ALEP members advocate ground rent reform: Survey illuminates perspectives and recommendations

A recent survey of members from the Association of Leasehold Enfranchisement Practitioners (ALEP) sheds light on their collective stance regarding ground rent reform. In alignment with the ongoing government consultation on ground rent reform, 80% of ALEP members agree that "residential ground rents can have a negative or undesirable impact on the sale of leasehold properties."

As part of the wider leasehold reforms, the government is currently soliciting opinions on the limitation of ground rents that leaseholders must pay. ALEP, representing over 1,200 legal professionals in leasehold enfranchisement, conducted a survey mirroring the government's consultation to gauge perspectives on the potential negative impacts of ground rents and suggest mitigations.

Key findings from the survey indicate that 70% of respondents believe some ground rents could pose challenges when selling a property. Additionally, 43.2% pointed out issues arising from unclear terms related to ground rent payments during property purchases.

Regarding potential solutions, ALEP members favor capping ground rent at a percentage of the property value (38.6%), followed by capping ground rent at an absolute value (27.3%), and capping ground rents at a peppercorn (20.5%). However, members express concern about the disproportionate impact on freeholders and investors if ground rent is capped at a peppercorn.

Notably, 75% of ALEP members believe that compensation should be paid to freeholders and/or intermediate landlords if a ground rent cap is introduced. In terms of the preferred cap value, members suggest values ranging from £101-500 if ground rents are capped at an absolute value. For capping ground rent at a percentage of the property value, 45.5% believe 0.1% of the property value is appropriate.

In response to the government's inquiry about mechanisms for increasing ground rents, 47.7% of ALEP members advocate for a pre-determined index link, such as the Retail Price Index (RPI). Members also emphasize the need for exemptions to ground rents being capped, supporting exemptions for certain lease types, business leases, negotiated agreements, and shorter leases.

Mark Chick, Director of ALEP, highlights the potential financial impact on investors, pension funds, and the wider economy if there is a sudden and drastic change to ground rent regulations. He suggests that careful consideration is needed to avoid disproportionate consequences and advocates for a nuanced approach, considering the specifics of each case.

While supporting the government's proposals for ground rent changes, ALEP members stress the importance of seeking professional advice when purchasing a leasehold property to prevent issues and unexpected costs. The survey results indicate a collective call for detailed discussions and further refinement of the proposed ground rent reforms before progressing to legislation.