While most property industry figures have welcomes the government’s £250 cap on ground rent, some worry it may deter investors.
“We risk trading a financial headache for a management nightmare” warns Stuart Collar Brown, an auctioneer at Bidx1.
“While a £250 cap sounds like a win for consumers, the industry has already self-regulated most of the truly toxic ground rents.
“The real danger here is that by removing the incentive for institutional freeholders, who are often pension funds, we risk leaving people to manage complex flat blocks and buildings themselves.
“If these professional entities exit the market, you could have 100 residents in a block, with no prior experience, suddenly responsible for insurance, lift maintenance, and major structural repairs. For many, paying £250 a year for professional oversight is a price well worth paying for peace of mind.”
Collar Brown also warns of a significant hurdle with mortgage lending.
He continues: “Many banks currently refuse to lend if ground rent exceeds 0.1% of a property’s value.
“If a flat is worth £200,000, a £250 ground rent still breaches that threshold. Without a parallel agreement from lenders to update their criteria, thousands of homes will remain effectively unmortgageable despite the cap.
“At a market level, we have to look at the unintended consequences for pensions. These ground rents are low-risk, steady assets for the funds that pay out our retirement pots.
“By capping them, we aren’t just hitting ‘wealthy freeholders’; we’re impacting the savings of millions of ordinary people. We need a system that offers clarity, but we must ensure we aren’t replacing one friction point with a management vacuum that makes flats even harder to sell in the long run.”
And a spokesperson for the Residential Freehold Association (RFA), says: “The inclusion of a ground rent cap in the draft Leasehold and Commonhold Reform Bill represents a wholly unjustified interference with existing property rights.
“If enacted, [this] would seriously damage investor confidence in the UK housing market and send a dangerous and unprecedented signal to the wider institutional investment sector.
“Property rights and contract law are fundamental drivers of domestic and global investor confidence in the UK.
“Instead of focusing on those reforms which address the issues that leaseholders care most about, the Government’s draft Bill will tear up long-established contracts and property rights, which are pillars of the UK’s investment reputation.”
And Scott Goldstein, property litigation partner from law firm Payne Hicks Beach, adds: “There is a concern that the £250 ground rent cap will interfere with investments in freeholds built up by pension funds over many years, which are there to benefit millions.
“Under the new lease enforcement scheme, landlords will no longer be able to end long residential leases unilaterally.
“Instead, they must meet legal requirements intended to protect leaseholders. The new rules will not allow enforcement for unpaid ground rent, or for small amounts of other unpaid charges such as service charges.
“As with the removal of no-fault evictions, the Government says landlords will be protected by the courts.
“However, this offers little reassurance given court staff shortages and long delays.
“In practice, these reforms are unlikely to have much impact because changes made in 2002 already made it much harder for landlords to end residential leases, requiring a court or tribunal decision first.
“As a result, forfeiture is relatively rarely used in residential cases.”