So, there we have it – The Sunday Times indicating that the outcome of the ground rent consultation will be a £250 cap on all existing ground rents and a planned ‘phasing out’ of current ground rents.

Certainly, previous indications from the Sunday Times have been accurate in the past – and so we should probably consider this to be more than likely to be an ‘accurate’ picture of what government has planned.  

The article says that ‘the government will now seek to phase out ground rents for current leaseholds over a period spanning at least 20 years…’ and that ‘during this period a £250 cap on ground rents will also be implemented.’

Taking these two points in turn – phasing out – does this mean that there will be a ‘sunset clause’ for all ground rents – meaning that all current ground rents will fall to zero in say 20 years’ time? And secondly during that period – i.e. from implementation, that all ground rents will be capped at £250.

If that is the case does the £250 cap apply everywhere? Or will there be a differential for say, Central London – mirroring the Housing Act 1988 provisions? 

What does this mean in terms of ‘cheaper and easier’? – I have to say that the article is slightly misleading when it says: ‘But it would make extending the lease term or buying the freehold more expensive for the leaseholder, because they would have to compensate the freeholder for income lost.’

Clearly not implementing an immediate shift down to zero ground rent would make it more expensive to extend or buy the freehold, but we have to bear in mind that a complete ban is not the current position. Therefore even a shift down to £250 would provide a saving for all those whose rents are over that amount and in addition, the prospect of a sunset date (if this is correct) would also reduce the amount payable as the ground rent stream would only last for the next 20 years (or whatever the ‘phase out’ period might be). 

This also ignores the fact that in the draft Leasehold and Freehold Reform Bill that the ground rent is assumed not to exceed 0.1% of the capital value of the property. Another factor which on its own would make it ‘cheaper’ to extend or buy the freehold.

Clearly some further clarification is needed, and we will hear this week, just as the Lords are debating the Bill and we can therefore no doubt expect an amendment dealing with these points. We look forward to the formal outcome of the Ground Rent Consultation and the rationale behind this thinking. 

It will be interesting to see how this sits in comparison with the Human Rights points that have been discussed in relation to this matter. These considerations are after all as far as I can see, what has prevented a complete ban on existing ground rents being contemplated – because of the potential need to pay compensation in such a case and, I can only assume therefore that the view that is being taken is that the introduction of a fixed cap is more of a ‘control of use’ than a ‘deprivation’ under the ECHR and therefore not a breach of the convention rights of the freeholder. Presumably, any phasing out over time is intended to be seen in the same way. 

I await the formal outcome of the DLUHC Consultation and the Lords debate on the Bill tomorrow with interest.

Mark Chick

21.4.2024