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Leasehold reform could cost UK government £30 billion in compensation

Residential property investors have recently expressed concerns over the potential financial impact of the Government’s leasehold reform proposals. According to a letter from the Residential Freehold Association (RFA) to the Office for Budget Responsibility (OBR), introducing a cap on residential ground rents as suggested could expose the Government to a compensation bill of up to £30 billion. The RFA’s warning points to a possible “colossal” fiscal challenge for the upcoming Government if the proposals, initiated by DLUHC Secretary Michael Gove, are enacted.

Public Opinion on Property Charges
New data from JL Partners indicates a discrepancy between government priorities and public opinion regarding property charges. While the Government focuses on ground rent regulation in the Leasehold and Freehold Reform Bill, only 19% of the public see this as a priority. In contrast, 43% believe regulating service charges should be the focus, an area the bill currently overlooks. This misalignment suggests potential flaws in the bill’s focus and the need for broader legislative attention.

Concerns Over Leasehold Practices
Investors are cautioning that the proposed cap on ground rents could severely disrupt the leasehold market, affecting not only property owners but also institutions like pension funds and charities. Mick Platt, Director of the RFA, emphasised the broader implications of the reform, stating, “Mr Gove’s plans will leave the next Government with a colossal Bill and a legal headache.” He criticises the current Government’s approach, which may lead to significant public financial burdens and does not address more pressing issues such as service charge regulation, which affects a larger portion of leaseholders.

Platt argues that the focus should shift towards regulations that “could genuinely improve standards in the leasehold sector,” such as those targeting service charges, rather than ground rent caps that have less public support. As the Leasehold and Freehold Reform Bill progresses through the legislative process, with its Report Stage scheduled for June 5th, these concerns underscore the complex balance between protecting leaseholder rights and maintaining fiscal stability.