Proposals for ground rents to be capped and a ban on sale of future leasehold flats

MattMattMattUK

From everything that has been released so far there will be no compensation for freeholders. If I look at it as an example though, the block of flats I currently live in, the freehold was sold for £18,000 five years ago, they have received £26,250 in ground rent during that time, as well as making at least £5k a year profit on the kickback from the landlord's insurance. In typical style the residents were promised the opportunity to buy the freehold when the development had been finished, but the developer found some excuse to sell to the company that now owns the freehold. When I was told what it was being sold for I even offered £25k for it, they said no despite that being nearly 40% more than they were going to sell it for.

We are currently going down the RTM route as the management companies fees have risen significantly despite them doing pretty much nothing, however have paused whilst we wait for this legislation to go through, the management company and freeholder offered to reduce the management fees by 25% if we dropped the RTM application which shows just how much they are creaming out, we think at least 50% of the cost is various commissions and rebates rather than honest cost.

user1977

https://forums.moneysavingexpert.com/discussion/comment/81857128#Comment_81857128

It'll probably just get dealt with the next time there's a transaction going on and enough money sloshing about.

poseidon1

To get a sense of how freeholders may be compensated following the cap being put it place, one need only look across the border at Scotland when they abolished their Feu duty system a few decades ago - see below

https://en.wikipedia.org/wiki/Abolition_of_Feudal_Tenure_etc._%28Scotland%29_Act_2000#:~:text=For%20a%20further%20two%20years,public%20policy%20grounds%20were%20retained.

Evidently the former Feuar landowner ( Freeholder equivalent here) could within 2 years of the legislation enacted, claim compensation from the previous vassal ( leaseholder), based on a fixed rate of return formula.

Problem in trying to replicate a version of this compensation system in England, is it would not be generous enough to satisfy institutional freeholders, whilst many hard pressed leaseholders may have neither the funds or inclination to contribute their shares of such compensation.

SarahB16

https://forums.moneysavingexpert.com/discussion/comment/81857136#Comment_81857136

I do hope you continue in due course and go down the RTM route.

bouicca21

What in practice would be the difference between an RTM and converting a leasehold into commonhold?

MattMattMattUK

https://forums.moneysavingexpert.com/discussion/comment/81857270#Comment_81857270

The latter requires them being willing to sell the freehold, with this legislation and then RTM removing their ability to make any money from the management fees the freehold becomes much less valuable so they are more likely to sell and then we can convert it to commonhold. It currently probably makes them around £15k a year profit, with this, RTM and the other changes that should push it down to about £3,750 per year, so it will be far cheaper for us to buy them out.

eddddy

https://forums.moneysavingexpert.com/discussion/comment/81857270#Comment_81857270

A key difference is that with RTM, the flat owners can't change their leases. e.g. If you have 80 years left on your lease, the RTM company cannot extend it. (Whereas commonhold means you own the flat indefinitely.)

A slightly more interesting question might be… What is the difference between commonhold and freehold enfranchisement (i.e. buying the freehold - to become 'share of freehold')

As far as I can tell, a well managed 'share of freehold' ownership would be almost identical to commonhold. (Assuming the joint freeholders extend leases to 999 years)

It looks to me like commonhold makes 'good practices' mandatory rather than voluntary.

For example, in simple terms…

• With commonhold, the law specifies how a block of commonhold flats must be managed democratically by the flat owners

• Some 'share of freehold' blocks are already managed democratically by the flat owners. (But there are no laws which ensure that 'share of freeholds' are managed democratically.)

Grumpy_chap

"

From everything that has been released so far there will be no compensation for freeholders. If I look at it as an example though, the block of flats I currently live in, the freehold was sold for £18,000 five years ago, they have received £26,250 in ground rent during that time

"

Therein lies the rub.

Any Official in Government who truly believes that the freeholders will simply give up their asset value and associated income stream without challenge would quite possibly be wholly deluded.

For a bit of further context, adding some more numbers into this, we bought out our ground rent in 2020 and the cost to us was £14k all-in. That was including legal costs (ours and the freeholders) and I can't recall the split but think the legal costs were £2k each so that means £10k to the freeholder.

I ignored the parts about profit from the management fees as assume that would continue even if ground rent reduces to zero.

user1977

Sorry, I missed that there has in fact been a draft Bill published as well, I thought it was just the usual vague preliminary announcement (haven't read through it yet): https://assets.publishing.service.gov.uk/media/697865d0d345446f8ce71f82/Draft_Commonhold_and_Leasehold_Reform_Bill_-_Command_paper.pdf