Ground rents cap represents compromise, says expert

Ian Morgan of Pinsent Masons was commenting after the Times reported that Gove is expected to confirm plans this week to phase out ground rents that can be levied on leaseholders over a period of no less than 20 years – and cap the ground rents that can be levied during that time at £250 a year.

The news comes at a time when the Leasehold and Freehold Reform Bill is currently passing through parliament – it is before a committee in the House of Lords for line by line scrutiny this week, with the plans reported by the Times expected to be added to the Bill by way of amendments.

With the Bill, Gove had originally planned to reduce ground rents that could be levied on leaseholders to a so-called token ‘peppercorn’ rate, amidst concerns raised by housing campaigners about increased rent rates being imposed by the freehold owners of the site. However, pension and insurance funds, amongst many other industry groups, expressed concerns with those plans. According to the Times, the reported compromise proposals come after an intervention by prime minister Rishi Sunak in a dispute between Gove and the UK Treasury over the extent of the reforms the government should pursue.

“We are now a step closer to clarity in this long ongoing saga,” Morgan said. “The compromise reportedly reached is likely to be of comfort to investors and pension funds – while it does not go as far as many would like, it shows that their voices have been heard. The detail of exactly how the legislation changes will be implemented and where the wording will end up remains to be seen.”

Another important piece of housing law reform, the Renters (Reform) Bill, is also progressing through parliament. The UK government has previously described the Bill, which was introduced into parliament last May, as a “once-in-a-generation overhaul” of private tenancy rules that would “empower renters to challenge poor landlords without fear of losing their home”.

Among other things, the Bill as introduced provided for a ban on so-called ‘no-fault’ evictions. No fault evictions allow landlords to terminate tenancies after the fixed term has expired without giving any reason – the number of households evicted because of no fault evictions rose by 39% in 2023, compared to 2022, according to analysis by housing charity Shelter. 

The original Bill also, however, provided for the broadening of the list of disruptive activities that can lead to eviction. Notice periods would also be able to be reduced where tenants breach their tenancy agreement. A new ombudsman was also proposed to resolve low-level disputes between landlords and tenants without the need to go to court, as was the abolition of assured shorthold tenancies, with a single system of periodic assured tenancies envisaged to take its place. 

The report stage for the Bill has been reached in the House of Commons and is scheduled for Wednesday 24 April 2024, following the Bill’s amendment by the Public Bill Committee last December.

Late last month, a letter issued by Jacob Young, parliamentary under secretary of state for levelling-up, was leaked, signalling the government’s intention to make amendments to the Bill before the report stage.

While no amendments have yet been published, the letter indicates that the government will seek, among other things, to prevent tenants from ending tenancy agreements within the first six months of their tenancy, subject to certain exceptions, up from the proposed two month period following notice being given. It also indicates that the government will not pursue the no fault evictions ban for existing tenancies until after the Lord Chancellor has filed their report giving their assessment on “barriers to possession and the readiness of the courts” to enforce such a change in the law.

Morgan said: “Like the Leasehold and Freehold Reform Bill, the Renters (Reform) Bill is an important plank of the UK government’s planned housing law reforms – the introduction of the no fault eviction ban was a central pledge within the Conservative party’s 2019 election manifesto. With another general election on the horizon, there is pressure on the government to deliver the reforms before parliament dissolves. The extent to which compromises will need to be made to get the Bill through in time remain to be seen.”