Ground Rents Income Fund (GRIO) has provided an update to the market following the enactment of the Leasehold and Freehold Reform Act 2024 on 24 May 2024. This Act forms part of the Government’s residential leasehold reform agenda, launched in 2017, and was the final piece of relevant legislation passed by Parliament ahead of the General Election on 4 July 2024.
The Act follows on from the Government’s consultation in November 2023, which sought views on restricting the level of existing residential ground rent that leaseholders pay in England and Wales, including on the Government’s stated intention not to pay compensation to freeholders. This Consultation represented a significant shift in the Government’s approach to leasehold reform and led to a pause in market activity and negatively impacted values. GRIO subsequently worked with industry peers and advisers to prepare a comprehensive response to this Consultation that was submitted in line with the Consultation timetable on 17 January 2024.
GRIO says that, following submissions to the Consultation by industry and others, the Act does not impose restrictions on ground rent payable under existing residential leases. Reflecting this, leaseholders must continue to pay ground rent in accordance with their lease terms. GRIO says that, although this represents a better outcome for the Company than contemplated in the Consultation, the Act contains provisions that are relevant to the Company. Specifically:
- 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
Uncertainty remains
GRIO says that 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. Consequently, uncertainty 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. [QD comment: If the polls are to be believed, a change of government looks inevitable with Labour returned with a hefty majority. 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.]
GRIO says that it is working to better understand the detail of the new legislation and its potential impact on the portfolio and has reiterated that it has a clear strategy to address the headwinds arising from leasehold reform and building safety, “whilst demonstrating best-in-class residential asset management”. Alongside other institutional owners, GRIO continues to advocate for leasehold reform that it says fairly balances “the legitimate interests of responsible landlords with the interests of leaseholders, whilst also delivering industry wide improvements in terms of transparency, value for money and service levels”.
Accounts filing date extended again
GRIO says that, due to this ongoing work, Companies House and The International Stock Exchange Authority Limited have approved a further extension to the Company’s 30 September 2023 accounts filing date to 30 September 2024, although GRIO does expect to issue its accounts before 30 June 2024, and hold a separate Extraordinary General Meeting in advance of 30 September 2024, at which the Accounts will be presented to shareholders and shareholder resolutions relating to the Accounts will be proposed.