Housebuilder Barratt announced this week that it will no longer impose ground rents on the buyers of new flats. Moreover, all its leases will in future be 999 years – doing away with the need for leaseholders to extend their leases during their lifetime. It will considerably improve life for future buyers of flats – although do nothing to alleviate the misery suffered by owners of flats with dangerous cladding, an issue I wrote about here last week.
‘Ground’ rent is a misnomer because you are not renting the ground on which your property is built – you are renting the whole property. A lease is just a long rental contract. When ground rent is a pittance, as it is in many cases, it is hardly an issue, but in many developments built in recent years ground rents are specified to double every so often – sometimes as soon as every 10 years, which, depending on inflation, could leave leaseholders with onerous rents to pay within a few decades.
Barratt’s decision will put an end to that. The company also says that it will make it easier for leaseholders to set up their own ‘right to manage’ company, potentially lifting from the threat of cowboy freeholders and management firms which overcharge for looking after the common parts of the building. Before praising Barratt too heavily, however, it ought to be pointed out that the move has been pretty much forced on it by the government’s decision only to allow flats with zero ground rent to be sold under its Help to Buy scheme.
Moreover, the government has promised to bring forward legislation to ban ground rents on all new leasehold flats, as well as to ban sale of new leasehold houses. The government has been promising to do this since Theresa May’s day, and reaffirmed its intention in a reply to a recent petition. But it still hasn’t found the time to enact the proposed legislation.
Neither Barratt’s initiative nor the proposed ban will do anything, however, for owners of existing leasehold properties, who will not be relieved of having to pay ground rent. Some leaseholders with rents which double every 10 years have found their properties unsaleable. Their only option at the moment is to buy their freehold. Most leaseholders have the theoretical right to do this, but it is often difficult to exercise in practice – partly thanks to the high cost of doing so and partly because, in the case of a block of flats, it requires the owners of at least half the flats to club together in order to exercise their right. This is especially tricky in flats with large numbers of buy-to-let flats, whose owners could be living abroad.
Theresa May’s government never got quite as far as coming up with a solution for existing leaseholders to escape onerous ground rents. This problem cannot be solved by appealing to the house builders themselves, as many freeholds have been sold on to investment companies. Suggestions have been made – such as giving all leaseholders the right to buy a fraction of the freehold of their block – but no formal proposals have been adopted by the government. In the meantime, however, the government has granted many freeholders a gift: the right to add a couple of storeys to their buildings without planning permission. Welcome though Barratt’s decision is, for as long as the government drags its heels over leasehold reform, misery will continue for millions of people.