Modern leasehold: restricting ground rent for existing leases

Modern leasehold: restricting ground rent for existing leases. PLSA response to The DLUHC consultation

The Department for Levelling Up, Housing & Communities (DLUHC) opened a consultation asking for feedback on options to introduce a cap on residential ground rents. In recent decades, pension funds have participated in the residential ground rent market as institutional investors to meet their financial obligations. A policy change that would cap ground rents would directly affect pension funds and could negatively impact their ability to secure investment returns meant for the savers they represent.

The PLSA responded to the consultation, recommending that any Government intervention holistically consider the wider implications of placing a cap on ground rents to avoid negative, unintended consequences, which could include (but are not limited to): a shortfall in pension scheme assets (which without compensation could directly impact scheme savers); UK investment market reputational damage and decreased investor appetite in residential markets; and freeholder insolvencies that could ultimately harm leaseholders.

We also urged the Government to explore further voluntary options with the industry, specifically pension fund investors, to create a plan and build on the action to date. This could include continuing the work done to address doubling ground rents, securing renewed commitments from freeholders, and addressing any other areas for reform.