Extortionate Ground Rent clauses in leasehold

davidmcn wrote: »

There isn't a need for the common areas of a building to be in separate ownership, or for that ownership to be regarded as a profitable enterprise in its own right. It would be possible for the owners of the flats to own those areas in common (if anybody bothered to reform the relevant bits of English law), and (if they wish) to engage a management company to administer the maintenance etc on their behalf - obviously that bit requires a profit margin but it can be a transparent management charge on top of actual disbursements.

Already possible in most cases under the Leasehold Reform Act 1967 and the Commonhold and Leasehold Reform Act 2002. Right to buy freehold, right to manage, etc, etc.

Freecall wrote: »

I don't get the middle men bit at all.

As the owners of freeholds, our tenants (leaseholders) pay us ground rent. Although it gives a relatively small return it forms part of a balanced investment portfolio.

Scrap the return on investment and the value of the investment will fall to zero.

I understand that in some political philosophies ownership of property is considered to be theft but even in your world where no one is allowed to own anything, I don't see how freeholders could be described as 'middle men'.

What do Freeholders do? What benefit do they add to leaseholders?
How come beside England and Wales pretty much no other country has them?

They own the land (I assume) and the property (walls) and they get (with new reforms) peppercorn rent for long time. If there is upkeep required on the premises, they charge leaseholders.

Freeholders don't really serve any purpose beside collecting small revenue.
Flats with high ground rent are of course a money machine.

anselld wrote: »

Already possible in most cases under the Leasehold Reform Act 1967 and the Commonhold and Leasehold Reform Act 2002. Right to buy freehold, right to manage, etc, etc.

But still with this cumbersome separate leasehold/freehold structure. And new developments don't (typically) come with the freehold in the first place.

The current problem seems to be leasehold houses which have excessive ground rent charges ... The owners are now finding that they are unable to sell them.

It isn't always as clear cut as buying freehold vs buying leasehold. In some areas (for example city centres) there isn't sufficient freehold stock so if someone is looking to buy in that area chances are they will have to purchase a leasehold property (most likely a flat) along with the associated ground rent and service charges.

City centre flat rents take into account the service charges and ground rent levied. Maintenance charges in some schemes are greater than others due to the presence of lifts, concierge services and gyms etc. They also provide buildings insurance and major structural repairs, upkeep of communal areas and so on. Consequently rents will be proportionally higher for these schemes than others. As an owner occupier you will pay for the privilege of having the facilities that these schemes provide, should you wish to have use of the on-site gym etc. Think of it as a service/convenience charge.

The financial accounts are available for leaseholders which break down the charges for a particular scheme so the operations of a management company is a transparent process.

While the leasehold model makes sense for large city centre flat schemes provided that the ground rent rise clauses are not onerous, I see no reason for new-build house to be anything but freehold and I suspect that this bundling up and selling of off freeholds to investment companies is just a way to boost the house-builders' profits.