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Government Issues Recommendation For Leasehold Reform

Government has made a public declaration that it would be legally possible to introduce legislation to remove unfair ground rents for existing leases.

The Housing, Communities and Local Government Committee’s ‘Leasehold Report’ indicates that the legislation could be compliant with human rights law and although it would be difficult to adapt current leaseholds that are already legally binding, it would not be impossible.

Whilst there may be a need to compensate freeholders for their loss, it may not to be for the full market value of the current ground rents. The report is firm in the belief that any ground rent that ‘becomes disproportionate to the value of a home, such that it materially affects a leaseholder’s ability to sell their property or obtain a mortgage’ needs altering with immediate effect.

The proposal states that, as a ground rent has no bearing on the level of maintenance or quality of service that is provided through the service charge, it should be capped at the maximum value of 0.1% of the home’s value up to £250 per year insisting that ‘there is no excuse for such onerous terms, which are symptomatic of the imbalance of power in the leasehold market and are causing considerable distress to affected leaseholders.’

As excessive ground rents have taken hold and even started doubling in value, many leaseholders have felt trapped in a property that they are unable to sell. The committee was clear that in many cases the leases are tantamount to mis-selling and it has called for the Competition and Markets Authority (CMA) to investigate the mis-selling of leasehold property and make recommendations for compensation guidelines.

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