The Ground Rent Quid Pro Quo Consultation Is a Bear Trap

Is this a route out, or is it a bear trap?

The stated aim is understandable enough: to address unregulated and unaffordable ground rents and to shift value towards leaseholders who have been paying for years under terms Parliament now considers unfair. My objection is not to that objective, but to the method chosen to achieve it.

To claim the exemption is to accept the premise. You are conceding that an existing contractual property right now needs fresh permission to survive. Why must either party - landlord or tenant - justify the right at all? The lease was granted, its terms were agreed, and, importantly, the interest was recognised in law, registered, valued, traded and taxed. The quid pro quo already happened. It was called the transaction.

The Government says it has seen no convincing evidence that leaseholders routinely paid lower premiums in return for higher ground rents. That is fine as far as it goes, but why not turn the question on its head? Can a leaseholder prove that they did not pay less? Can anyone establish what the same flat would have sold for forty years ago under lease terms that never existed?

Of course not. Neither side can prove the counterfactual. The Government has simply decided who carries the cost of not knowing. Was there a quid pro quo? No evidence available? Then you do not escape the cap. The real outcome is this: in most cases the landlord collects the consolation prize - ground rent capped at £250 a year for forty years, then reduced to a peppercorn.

Does the £250 cap itself survive much scrutiny? It sounds calibrated, suggesting modelling, economic analysis, a carefully weighed compromise. But as a valuer, I see something far simpler. A fixed £250 a year for forty years is worth roughly £3,760 at a 6% yield, £2,980 at 8%, and £2,445 at 10%. There is no uniquely correct answer; move the yield and the number moves with it. 

And the Government knows this. The consultation concedes that capitalisation rates can legitimately vary from case to case, then proposes to prescribe a single rate by regulation expressly to avoid debate about which rate is right. Read that again. The variability is admitted, and the answer is not to value each case properly, but to fix the number by decree and stop the argument. It is not much more scientific than deciding how much cash to put in an envelope for a wedding present - except here the Government is choosing the figure from somebody else’s money.

We should be clear what this payment from the leaseholder will represent. It is not compensation for the full value of the right removed. It is merely the slice of the full value that the Government has decided the owner may keep. The rest simply disappears, and the consultation does not shrink from saying so: it states in terms that value will be transferred from freeholders to leaseholders.

There is an irony in the evidence gathering too. The consultation asks freeholders how many such leases they hold, requests worked examples, and crucially asks whether the arrangement was ever expressly agreed in writing. Answer honestly that no written agreement exists, and you have not made your case for exemption. You have demonstrated, to the Government’s own evidence baseline, that leases like yours cannot pass the very test being designed. The material submitted to claim the exception becomes the material that defeats it.

So the escape route begins to resemble a processing system. Government writes the test, decides who must prove an unknowable historic counterfactual, appoints the examiner, and fixes the value of the consolation prize by regulation. Then it calls the exercise a consultation.

I should add, for campaigners who see this exemption as a freeholder loophole: I think you are worrying about the wrong risk. If the counterfactual cannot be proved, the exemption cannot easily be claimed, and the cap applies almost everywhere. The trap does not catch the leaseholder. It catches the freeholder who reaches for it.

This is not a defence of ground rent; it is an objection to the method. You do not correct an alleged historic unfairness by imposing a retrospective test that may be impossible to satisfy, fixing the compensation by decree, and treating failure as consent.

Having read the questions, my takeaway is this. It looks less like a genuine attempt to find fair exemptions, and more like an elaborate way for the computer to say no.

Mark Wilson - Director, Myleasehold and a member of ALEP (Association of Leasehold Enfranchisement Practitioners)