Why ground rent ban is evoking serious concerns from The Association of Retirement Community Operators
The Association of Retirement Community Operators has expressed concern about the ground rents ban. The association believes the ban can potentially affect the retirement housing sector. They specifically point out a few aspects of the rule, such as the ban's timing and its impact on business plans.
The ban on ground rents for new residential leases, excluding retirement housing leases, occurred on June 30, 2022. It means developers in the retirement housing sector were given some time before the ban would affect their leases, as the change was implemented on April 1, 2023. The ground rents ban pertains to the prohibition of collecting ground rents for most new residential leases in England and Wales. This ban was introduced through the Leasehold Reform (Ground Rent) Act 2022 and became effective on June 30, 2022.
In this context, ground rents are payments stipulated in a lease that leaseholders must make to the landlord for using the land, regardless of whether the land title is transferred to the leaseholder. This applies specifically to leases of land for personal residential purposes.
However, regardless of the time provided, the impact is expected to be long-term. The ban on ground rents can potentially disrupt the business plans of private sheltered housing and retirement housing developers as they have structured their financing and operational models around the income generated from ground rents. With this revenue source no longer available, they will be forced to reconsider their financial tactics and possibly find alternative ways to fund and maintain communal spaces. The counter to this is - so isn't that what service charges are for?
Ground rents have historically been a significant funding source for developers in the retirement housing sector. Most ground rent investors argue they rely on the income generated from ground rents to support the development and maintenance of communal spaces and amenities. And, that these facilities are crucial for well-being and maintaining retirement community residents' quality of life. Supporting development, a source of income we agree, but everyone knows that the maintenance of communal spaces and amenities.
The concern expressed by the Association of Retirement Community Operators is not overstated. It highlights the challenges and uncertainties the retirement housing sector may face due to this policy change. Developers and operators will need to deal with changes in pricing structures. They may have to revisit their business model and review the service offerings to comply with the new regulatory landscape.
The ban on ground rents in the retirement and sheltered housing sectors may be viewed as a measure to protect tenants from certain practices that could lead to excessive fees or financial burdens. However, striking a balance between tenant protection and the viability of the retirement housing sector is necessary to ensure that retirement communities continue to offer a high standard of living and care for their residents. Particularly given the aging population and retirement housing shortages we face.
It must be borne in mind that the ban on ground rents will not apply retrospectively, and hence, it won't impact ground rents that are already being charged under existing leases. Also, any leases granted after the Act has become effective but were part of contracts made before June 30, 2022, are exempted from this ban. Under the Leasehold Reform (Ground Rent) Act 2022, the prohibition primarily focuses on preventing new regulated leases of residential properties from including ground rents.
When will ground rents be banned in the retirement or later living sector?
The introduction of the ground rents ban on the 1st April 2023 in the retirement housing sector has raised concerns among industry stakeholders as it can potentially impact the financial sustainability of retirement housing developments. Developers and operators are dealing with the challenges of making necessary adjustments to ensure the continued provision of services and amenities for retirement community residents.
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