A prominent legal firm is warning that legal action for compensation may now be on the cards following the announcement of a rent cap.
Earlier this week the government confirmed that ground rents for existing residential leasehold properties will be capped at £250 per year, before transitioning to a peppercorn after 40 years.
The move forms part of the Commonhold and Leasehold Reform Bill, which will introduce commonhold as the default tenure for flats, shifting the market away from traditional leasehold arrangements.
The ground rent measures included in the Bill build on the Leasehold Reform (Ground Rent) Act 2022, which removed ground rents for most new long residential leases.
While most of the property industry and consumer sector has welcomed the move, some opposition has been raised.
The Residential Freehold Association (RFA), for example, describes the move as an unjustified interference with existing property rights.
It adds that this would seriously damage investor confidence in the UK housing market and deter the wider institutional investment sector.
Now Gavin Walmsley, leasehold specialist at Irwin Mitchell, says this is one of the most significant shifts in the leasehold system, with wide-reaching repercussions.
“The £250 cap followed by a peppercorn rate will have major implications for existing leases.
“Large freeholders and pension funds are highly likely to consider legal action, particularly around the question of compensation.
“The government signalled its intention to revive commonhold in last year’s White Paper, yet progress has been slow and [these] reforms raise complex issues for lenders, freeholders and leaseholders.
“The draft Commonhold and Leasehold Reform Bill will now move into pre-legislative scrutiny and subject to parliamentary timings, the ground rent cap could come it force late 2028.
“Further consultation and challenge is almost inevitable.”
Even enthusiasts of the change accept that progress will be slow.
Sean Hooker – head of redress at the Property Redress service – says: “Current leaseholders should understand this is the start of the process with consultations and the legislation will need to be introduced and progressed through parliament.
“Thereafter, the changes will be phased in, with new properties being prioritised and existing leases converted in the future.”
This article is taken from Landlord Today