FREEHOLD property owners have been accused by MPs of establishing a “rentier structure” in England and Wales, as it has been claimed they impose “exorbitant” ground rents while, in some cases, providing no service.
Labour MP Barry Gardiner called it “nonsense” that pension funds would need to be used to sustain the housing market if ground rent was capped.
“Freeholders have, over the past 15 years, created a rentier structure where they can extract revenues from the ground rent that are exorbitant, in some cases £8,000 a year, for no service,” said Gardiner, who is working on a documentary on the leasehold system.
In a parliamentary hearing last Thursday (18), Jack Spearman, head of leasehold at the Residential Freehold Association, representing freeholders for one million leasehold apartments, opposed housing secretary Michael Gove’s plans to cap ground rents on existing leases.
The bill aims to simplify and reduce costs for leaseholders seeking lease extensions and acquiring freeholds. Additionally, it proposes a ban on leaseholds for newly constructed houses, excluding flats, in England and Wales.
The legislation is currently in the committee scrutiny stage, with MPs from the public bill committee questioning representatives from several leaseholder and freeholder groups, legal experts, as well as executives from the Competition and Markets Authority.
Spearman expressed concerns that such caps would deter investors. He cited a Savills report indicating a need for £250 billion in housing-related investments within the next seven years.
“The general living sector and building houses in this country needs capital. It needs to come from somewhere,” Spearman told MPs.
“Where’s that going to come from? It’s going to come from pension funds. So it is unfortunately sending the wrong signal.”
The Department for Levelling Up, Housing, and Communities rejected these claims, stating that fewer than one per cent of pension fund assets were invested in residential property.
Spearman acknowledged the need to address “onerous and egregious” ground rents in the form of legislation, but defended those that did not escalate ground rent rapidly over the years.
The government’s initiative to reform leaseholds gained momentum following a scandal involving exorbitant ground rents being charged, prompting an investigation by the Competition and Markets Authority in 2019.
Although ground rent for new leases was abolished in the summer of 2022, a substantial number of leaseholders still face large increases in the coming years.
The proposed peppercorn cap, estimated to save leaseholders £5.1bn in ground rent over a decade, has faced opposition.
The government contends no compensation will be paid to freeholders for capping ground rents, a stance contested by the British Property Federation, raising concerns about compliance with the European Court of Human Rights and potential legal challenges.
The debate continues as MPs prepare to publish their findings next Thursday (1).
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