Gove warned ground rents cap would be ‘expropriation of assets’
Michael Gove’s plans to cap ground rents leaves the government open to a multi-billion-pound compensation claim from institutional investors.
The UK levelling up secretary has said he is determined to reform the leasehold system, which he has called “feudal”.
But an investor group has warned Gove that capping ground rents on existing leases at peppercorn rates without compensation would amount to expropriation of assets.
Michael Gove’s plans to cap ground rents leaves the government open to a multi-billion-pound compensation claim from institutional investors.
The UK levelling up secretary has said he is determined to reform the leasehold system, which he has called “feudal”.
But an investor group has warned Gove that capping ground rents on existing leases at peppercorn rates without compensation would amount to expropriation of assets.
The Residential Freehold Association said Gove would open the government up to a £31bn compensation claim.
RFA director Mick Platt said: “It is astonishing to see a British government consulting on the retrospective interference with the legitimate rights of property owners in this way, and it sets an alarming precedent for UK plc.”
The RFA said UK pension funds have more than £15bn invested in ground rents, which are considered a stable asset that delivers reliable returns over long time frames, and that the total value of investment in ground rents exceeds £30bn.
He added: “Mr Gove’s department has gone way beyond any reasonable attempt to reform the leasehold system and has consistently ignored calls for regulation. Instead, they have proposed a raid on investors that would hit the public finances and leave leaseholders in the lurch.”
The RFA said the plans would drive professional freeholders from the market, creating “zombie buildings” where there is no freeholder present.
Independent polling, commissioned by the RFA, found that just 18% of current leaseholders would be comfortable assuming the legal obligations for managing their building. Just 21% would be confident that agreement could be reached between residents on building management and maintenance issues in complex blocks.
Platt said the reforms would be “a thundering own goal”, and risked “running a horse and cart through a huge area of investment in the UK economy”.
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