Leasehold reform government announcement

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    Leasehold reform government announcement

    I wonder how long this will take to implement

    https://www.gov.uk/government/news/g...EdJO99yQnkbtfc

    #2
    The leasehold reform in Europe was started by the French Revolution in 1789 and the leasehold reform in E&W is about 231 years late.

    Comment


      #3
      I think it will take at least three years. It is quite possible that the Government will run into difficulty with confiscatory legislation. The Human Rights Act protects the right to enjoyment of one's property. So to compel landlords to hand over to their tenant with inadequate compensation might well involve a successful legal challenge. I suspect there may be a fudge not the give away which Savid Javid dreamt up in hopes of it being a vote winner

      Comment


        #4
        In extremely broad terms the Great Estates in London hold significant value in reversionary leases and the Insurance industry hold large amounts of indexed linked ground rents. Both would clearly expend whatever on challenging the government

        However marriage value may not be the key issue if the capitalisation rate and deferment rates were lowered to reflect the collapse in long terms risk free rate. At the time of Sportelli the long-term risk-free rate was 2.25% and the rate set by the Government in personal injury claims the Ogden rate was 2.5%. Roll on to 2017 and the Ogden rate was lowered to MINUS 0.75% and after lobbying moved up to MINUS 0.25%.

        The Deferment rate is made up of

        Deferment Rate = Risk Free Rate ("RFR") + Risk Premium ("RP") – Real Growth Rate ("RGR").

        The Lands Tribunal in Sportelli case attributed the following values to those variables:

        RFR = 2.25%, RP = 4.5% and RGR = 2% giving a deferment rate of 4.75% for houses and with the extra risk-free rate for flats being 0.25% making 5.0%

        With say the risk-free rate being lowered to say 0% this would make the deferment rate 2.5%

        The Capitalisation rate is made up as follows: -

        Capitalisation Rate = Risk Free Rate + Risk Premium

        We can deduce that if the risk-free rate fell from 2.25% to 0% the capitalisation rate should fall also by 2.25%. As we have currently been capitalising rents at 6% this would imply, we should be using 3.75% for ground rent income and where indexed linked ground rents have been capitalised at 3.35% to 4.0% then possibly 1.10% to 1.75% may be applicable

        If we take a flat worth say £275,000 with a ground rent of £150 per annum with a lease of 99 years from 23 June 1988. The position at present is that the premium would be around £24,500. Assuming the capitalisation rate is 6% the reversion at 5% and relativity 86.46%

        HOWEVER if the reversion was discounted at 2.5% and the income at 4% and there is no marriage value the premium becomes £55,600. Marriage value is only created if the deferment rate is above 3.15%

        So, the challenge is this.

        If marriage value is to be removed the Government would have to show that the removal of marriage value which hitherto was regarded as part of the compensation necessary to deal with any attack over human rights now no longer applies

        If they can get over that hurdle, then they would need to argue that the current deferment rates and capitalisation rates are still relevant ten years on notwithstanding that there has been a complete collapse in the long-term risk-free rate

        Maybe it will be decided that it may be in the interest of all parties that the existing formula remains with deferment being set at 4.75% to 5% and capitalisation rates where they now are. Having an online calculator to make the calculation easier and quicker and making the landlord bear his own costs – other wise it could all backfire and result in greater premiums being paid by lessees.

        Then there is the matter of the 10-year doublers. It is noted that the Competition and Markets Authority is investigating. If they find that developers have abused their position in the market they can levy fines and order compensation which would make it easier for those lessees to get redress for the fact that they were not advised of the ground rent terms by their solicitor prior to entering into the lease . The six-year rule, which some may have missed, to sue their solicitor would not apply. That side steps having to introduce legislation that effectively tears up contracts which have been freely entered by willing buyers and sellers who had professional representation prior to entering into them will put the UK in the same category of the many foreign countries that cannot be trusted to provide a stable environment in which to do business.

        There will be plenty of lobbying to these proposals from parties with extremely deep pockets

        Comment


          #5
          I can’t help thinking that the proposals to remove marriage value are there to appear to show the Government is keen to help leaseholders, but the Government will know beyond all doubt that there will be a claim to the European Court of Human Rights (ECHR) that the level of compensation is inadequate. If the Court uphold such a claim the Government will still be able to claim that it tried its best when trying to engage with leaseholders at the next election.

          The previous valuation model was drafted in 1993 to ensure that adequate compensation was paid to the landlord for the loss of their rights as of course at that time influential landlords were looking to make a claim to the ECHR. So what has changed ? The collapse in interest rates. Such a collapse produces gains and losses. The flat rises in value but then the premium to extend it also rises – hardly the basis for a successful challenge.

          Comment


            #6
            Are we still bound by decisions of the ECHR?

            Also, if freeholder no longer receives (very much) interest on the premium, doesn't that mean that the premium has to compensate him for the whole 999 years of full ground rent? That's going to be double the value of the flat in some cases, isn't it?
            To save them chiming in, JPKeates, Theartfullodger, Boletus, Mindthegap, Macromia, Holy Cow & Ted.E.Bear think the opposite of me on almost every subject.

            Comment


              #7
              I expect that there will be plenty of opposition to the proposals as in the past, not least from the Church Commissioners and The Royal Family,

              Comment


                #8
                Originally posted by JK0 View Post
                Are we still bound by decisions of the ECHR?

                Also, if freeholder no longer receives (very much) interest on the premium, doesn't that mean that the premium has to compensate him for the whole 999 years of full ground rent? That's going to be double the value of the flat in some cases, isn't it?
                "The ECHR is an international treaty the UK signed in 1950. States that signed up committed to upholding certain fundamental rights, such as the right to life, the right to a fair trial, and the right to freedom of expression. The HRA enables people to bring cases in UK courts in order to uphold their ECHR rights"
                So yes, nothing to do with any European "court"

                I quite agree from personal experience my freehold values are directly impacted inversely by rise & falls in interest rates, so currently would expect considerable compensation for relatively low ground rents.
                Eg, If my bank pays 0.1% I'm gonna need £100,000 to make up for £100 GR and that's before I take into account other potential income !!

                Comment


                  #9
                  The more favourable the deal for leaseholders the more likely is success at the ECHR. This would entail the Government having to compensate landlords for what is compulsorily taken from then. As a result, in the detail yet to be published, and worked out in Committee and in the Lords, the initial impetus may be watered down. My own view is that they may well get rid of marriage value (which is a matter of opinion as there is little evidence of untainted short lease value) and adjust interest rates so that landlords are not penalised as heavily as it might appear. I would be perfectly happy for costs to be capped at a very low figure. The professionals do make too much of a mouthful of this work.

                  Comment


                    #10
                    The Government will have known there will be a huge backlash from the Great Estates and institutional investors and may well have pitched the initial proposal at the extreme end expecting in the end to settle somewhere in the middle.

                    That middle ground would be if I had to guess would be that marriage value is eliminated to avoid arguments over relativity. The deferment rate to be lowered to around 3.5% to 4% and so to for the capitalisation rate.

                    It may well be that for leases over 80 years the deferment rate may remain at 5% so as not to increase the costs for those lessees who would be worse off if the deferment rate was set at 4%

                    Significant savings in costs using a defined calculator and possible requirement that the Landlord bears his own costs - that is an area as flyingfreehold notes where costs of circa £5k can be added to the premium which has to be paid by the lessee

                    Comment


                      #11
                      Is there any update on the RTM recommendations made in July? I'm kind of hanging on to those as the possible solution to our hopeless freeholder...

                      Comment


                        #12
                        Zero ground rents for all new leases will create a 2 tier leasehold system. Existing leases that have ground rents will become less attractive and therefore more difficult to sell unless the Government retrospectively applies zero ground rents to existing leases also. I cannot see retrospective application happening ....

                        Comment


                          #13
                          I suspect it will be a simple arithmetic formula to buy out ground rents, unfortunately not one than fairly values the landlord's end of the equation, but for the proceeds to be tax free as with compulsory purchase

                          Comment


                            #14
                            Originally posted by bethy View Post
                            Is there any update on the RTM recommendations made in July? I'm kind of hanging on to those as the possible solution to our hopeless freeholder...
                            There’s a fantastic leaseholders Facebook group who will get plenty of credit for campaigning for leasehold reform. Worth a look if you want advice on RTM etc.
                            “National leasehold campaign” Facebook group

                            Comment


                              #15
                              Originally posted by desamax View Post
                              There’s a fantastic leaseholders Facebook group who will get plenty of credit for campaigning for leasehold reform. Worth a look if you want advice on RTM etc.
                              “National leasehold campaign” Facebook group
                              Thank you 👍

                              Comment

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