Reacting to the proposal made as part of the draft Commonhold and Leasehold Reform Bill, George Abouzolof, senior finance broker at Clifton Private Finance, said this was a “meaningful change” for many people who own leasehold properties.
The government also proposed that the cap would apply for 40 years before reducing to a peppercorn rent.
Reassuring leaseholders and opening up home moves
Abouzolof said this proposal extended protections given to new residential leasehold properties in 2022, when ground rents were abolished for these homes.
He said existing leaseholders were still impacted by doubling clauses, causing ground rent prices to spiral and leaving homeowners stuck in properties with “eye-watering costs” that were less attractive to lenders.
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“In recent years, we’ve also seen lenders become much stricter on criteria for leasehold properties. This has reduced buyer choice and made it significantly more difficult to get on the property ladder,” Abouzolof added.
Abouzolof said the proposed change would give buyers more confidence when planning their finances and could see previously problematic properties accepted by lenders.
However, he said this did “not fully solve the problems associated with leasehold ownership”.
Abouzolof added: “A £250 threshold can still feel like a lot of money when combined with other monthly costs. In addition, ground rent is unfortunately not reviewed in isolation by lenders, so those who have to pay the cap may still be flagged or raise questions.
“The reform also does little to tackle issues such as rising service charges or the lack of transparency from managing agents. So, while it might make affordability and product choice better for leasehold owners, there is still a long way to go, and the government will need to give clear guidance on exactly how and who the reform will apply to if it comes into force in late 2028.”
Timothy Douglas, head of policy and campaigns at Propertymark, said this brought existing leaseholders on par with new leaseholders and tackled “one of the largest barriers to selling leasehold properties”.
Sean Hooker, head of redress at Property Redress, said this was a “major reform” that would reassure leaseholders and lessen complaints when trying to buy or sell a leasehold property.
Hooker added: “The other moves, such as the abolition of the right forfeiture, which has been used for minor debts and breaches of lease, is also a positive move, as we have seen this used to frustrate the process of redress when leaseholders, often out of desperation, withhold charges they feel unfair or they question the cost or quality of the service they receive.
“Current leaseholders should, however, understand this is the start of the process with consultations and the legislation will need to be introduced and progressed through Parliament. Thereafter, the changes will be phased in, with new properties being prioritised and existing leases converted in the future.”
Paul Adams, director of sales at Pepper Money, said this was a “significant step” in reforming the leasehold system and would provide certainty where high or escalating charges restricted lending.
Adams said: “The ultimate success of these reforms will depend on how alternative ownership structures provide clarity and protection for both homeowners and lenders.
“While the ground rent cap addresses one element of leasehold costs, service charges remain an important consideration for many leaseholders, and we await further updates from government on this point.”
Paula Higgins, chief executive of the HomeOwners Alliance, said the organisation had “consistently called for ground rents to be abolished and reduced to a peppercorn, because homeowners should not have to pay for the ground under the home they own”.
She said the organisation was pleased with the announcement but warned flat owners that it was just a proposal and there would be hurdles to introduce the changes.
Higgins said: “After years of delay, the financial sector and vested interests should now step aside and allow these reforms to go unchallenged. Time has been called on treating homeowners as a lucrative income stream.”
Ground cap will ‘interfere with investments’
Speaking of the impact this may have on freeholders, Danny Pinder, director of policy at British Property Federation, said escalating ground rents needed addressing, but the cap would “interfere with investments made by pension funds and institutional investors over many years and undermine the government’s pursuit of investment in this country”.
Pinder said there should be “adequate compensation” given to their entities, as they invested in “good faith in order to meet their liabilities and continue to fund everyone’s pensions”.
He said responsible freeholders would support some of the proposals, but said “the management of buildings is complex and the introduction of commonhold needs to be carefully phased to ensure the market, including conveyancers, lenders and managing agents, can fully understand the changes and their implications”.
Pinder added that the government needed to strike an appropriate balance between tenant and landlord protections.
“There are billions of pounds invested in large-scale residential and mixed-use developments, and it is essential that reform is mindful of the rights of property owners as well as leaseholders,” Pinder added.
Proposals do not go far enough
Caroline Wild, counsel, real estate disputes at Forsters law firm, said the leasehold system had long been lambasted, and welcomed the focus on a more flexible tenure like commonhold.
Wild added: “That said, it may not be the silver bullet that leaseholders are hoping for. Commonhold is still a form of communal living, and a lot of the challenges leaseholders face under the current system will persist under a new tenure.
“Introducing commonhold in phases seems to be the most workable option, especially if the government chooses to start with new developments initially, as this will enable all parties and the market to become familiar with the structure. Essentially, it will operate a stress test to understand how the mechanics could be rolled out for wider conversion from leasehold to commonhold.”
She said there needed to be careful consideration given to the legal and practical aspects of implementing commonhold in complex developments, such as mixed-use properties.
Wild said professionals such as conveyancers, managing agents and lenders needed to be upskilled to understand the nuances of commonhold, and tenants would need to understand the responsibilities and limitations.
Amber Krishnan-Bird, a leading leasehold lawyer at Osbornes Law, said: “At first glance, this bill is the leasehold revolution homeowners have been waiting decades for after years of misery under a broken system. Yet, dig a little deeper and it offers far less relief than many had hoped.”
She said the proposals would be a huge relief for others, but not go far enough for some, as the government was more focused on commonhold and providing a new system rather than changing the existing one.
Krishnan-Bird added: “The government says the ground rent cap may not [be] enforced until 2028 at the earliest and gives no time frame for the rest of the legislation. In the interim, many leaseholders will still be left facing difficult decisions over extending leases that are running out.”
