Plans to introduce stricter limits on ground rent in the Leasehold and Freehold Reform Bill could be blocked by the Government.
Michael Gove’s proposal to reduce ground rents to zero — the “peppercorn” rate — are being stymied by Chancellor Jeremy Hunt and Prime Minister Rishi Sunak, The Sunday Times reports.
This follows extensive lobbying from pension funds, which invest in property by buying the freehold and collecting ground rent.
The Residential Freehold Association said the zero ground rent addition to the Bill would “wipe out” £15 billion of pensioner’s savings in these funds.
The Secretary of State for Levelling Up, Housing and Communities is allegedly trying to find a compromise with the Prime Minister and the Chancellor that would cap ground rent at £250 a year. If a leaseholder wanted to buy their freehold, they would have to compensate the freeholder for lost earnings.
An estimated 10 million people across the UK live in leasehold homes, and over 36 per cent of homes in London are owned on a leasehold basis according to government figures.
Leaseholders own the right to live in their house or flat, but not the ground it is built on.
These ground rents can double every 10 to 15 years, making them expensive to live in and difficult to sell.
Leaseholders must also pay service fees to management companies, and if they refuse to pay their home can be seized under forfeiture rules.
Many leaseholders become trapped in their homes as ground rents are hiked, as the Government acknowledged when the Bill was announced in the King’s Speech last year.
Linz Darlington, founder of lease extension specialists Homehold, warned at zero ground rent was “unlikely to ever make it onto the statute book” when it was first announced.
"Freeholders see leaseholders as an income stream. You are a customer in your own property," explained Darlington.
“A leaseholder pays ground rent to the freeholder but gets nothing in return.”
Lowering ground rent was positioned as a move that would make leaseholds a less attractive investment, giving leaseholders the chance to purchase their own freehold.
Along with reducing ground rents to zero, the Bill initially set out to ban the creation of new leasehold houses in England and Wales.
In London the majority of leasehold arrangements are for flats, not houses, with 63 per cent of apartments in the capital owned on a leasehold basis.
Gove originally said he wanted to outlaw the leasehold system entirely, but these plans had already been limited by the time the Bill was announced.
The Leasehold and Freehold Reform Bill is currently on its second reading in the House of Lords.
Last month, the Competition and Markets authority announced that 500 household had been freed from “problematic” ground rent contracts with freehold companies, which had bought the contracts from major UK housebuilders.
