Colleague David Hutber notes the following:

In the wake of the much publicised ‘ground rent scandal’, the Government has published a consultation paper on the leasehold system and the future role of ground rents.

As we reported earlier this week*, the consultation proposes that in the majority of cases future ground rents will be capped at a nominal £10 per annum. Retirement living developers will read with interest (and possibly relief) however that the Government is considering a possible exemption for their sector.

Recognising the possible benefits of ground rents in the retirement living sector the consultation states:

Unlike most parts of the leasehold market where the leaseholders do not gain any tangible benefit from paying ground rent, it is evident that they do in the retirement sector. Communal facilities are an important part of specialist housing and ground rents support their provision.’

As is often the case this exemption may have its own caveats. One of the leaders in the sector, McCarthy & Stone, have argued that ground rents should not be banned or capped as their customers would prefer grounds rents instead of higher purchase prices.** The Government proposals would put this argument to the test. Instead of a blanket ban (or cap) on ground rents, those purchasing retirement living property would have a choice between either a higher purchase price and a ground rent at £10 per year, or a lower purchase price with a specified economic ground rent. Any retirement living developer would also have to show what any increased purchase price or ground rent pays for.

These proposals seem to strike a fair compromise between the need to pay for the additional services provided in retirement living developments and consumer protection. It will be interesting to see how the sector’s major developers respond and whether this exemption is carried through into any future legislation. For now however the sector should be encouraged by the Government’s proposals and its comments that it ‘wants to see a thriving specialist housing sector for older people, which provides them with choice and meets their individual and often complex needs.’

*For a broader report on the consultation please see: https://www.irwinmitchell.com/newsandmedia/2018/october/irwin-mitchell-property-experts-react-to-governments-leasehold-consultation-announcement 

** See https://www.mccarthyandstone.co.uk/about/ground-rents/ at ‘Why can’t you increase your sale prices?’