Landlords will be banned from charging ground rent to future leaseholders, under a new law that will lead to fairer, more transparent homeownership. It will also apply to retirement homes, which will come into force no earlier than 1 April 2023, and more details will be confirmed in due course.
Many landlords have already reduced ground rent to zero for homebuyers starting a new lease with them. Anyone preparing to sign a new lease on a home in the next two months should speak to their landlord to ensure their ground rent rate reflects the upcoming changes.
Agents should be ready to understand the implications and the material information they need to provide to consumers when these properties come on the market.
Measures which were announced in 2021, include a new right for leaseholders to extend their leases to 990 years at zero ground rent and an online calculator to help leaseholders find out how much it would cost to buy their freehold or extend their lease.
In addition, thousands of existing leaseholders have also already seen a reduction in their inflated ground rent costs. The Competition Market Authority (CMA) secured commitments with major homebuilders to stop doubling ground charges every year for leaseholders.
Ground rents frozen for thousands more leaseholders
Over 3,400 leaseholders’ ground rents will now remain at the amount charged when their home was first sold as 15 businesses have agreed to remove costly terms.
Leasehold Reform
The Leasehold Reform (Ground Rent) Act is the first of a two-part programme of legislation to reform the leasehold system and means that if any ground rent is demanded as part of a new residential long lease, it cannot be charged at more than the cost of one peppercorn per year. This is known as ‘peppercorn ground rent’ and effectively sets the rate to zero.
There will be selected exceptions from the Act. These are tightly defined and include applicable community-led housing, certain financial products and business leases.
The UK Government is analysing consultation responses on the potential reforms to the leasehold and commonhold system, following recommendations in the Law Commission’s reports published in July 2020.
UK Government plans to reform Leasehold and commonhold systems
The UK Government has launched a consultation seeking views on Law Commission proposals to allow more residential leaseholders in England and Wales to buy the freehold of their property or take over the management of their buildings.
These unfair and restrictive charges levied on leasehold homeowners have in some cases been allowed to become a cash-cow and abolishing them has been a long time coming.
Propertymark has been a strong campaigner on this issue and it was our investigation in 2018 that helped bring the scale of it to light for the first time, revealing the impact it was having on the housing market as leasehold homeowners struggled to improve or sell their properties as a result.
These changes only legally restrict ground rents on new leases, so we hope they are a catalyst for further reform by the housebuilding sector itself and the UK Government that will release over one million existing homeowners who remain locked into these agreements.
