13/01/2021
Arguably the biggest shake up to English property law in 40 years was announced last week with the publication of the Housing Secretary Robert Jenrick’s proposed leasehold reforms. A summary of the key changes can be found here.
Although these changes have been pending for some time in relation to residential property, perhaps the biggest surprise was the specific inclusion of retirement leasehold property. Ground rents will be reduced to zero for new retirement properties ensuring “purchasers of these homes have the same rights as other homeowners and are protected from uncertain and rip-off practices.”
Senior living schemes were expected to be exempt from the reforms based on indications from previous housing ministers, so this latest announcement has come as a surprise and some developers have already expressed their concerns.
Ground rents in retirement housing developments are often used to help fund the provision of communal facilities for the residents; whereas ground rents charged on standard residential schemes usually provide no benefit to the leaseholders. Senior living developments require considerable communal space (sometimes up to 30% of the site) and so construction costs have to be recovered as these areas cannot be sold or rented out. Abolishing ground rents which are used to recoup the costs means that funding will need to come from another source, most likely management fees.
A number of developers have been anticipating changes following recommendations by the Law Commission last year, and so have been looking to develop alternatives for management fees to replace ground rents. The sector is also moving towards different models of ownership, for example, using mixed tenures with part sale and part rental schemes. Many new-build retirement properties now have 999 year leases instead of the shorter 99 or 125 year leases which makes them more attractive on re-sale. The concern is that these schemes come with drawbacks including the likelihood of higher sale prices, so there is no easy solution.
There is no time scale for when these changes will come into force. All we know is that legislation will be brought forward in the upcoming session of Parliament and there is already speculation as to whether retirement operators will lobby for an exemption. The government has made one concession in order to mitigate the potential impact on developers, as changes will be deferred on retirement properties 12 months after legislation receives Royal Assent.
Including retirement housing in these reforms is even more surprising as it comes at a time when the government is looking at the sector to provide much needed housing with care to reduce the pressure on the NHS. Change in the sector is unlikely to stop at ground rents and lease extensions as the senior living/retirement sector may well be impacted by the Law Commission's further recommendations on leasehold enfranchisement and commonhold which the government will consider in due course.
