So here we have it, the long awaited Leasehold and Commonhold Reform Bill and the associated documents –

Here are the links:

https://www.gov.uk/government/publications/draft-commonhold-and-leasehold-reform-bill

https://www.gov.uk/government/news/pm-were-capping-ground-rents-at-250

So what does this mean, well the headlines are as below:

Ground rents: proposed cap at £250 p.a. for existing long residential leases, moving to peppercorn after 40 years (with some carve-outs, incl. business leases / certain specialist leases).

• New flats: proposed ban on new long leasehold flats, but the detail/exemptions and start date are tied to the commonhold work and the related consultation.

Commonhold: revised framework + easier conversion route (in principle) for existing buildings.

Enforcement: proposed abolition of forfeiture, replacing it with a new lease enforcement scheme. 

• Estate rentcharges: proposed removal of the disproportionate LPA 1925 remedies (ss.121–122) for estate rentcharges

Comment

There is obviously a lot of detail in the draft Bill which we will enjoy digesting over the coming weeks.

Some immediate thoughts – this is not good news for portfolio ground rent owners, and the cap on all existing ground rents at £250 will limit values along with the proposed 40 year sunset clause.

This is perhaps likely to be the subject of a potential Human Rights Act challenge – as with LAFRA although the Policy Statement makes plain the government’s decision/ choice to legislate in this area and if the jurisprudence follows the decision of the High Court in ARC Time v Secretary of State [2005] EWHC 2751 then clearly government is hoping that this area is one that the courts will this to be a political choice that the government was entitled to take and that this is a natural extension of the progression of policy and legislation in this area and that it fits within the ‘margin of appreciation.’ 

We also need to bear mind that ARC Time has not been finally disposed of and deals with a different issue (as regards ground rent) namely the 0.1% cap deemed by LAFRA. However, the approach is likely to be the same. We will have to see how that plays out as the Draft Bill is debated.

Mark Chick