Flat owners who are paying thousands of pounds a year in ground rent charges have welcomed comments from an MP who spoke out in support of them this week.
Speaking on the Leasehold Bill Committee, Barry Gardiner MP questioned a representative from the Residential Freehold Association – Jack Speerman – about the vast sums of money that some flat owners are being asked to pay in ground rent charges by their freeholders.
Mr Gardiner said that ‘exorbitant’ revenues from ground rents were being extracted, but some leaseholders were getting ‘nothing in return’.
He claimed they were paying as much as ‘£8,000 a year for no service’ in some cases.
Speaking on the Leasehold Bill Committee, Barry Gardiner MP suggested ground rents were helping to generate ‘exorbitant’ revenues from flat owners
Leaseholders welcomed Mr Gardiner’s comments saying their homes should never be used to ‘extract profits for faceless organisations’.
Flat owner and campaigner Sophie Bichener said: ‘Mr Gardiner hit the nail on the head. Many leaseholders only hear from their freeholders when ground rent is due and see no services in return.
‘The ground rent invoices come on top of already extortionate service charges – it is just another way for profit to be extracted from leaseholders.
She went on to explain that her freeholder calls her home their ‘asset’.
‘How will this asset return profit?’ she said. ‘Ground rent. Who is at the end of that? It’s always the leaseholders.
‘Homes should never have been used to extract profit for faceless organisations.’
Another leasehold flat owner, Charlotte Meehan, said: ‘I get no service whatsoever for the ground rent I’m forced to pay annually.
‘This is infuriating, especially at a time when my freeholder has taken no responsibility for making my building, which is affected by cladding and other fire safety issues, safe’.
‘We still have bills that run into the hundreds of thousands for interim fire safety measures that they have no intention of shouldering the costs for, instead allowing leaseholders to take on the financial burden.
‘They play no part or function, and their sole existence is to profiteer at every opportunity from people that are already paying the highest price to fix the failures of others. We even have to pay to apply to have a pet in our home. There is no place for this in society.
‘Freeholders have profited from our homes for many years and now they are even refusing to sign access licenses and permits with our developer to make the building they own safe, causing delays as they focus on ensuring their own liabilities are mitigated first and foremost.
‘They do not care about the wellbeing and the safety of people living in their buildings. The only morally decent way forward is for the Government to ensure that our existing ground rents are capped at a peppercorn.’
Will things change for leaseholders?
The Leasehold and Freehold Reform Bill is currently going through Parliament.
It aims to make it cheaper and easier for more leaseholders to extend their lease, buy their freehold and take over management of their building as well as ban the sale of new leasehold houses.
A ground rent is a regular payment made to a freeholder of a leasehold property as a condition of the lease. Ground rent exclusively applies to leasehold properties.
The potential implementation of a policy to cap ground rents has raised concerns
It is the charge applied for renting out the land on which the leasehold property sits. It does not cover the costs of any additional services that the freeholder might provide – these are covered under service charges.
Moves to cap ground rents have raised concerns in some circles. Companies such as pension funds are invested in freeholds, and some say taking away this source of income could potentially limit their ability to make returns for their pension savers.
Responding to Mr Gardiner’s comments, Joe Dabrowski, of the Pensions and Lifetime Savings Association, said: ‘UK pension funds invest trillions of pounds on behalf of savers. In recent decades, pension funds have participated in the residential ground rent market as institutional investors to help meet their financial obligations.
‘The potential implementation of a policy to cap ground rents has raised concerns, as it could directly impact pension funds and impact their ability to secure investment returns for the represented savers.
Leaseholders welcomed Mr Gardiner’s comments, saying homes must not be used for profits
‘In response, we asked the Government to carefully consider the wider consequences of any intervention to avoid unintended negative effects.
‘These repercussions may include, but are not limited to, a shortfall in pension scheme assets, which could directly harm scheme savers without compensation.
‘Additionally, there’s the risk of damaging the reputation of the UK investment market due to retrospective changes to investment terms made in good faith, potentially leading to decreased investor appetite in residential markets.
‘Emphasising the need for a balanced approach, we have also urged the Government to explore further voluntary options with the industry, particularly with pension fund investors.
‘This could include continuing the work done to address doubling ground rents, securing renewed commitments from freeholders, and addressing any other areas for reform.’
Responding to Mr Gardiner’s comments, an Residential Freehold Association spokesperson added: ‘The PLSA could not be clearer in their submission to the Government that ground rent caps as a policy change will negatively impact pension funds.
‘Capping ground rents is a policy that will negatively impact leaseholders, investment into the UK, and the taxpayer.
‘It will reduce the value of pension funds’ investments to zero, creating a £31bn compensation bill for the taxpayer, and will send the clearest signal yet that the UK is not a hospitable place for institutional investors to invest their money.
‘We welcome further regulation of freeholders, and want to further support leaseholders in the sector. But decimating the value of legitimate investments by pension funds will not do that – it will simply create problems for taxpayers, pension funds, and most importantly, leaseholders.’
It added: ‘The figures used by Mr Gardiner are clearly not representative of the market. The Government has calculated the average ground rent to be £298 based on English Housing Survey data. This is in line with the average ground rent across RFA members’ portfolio of circa 1m leaseholds.’