Ground Rents defended by investors’ group

The ongoing debate over ground rents within Government is rapidly becoming a Parliamentary farce that could soon lead to an economic and legal disaster. 

This is according to Pensioners for Ground Rent Association - an investors' group - commenting on the Parliamentary passage of the Leasehold and Freehold Reform Bill. 

A spokesperson for the investors group says: “We are only now hearing through the media what the Government is thinking, not through Parliament, but the pages of the press. Only last week we heard it intends to cap ground rents at £250 PA, reducing to zero over a 20-year sunset clause.

“We believe any form of cap on ground rent is an interference in UK contract law, however we note a precedent sunset clause of 60 years from the Rentcharges Act 1977. Even that would be financially problematic for institutions who have provided 70+ years of financing terms on ground rent portfolios due to the secure long-term nature of the lease contracts. 

“To compound the issue any cap would not only expropriate rental income but would also impact lease extension and enfranchisement premiums relied upon by our members who have invested in good faith for their retirements and face potential ruin through no fault of their own.

“Either way the Government has not yet published the outcome of its consultation into ground rents which ended in mid-January so we find it incredibly hard to believe any decision on ground rents can be fair or transparent. In fact, we would go further and argue that the entire debate is based on a vague Manifesto commitment that has now spiralled out of control.”

The group says it will start proceedings against the government for breaching its members’ human rights under the European Convention, and it claims institutional freeholders are “almost certain to follow suit.”

The spokesperson continues: “This is not just going to impact on our 150+ members whose retirement plans will be destroyed but also millions of pension scheme members who are investing over their working lives and who will experience a significant drop in their scheme asset values because of government interference. 

“This unprecedented wealth transfer of circa £40 billion, almost 40% of which will be from one type of property business (freeholders) to a different type of property business (buy to let landlords including many overseas investors) means pension funds and freeholders will have no alternative other than to seek compensation for this expropriation through the ECHR.

“We fully accept that high ground rents that double every ten years were an aberration. We are pleased that those that have not already been addressed by the CMA will be resolved by this bill – the 0.1% valuation limit in Schedule 7 of the draft bill provides a mechanism for the small number of remaining leaseholders affected to reasonably solve the problem.

“But given these measures have effectively resolved this issue, our members were shocked by the surprise introduction of the prospect of retrospective capping of rents to a peppercorn in November last year with no prior warning.”