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Govt leasehold reform could cost taxpayer £31bn, trade body says

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  • 07/12/2023
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Govt leasehold reform could cost taxpayer £31bn, trade body says
Upcoming leasehold reform plans from the government could cost taxpayers around £31bn, equivalent to a one per cent increase in income tax over the next five years, a trade body has said.

According to research from the Residential Freehold Association (RFA), the government estimates that the average ground rent per year is £298 per year, and with of the estimated 4.98 million leasehold properties in the UK 86 per cent pay ground rent.

This means that value of ground rent is £31.9bn, therefore if the government looks to remove this “contractual income”, investors could be entitled to and will seek compensation from the government, the RFA explained.

The trade body said that around £15bn of ground rent assets are used by pension schemes and insurance institutions to math or fund defined benefit pension liabilities.

It continued that the leasehold reform, which was introduced to Parliament in November, would “drive professional freeholders from the market” and create “zombie buildings” with no freeholder present.

The RFA said that this would create greater safety risks for residents, as potential remediation may not be overseen and emergency evacuations would not have freeholder support.

The trade body added that only 18 per cent of current leaseholders would be comfortable taking on the legal obligations for managing their building, with around 21 per cent would be confident that an agreement could be reached on building management and maintenance issues between residents.

 

‘Way beyond any attempt to reform leasehold’

Mick Platt, director of the RFA, said it was “astonishing” to see the government “consulting on the retrospective interference with the legitimate rights of property owners in this way and it sets an alarming precedent for UK plc”.

He said that the Department for Levelling Up has “gone way beyond any reasonable attempt to reform the leasehold system and has consistently ignored calls for regulation”.

“Instead, they have proposed a raid on investors that would hit the public finances and leave leaseholders in the lurch,” Platt added.

“Spending over £31bn to reduce consumer choice and leave millions of residents with management responsibilities they do not want would be a thundering own goal. The government has ignored extensive research, including its own, which shows there is simply no desire from a majority of residents, or the public at large, for the policy proposals they are pursuing.

“The government must respect the rights of property owners and ensure any leasehold reform is proportionate and delivers tangible benefits to leaseholders – from managing service charge levels to no new leasehold houses – instead of running a horse and cart through a huge area of investment in the UK economy,” he noted.

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