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Posts Tagged ‘landlords’

Government Proposal to Cap Ground Rents at £250: Implications for Landlords

Posted on: January 30th, 2026 by Ella Darnell

Overview of the Proposed Changes

This week the Labour Government announced plans to cap existing residential ground rents at £250 per year from 2028, ultimately reducing to a peppercorn after 40 years. The introduction was made in the draft Commonhold & Leasehold Reform Bill, now entering pre-legislative consideration.

It is widely considered that the market has been in the hands of landlords and investors for too long. The residential market has been threatened with major overhaul for 20+ years. Labour has made it one of their priorities to put leaseholders first.

Key Effects on Landlords

This proposed legislation will override any lease where the ground rent is higher than £250 and/or has escalating provisions (i.e., doubling or RPI).

The intentions behind the cap are to save leaseholders hundreds of pounds a year, keep money in their pockets and tackle the cost-of-living crisis.

The effect on landlords could potentially be hundreds of thousands of pounds. Unlike with the statutory lease extension process set out under the Leasehold Reform, Housing and Urban Development Act 1993, landlords will not be compensated for the loss of their ground rent income.

Annual portfolio income streams will significantly decrease. Assets, whether a small investment portfolio for somebody’s retirement or a large-scale ground rent investor’s portfolio, will likely see a decline in value. 

On the other hand, some may find value in the certainty provided by 40 years of £250 per annum compared to an index-linked increase.

We have already seen institutional landlords challenge the abolition of marriage value in the Leasehold and Freehold Reform Act 2024 under A1P1 (the right to peaceful enjoyment of possessions). We could possibly see the same happen here.

The Draft Commonhold & Leasehold Reform Bill –What Else?

This legislation, once enacted, will take huge strides toward ending leasehold tenures, which many consider to be an archaic and unfair form of homeownership. The bill sets out further historic changes:

  • a ban on new leasehold flats;
  • will move to commonhold and make commonhold the default tenure;
  • ending forfeiture (or the threat thereof) for breach of lease and/or non-payment of service charge and/or ground rent; and
  • repeal of estate rent charges;

What Next?

We continue to be in a state of  ‘watch this space’ but it’s clear the landscape is changing. Lawrence Stephens’ specialist Leasehold Enfranchisement Team will continue to monitor the progress of the Draft Commonhold & Leasehold Reform Bill.

For any specific or tailored advice, please do get in touch with the Leasehold Enfranchisement Team, Director and Head of Leasehold Enfranchisement Claire Allan and Associate Cerys Eyre.

The Renters’ Rights Bill – What it could mean for lenders?

Posted on: May 8th, 2025 by Natasha Cox

The Renters’ Rights Bill (‘the Bill’) is currently making its way through the House of Lords. While there has been growing opposition to the Bill, with over 300 amendments being proposed, the Bill could still prove to be a welcome change for lenders.

Purpose of the Bill

The Bill has been introduced to:

  • give greater rights and protections to people renting their homes
  • provide tenants with the flexibility to leave substandard properties

In short, it is intended to:

  • Reform tenancies
  • Strengthen tenants’ rights
  • Create a landlord redress scheme
  • Create a private rented sector database
  • Create a legal standard for property conditions
  • Expand enforcement powers


The potential impact of the Bill on lenders

Currently, there are two options available to recover vacant possession of a property subject to an assured shorthold tenancy, namely:

  • Serving a notice under section 21 of the Housing Act 1988 (‘HA 1988’)
  • Serving a notice under section 8 of the HA 1988

Section 21 Notice

Also known as a ‘no-fault’ eviction, this is used where a tenancy is coming up to expiry or has already expired.

As a result of Trecarrell v Rouncefield [2020], if the landlord is unable to evidence compliance with the various prescribed requirements, then simply put, they will not be granted a possession order.

Section 8 Notice

A notice under this section can be used in two situations:

– where the tenant has breached the terms of the tenancy, or

– where a lender requires vacant possession of the property for the purpose of exercising their power of sale and is bound by a tenancy postdates the loan.

Notices under Section 8 of the HA 1988 are restrictive for lenders requiring vacant possession. Many grounds under this section can be remedied and it is otherwise limited to tenancies which postdate the loan. In addition, a landlord (borrower) should have also served a notice on the tenant confirming they can rely on this ground to obtain vacant possession (albeit the court has discretion to dispense with this requirement).

 

What the reform could mean for lender’s enforcement

The reform will essentially simplify a lender’s ability to take possession of a property subject to a tenancy.

The intention is to abolish assured shorthold tenancies (and as a consequence, ‘no-fault’ eviction notices) under Section 21 of the HA 1988, and to amend Ground 2 of Schedule 2 of the HA 1988 so that it reads as follows:

The dwelling-house is subject to a mortgage and –

(a) the mortgagee is entitled to exercise a power of sale conferred on him by the mortgage or by section 101 of the Law of Property Act 1925; and

(b) the mortgagee requires possession of the dwelling-house for the purpose of disposing of it with vacant possession in exercise of that power.

For the purposes of this ground “mortgage” includes a charge and “mortgagee” shall be construed accordingly.

This means that lenders will be able to rely on this section whether the tenancy predates or postdates the loan, provided the lender requires vacant possession for the purpose of exercising their power of sale. They need no longer be concerned about evicting a tenant when they are unable to comply with the requirements for prescribed information for tenant deposits and the Deregulation Act 2015, viz. the provision of the How to Rent Guide, EPC, Gas and Electrical Safety Certificates. The main contention under the reform is that tenants will be afforded a four-month notice period, which some lenders may accept as a small quid pro quo.

It is recommended that lenders continue to ask the right questions and continue to carry out their due diligence in respect of tenancies. In terms of lending in the short term/alternative lending space, which is often time critical, such potentially arduous and frustrating requirements need no longer be so. Lenders will now have the flexibility to take a view, knowing that it will not compromise their ability to secure vacant possession should they need to enforce the terms of their loan.

For more information on our Real Estate Disputes services, please click here.

Alex Edwards explores loan enforcement and recoveries in Bridging & Commercial

Posted on: February 26th, 2025 by Hugh Dineen-Lees

Following the fallout of last year’s Autumn budget, Director Alex Edwards explores how recent legislative and political reforms have impacted loan enforcement and recoveries across the UK real estate market.

Alex’s article was published in Bridging & Commercial, 18 February 2025, and can be found here.

Seismic activity ahead in the land of BTL

Following the Autumn Budget, landlords and lenders are facing an incredible complex and ever-changing landscape when it comes to real estate finance. Alex Edwards advises on what to anticipate to avoid disputes around loan enforcement and recovery

Words by Alex Edwards, director at Lawrence Stephens

On first inspection, there was little in chancellor Rachel Reeves’ first Budget to concern either mortgage lenders or borrowers. The most attention-grabbing announcements have proved to be those on inheritance tax for farmers and increased employers’ national insurance contributions.

However, several aspects of this Budget are likely to create a volatile landscape for lenders and have a long-term impact on the UK mortgage industry, posing challenges for landlords and lenders alike.

Alongside these domestic political factors, which are likely to impinge on the UK real estate finance market in the coming months and years, are global geopolitical changes that could prove to be even more critical.

By far the most prominent probable cause of a profound economic shift is the election of Donald Trump as the next US president.

Trump’s second term, for which he is far more prepared than when he previously took office in 2016, will be a White House with radically different policies and intentions compared with the previous administration. Under Trump’s leadership, the world’s economic powerhouse will be more inward looking, adopting policies that could lead to higher costs, higher inflation and, in turn, higher interest rates in the US. These untested policies could impact growth in the US and in the UK.

Renewed and potentially expanding conflict in the Middle East, with the Israeli military action in Gaza and Lebanon bringing in Iran and other significant players in the region, could have far-reaching global effects. Instability in Taiwan, with China perhaps waiting for Trump to take office in January to launch an assault, could be another source of major financial instability.

Nearer to home, the fault lines of political cohesion in Europe appear to be fracturing.
How these macroeconomic headwinds will impact the UK as it settles into having its first Labour government in 14 years is yet to be seen.

Whilst the latest economic growth figures may have dealt a blow to Rachel Reeves, the softer than expected inflation figures suggest that there is now an expectation of interest rate cuts in the coming months which will be welcomed by borrowers. That said, with the concerns around the growth of the economy, the level of inflation predicted to remain around 3% for the rest of the year, uncertainty as to how fast interest rates will continue to fall and borrowers struggling when they come to refinance could therefore be the early indicators of a new or revived cost-of-living crisis on the horizon.

While not directly linked, the tax-raising policies in Labour’s Budget will have an undeniable impact on the housing market. Shortly after the budget statement to MPs in the House of Commons, UK government borrowing costs rose to their highest level this year. This prompted many City investors to predict that the Bank of England will now be more cautious in its approach to cutting interest rates, contrary to earlier expectations.

Nonetheless, there is still very much an expectation that interest rates will gradually come down.  

Prepare for enforcement

These issues will have to be carefully considered to avoid potential disputes around enforcement and recovery. Lenders will have to ensure their teams are well prepared. They will want to carry out thorough security reviews on loans and portfolios that could go under, and carefully consider what options are available to them before they start looking at formal enforcement.

Large numbers of borrowers on fixed low rates are now far more likely to be adversely affected when their rate deals come to an end. The most dramatic consequence will likely be an increase in defaults as fixed rates come to an end.

For lenders, it will be challenging to stay up to date with such a volatile market.

It is certainly plausible that borrowers whose budgets are already squeezed may struggle this year as these many factors combine to create a tough monetary environment.

Slower development

While there has been talk of 300 new planning officers—which is of course welcome—in reality, this likely equates to around one per local authority. In terms of the day-to-day workload, this is a drop in the ocean and is unlikely to improve the planning process or make it quicker and more efficient.

Despite Labour’s rhetoric around support for developments, building and unlocking the grey belt, planning applications taking longer to be processed (due to the lack of extra planning officers) will certainly have an impact on the new build market.

We are also seeing unit sales on developments taking longer than expected, which will continue to impact developers, at least until interest rates and construction costs stabilise.

Rental yields for landlords may also drop as tenants are more likely to be unable to afford to continue to pay rents as they too continue to rise. The risk of late or missed rent payments could leave landlords in an invidious position when servicing loans secured on their BTL properties. That said, with first time buyers continuing to struggle to gain a foothold on the property market, rental demand in urban areas is likely to remain strong. 

There will continue to be challenges for developers to access financing at cost levels which are profitable, which will have an impact on the number of large scale projects getting off the ground.

Perhaps insulated from these overarching issues is student accommodation, which is an ever-growing market, and the residential market in prime London, which seems to be in its own bubble. There is consistent appetite for these types of developments.

Lenders will need to be extremely conscious of such issues and monitor potential defaults and, given the state of the market, fully assess their options in terms of next steps.

Look at the loan book

Of equal importance is that lenders must look closely through their loan books. It is crucial that they scrutinise the financial condition of borrowers who may have only one or two properties, rather than that of professional landlords with more substantial portfolios who are better set up to weather such storms.

They may also want to consider the impact of the current market climate, propelled by the aforementioned changes in the Budget, on portfolios that operate on tight yield margins. For landlords, just like residential mortgage holders, the measures announced will heavily impact borrowing rates.

International investors in the UK’s real estate market may be less affected, although the well-signposted issues across Europe and the escalation with Russia following the US’s recent decisions around weapon supplies may change this for certain individuals.

BTLs can still be attractive to borrowers and lenders alike, but lenders should be alive to the changing landscape and the wider economic pressures faced on all sides. They should be continually monitoring the effect of changes brought about by the UK government and issues caused by global shifts to understand what this might mean in the long term for defaults or recoveries.

Abtin Yeganeh comments on landlord-imposed work from home bans in The Independent

Posted on: July 8th, 2024 by Natasha Cox

Senior Associate, Abtin Yeganeh, comments on landlords banning their tenants from working from home, as well as tenants’ protections in this area, in The Independent.

Abtin’s comments were published in The Independent, 07 July 2024.

“As a general rule, a landlord cannot stop a tenant from working from home as it would interfere with a tenant’s statutory right to quiet enjoyment of their property. The position is somewhat more complicated where a tenant seeks to run a business from their rental property. With that said, whilst landlords can seek to exclude a tenant’s right to work from home, The Small Business Enterprise and Employment Act 2015 (subject to several exclusions) provides that landlords cannot unreasonably refuse a tenant’s request to do so.”  

Landlord and tenant works – Construction Industry Scheme payments now made simpler

Posted on: June 13th, 2024 by Natasha Cox

In brief:

Regulations were introduced in April of this year which removed the uncertainty and complexity on which payments made by commercial landlords to tenants are covered by the Construction Industry Scheme (CIS). As a result,  the majority of such payments will now fall outside the scope of the CIS and the requirement for deductions as advance payments towards a sub-contractor’s tax and National insurance to HMRC.

The pre-April 2024 rules created a cumbersome legal and administrative obligation and the removal of these compliance burdens must be welcomed.

Legislation

The Income Tax (Construction Industry Scheme) (Amendment) Regulations 2024 (SI 2024/308)  introduced in April 2024 added a new Regulation 20A to the main CIS regulations which specify that payments made by a landlord to a tenant for construction operations in connection with a lease or agreement for lease are not contract payments and are, therefore, outside the scope of the CIS.

To fall within the scope of this exclusion, payments must meet the following conditions:

  • The payment is made by or on behalf of a landlord;
  • The payment is received by a tenant or prospective tenant (tenants include sub-tenants);
  • The payment is for construction operations agreed in connection with a lease or agreement for lease;
  • The tenant that occupies or will occupy the property will carry out the construction works themselves or contract with a third party to undertake the work; and
  • The payment must be for construction operations relating to works intended primarily for the benefit and use of the tenant that occupies or will occupy the property under the lease.

The definition of ‘landlord’ includes a person with the legal or beneficial ownership of the property, who granted the lease or who will grant the lease.

What does this mean?

Under the pre-April 2024 rules, and prior to entering into any agreement relevant to the construction operations, both the landlord and tenant were required to take legal and taxation advice in order to jointly agree and document that any payments from the landlord to the tenant regarding such construction works either fell within the exclusion for ‘reverse premiums’ in Regulation 20 of the main CIS regulations so that they fell outside the scope of the CIS – or they did not and deductions would need to be made. 

Although contributions made by a landlord towards the tenant’s own fit out works were easier to assess, it was far more difficult where a contribution was being made towards the tenant undertaking Category A fit out works. This led to some landlords being more ‘careful’ in requiring the operation of the CIS on such contributions. Tenants were being asked to take on the added cost of CIS deductions –  as well as the added administrative and cash flow burdens of having to reclaim the amounts deducted. 

The new exclusion under Regulation 20A should lead to most payments by landlords to tenants (or prospective tenants) for construction operations being defined as outside of the scope of the CIS. However,, the implications of Regulation 20A do need to be fully understood.  Most notably,is the requirement that the landlord’s payments must be for construction works intended primarily for the benefit and use of the tenant. This means that any payment which relates to works outside the property occupied by the tenant is likely to fall outside the new exclusion and will therefore remain within the scope of the CIS.

As a reminder…

The new regulations do not affect the application of the CIS to payments by tenants to landlords for construction operations. Take an example where where the landlord has agreed to undertake the tenant’s own fit out works., While these payments will continue to usually fall outside the scope of the CIS, if the tenant will be sub-letting part or the whole of the property or they are registered with HMRC as a so-called ‘contractor’, the CIS deductions would apply in accordance with  Regulation 24 of the main CIS regulations for payments in respect of property used for the purposes of the business of the tenant or another company in the same group.

If you need any advice on the Construction Industry Scheme or any other aspects of construction law, please contact our team of experts Anne Wright and Tom Pemberton.