‘A better outcome’: Ground rents investor expresses relief at decision not to cap charges
An investment trust that makes money from ground rents has expressed relief after plans to ban the fees were dropped from one of the last bills to pass through parliament before it was dissolved ahead of the general election.
On Friday, the £28m Ground Rents Income Fund said the bill, which passed last week, represented “a better outcome for the company than contemplated.”
Leasehold property owners pay ground rents to freeholders to essentially rent the land from the ultimate controlling party. Campaigners have fought, ultimately unsuccessfully, to get these charges scrapped.
The Leasehold and Freehold Reform Act formed part of the government’s residential leasehold reform agenda. It was one of the final pieces of legislation passed by parliament ahead of the general election on 4 July.
The £28m Ground Rents Income Fund has said the bill, which passed last week, represented “a better outcome for the company than contemplated.”
The new law makes it easier and cheaper for people to extend their leases, buy their freeholds, or take over the management of their buildings.
Ultimately, ideas to remove group rent entirely, or cap it at £250, were dropped, despite plans from outgoing secretary for levelling up Michael Gove.
However, Labour’s shadow housing minister Matthew Pennycook has said the party will “finish the job of finally bringing the archaic and iniquitous leasehold system to an end”.
“If the polls are to be believed, a change of government looks inevitable with Labour returned with a hefty majority,” a Quoteddata analyst wrote.
“It is quite clear that the new government will have a lot to do and that this reform is not likely to be a top priority but a Labour government is unlikely to be particularly sympathetic to the plight of freeholders charging ground rent.”
Ground Rents Income Fund’s discount
Last month, the Ground Rents Income Fund was forced to slash the value of its underlying holdings by around a quarter due to fears of potential reforms.
In the two weeks following, its stock price fell by over nine per cent, before recovering by almost six per cent in the last week as the bill became law.
The company now sits at an almost 70 per cent discount to its net asset value.
On Friday, the trust said that some parts of the act, including improved transparency over service charges and insurance costs for leaseholders, were ” relevant to the company.”
These included:
· Making it easier and cheaper for leaseholders to buy out their ground rent, extend their lease or acquire their freehold, a process known as ‘enfranchisement’
· Improving transparency over service charge and insurance costs for leaseholders
· Making it easier and cheaper for leaseholders to assume management of their building
It added: “The company and its external advisers are working to better understand the detail of the new legislation and its potential impact on the portfolio.”
Ground rent reform uncertainty
Still, it remains uncertain when, if at all, the legislation will come into effect and its final form.
“The majority of the act, including the key provisions outlined above, will only come into force once the secretary of state passes additional secondary legislation,” the company said.
“Uncertainty therefore remains about how and when the legislation will come into force, as well as whether any future government will continue to advance residential leasehold reform in whole, or in part or at all.”
The trust added that it had also extended the deadline for publication of its 30 September 2023 results to 30 September 2024, and would hold an extraordinary general meeting in advance of this.
Correction: This article has been corrected to remove an inaccurate statement about the legislation’s impact on Ground Rents Income Fund’s profit and portfolio value. The company’s press release did not make any mention of current or future financial performance.