions continue and potential reforms take shape, the focus remains on creating a more equitable system that protects consumers and reflects the realities of modern homeownership.