Stephen Barter, KPMG UK’s Chair of Real Estate Advisory, comments on the Department for Communities and Local Government’s (DCLG) consultation “Tackling unfair practices in the leasehold market“.
Commenting on the Department for Communities and Local Government’s (DCLG) consultation “Tackling unfair practices in the leasehold market“, Stephen Barter, KPMG UK’s Chair of Real Estate Advisory, said:
“It is clear that some action is needed in the leasehold market, but any future Government sanctions need to be carefully targeted in order to avoid making the disruption worse for homeowners or inhibiting the future development of new homes.
“Long leasehold tenure has traditionally been used as an efficient way of managing apartment blocks and managed estates. The ground rent payable was always intended to be an inconsequential amount for the tenant, which underpinned the security of payment and – together with the service charge – effectively covered the freeholder’s management costs.
“Low bond yields have significantly increased investors’ appetite for the secure annuity qualities of freehold ground rent investments, which have become considerably more valuable. Housebuilders have found this an attractive opportunity to make additional profit at the end of the development period by selling on the stub freehold interest, subject to the ground rent income.
“Long leasehold tenure remains highly relevant to apartment blocks and the long-term management of mixed-use estates. In most cases however, it is less relevant to houses, which are typically individually owned, albeit may be part of a larger estate including a neighbourhood public realm, which needs to be managed for the benefit of all homeowners.
“The Government needs to consider outright sanctions very selectively, but also needs to urgently promote the creation of industry best practice guidance on ground rent, landlord approval and service charge regimes, including the notification and right to buy arrangements for tenants. The potential consequences of any actions for both leasehold enfranchisement provisions and the emerging private rented sector market also need to be fully addressed.”
Notes to editor
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