The plan to reduce all ground rents to a peppercorn rent have reportedly been axed by the Prime Minister and the Treasury, with Housing Secretary Michael Gove admitting defeat on the policy.
There were concerns that making retrospective changes to property rights could leave ministers open to legal challenges.
Meanwhile the Treasury warned that going ahead with the plan could remove between £15-40 billion of investment, significantly impacting pension funds, which are major investors in housing.
Sadiq Khan, Mayor of London, responded: “Leaseholders deserve an explanation from Michael Gove. Ground rent is money for nothing and the 2019 Conservative manifesto promised to limit it to a peppercorn.
“I’ve been clear that the feudal leasehold system needs wholesale reform, with commonhold becoming the default tenure.”
Angela Rayner, the shadow levelling-up secretary, said: “This latest dithering from the government on leasehold reform in the face of Tory infighting is yet another sign that Rishi Sunak is too weak to deliver for working people.
“At the last general election, the Conservatives pledged to restrict ground rents. If the Tories are abandoning another manifesto pledge, leaseholders need to know why.
“Labour is committed to comprehensive leasehold reform, enacting the Law Commission’s recommendations on enfranchisement, commonhold and right to manage in full.”
Gove stated that he wanted to abolish leaseholds altogether last January. This was met with resistance from the Prime Minister, resulting in November’s leasehold reform bill making it cheaper for people to buy the freehold of their properties – in a bid to start phasing out the system.
Members of the Association of Leasehold Enfranchisement Practitioners, a professional body representing over 1,200 solicitors, barristers and surveyors who work in leasehold enfranchisement, backed the move.
Mark Chick, partner, Bishop & Sewell LLP and a director of ALEP, said: “If this announcement/leak is correct, it may well be seen as a victory for common sense. In many quarters there was consternation as to the possible impact that an outright ban might have and certainly ALEP members in general did not favour the option of an outright ban in their responses to the consultation.
“The wider policy considerations have clearly been considered here and perhaps quite rightly so, rather than the government getting entangled in a human rights challenge ‘after the event’ at potentially no small cost to the taxpayer.
“There are a number of other options as discussed in the consultation and this piece of news does not say which of these other measures may find favour, save that to say that the prospect of £250 cap might still be on the cards.
“There are various other options that might come out of the consultation such as a per centage cap or a freeze on current levels and we eagerly await the formal outcome of the DLHUC consultation, which we might now guess will be soon.”
Clive Scrivener, a partner at Scrivener Tibbatts, said: “There are some sensible heads at the Treasury and in Downing Street. They have confirmed what many independent experts in the sector believe; that the Government cannot just “wipe out” ground rents which are payable under long leases.
“The current law (Leasehold Reform Housing and Urban Development Act 1993, as amended), has given leaseholders the rights to reduce their ground rent payments to a peppercorn and extend their lease term by 90 years plus the existing unexpired term for the payment of a premium value (compensating the landlord for their loss of ground rent income and reversion), for over 30 years.
“Although leaseholders may feel aggrieved at having to pay a premium, it is important to remember that anyone purchasing a leasehold flat is advised by their conveyancing solicitor and should be fully aware of their obligations under the lease including any ground rent which might be payable and any review terms.”
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