UK: Helen Streeton, head of BTR at Forsters LLP, assesses the likely impact of government proposals for the residential rental sector, and says that more work is needed for a satisfactory resolution.
There had been a lot of speculation in the run up to the King’s Speech earlier this month as to the extent of the leasehold and renters reform proposals to be included, particularly in light of the government’s ambition to re-balance the power between relevant parties. However, in the end, the proposals fell a bit flat, with important details either lacking or postponed for a later date.
For example, the capping of all existing ground rents has been earmarked for a consultation in spite of the fact that it could be pivotal in minimising leaseholders’ financial pain. The proposal was originally included in the government’s February 2021 policy statement – with the idea that ground rents would be capped at no more than 0.1 per cent of freehold value.
However, given the difficult political and economic arena and the need to find a balance between the competing interests of leaseholders and landlords, it is difficult to see this going through without a strong challenge, even with consultation.
The elephant in the room will be what compensation should be offered to landlords and whether there is to be a statutory acquisition process. A number of funds, which quite possibly form part of pension funds, own large ground rent portfolios and this value cannot simply be wiped out without some sort of recourse.
Meanwhile, some will have been disappointed that the banning of leases for flats is not in there, alongside the ban for houses. But the reality is that leasehold would need to be replaced with a new system, as clearly freehold cannot be used for flats. At least the proposals gave some sort of confirmation that the gradual phasing out of leasehold properties and the mandatory phasing in of commonhold as an alternative form of ownership for flats is not currently on the table. A shift to commonhold would require an enormous cultural shift and could not be achieved overnight.
Instead, the increased protections against things like building safety remediation costs post-Grenfell, no new leases of houses and excessive ground rents are being looked at to redress the current imbalance in favour of freeholders.
As anticipated, the government does not appear to be moving to abolish section 21 (no fault) notices for ASTs until stronger possession grounds and a new court process is in place. This will not be easy given the current lack of public funding. It is not just a case of a new process, the whole system needs to be faster and to be digitised in order to handle demand.
In reality, most landlords have already got their heads around the abolition of section 21 notices, with many embracing the idea of longer and more flexible tenancies. Key considerations for this new era are the inclusion of a rent review mechanism and cap in ASTs.
In general, the proposals demonstrate some momentum but there is more to be done. Hopefully with lobbying and government listening to all stakeholders, further workable solutions will emerge and will be followed by decisive action.
Helen Streeton is a partner and head of BTR at Forsters LLP.
