What is Ground Rent?
Ground Rent is paid under the terms of a lease by the owner of a building to the owner of the land on which it is built. Traditionally, the owner of a leasehold property pays money to the owner of a freehold property.
Ground Rents on leasehold properties have caused many problems over the years. With some doubling in such a manner as to create what can only be described as truly extortionate financial commitments. The way this has interlocked with other Acts of Parliament has also meant that on missing, or late payment, some leaseholders could have their ownership of their property forfeited in a similar fashion to a non-paying tenant.
To add to the problems, many mortgage lenders (in the interests of protecting their security) will not lend on properties where ground rent exceeds a certain value. This has meant property owners could find themselves in a situation whereby they are unable to sell their property as no potential buyer can raise the finances to purchase.
On 08 February 2022 the new Leasehold Reform (Ground Rent) bill received Royal Assent. Officially making it an Act of Parliament. An aim of the Act is to address this problem by reducing ground rent to what is known as a “peppercorn rent”. Effectively making the ground rent payment nothing. With freeholders who do not adhere to the new rules getting their leases amended and also facing fines of between £500 and £30,000.
When does the Ground Rent Law come into place?
The new law means that ground rents on new non-retirement leasehold properties will have to be effectively zero. Further regulations will be created to deal with the detail of the amendments and it is currently anticipated that everything will be in place to take effect from 30 June 2022. There are also changes coming in for retirement homes (expected to be introduced on or around 01 April 2023).
There are some exemptions that deal with specific types of leasehold and also lease extensions but this article is intended to be a quick update and not a full scale lecture and these may be addressed in future articles.
Unfortunately for existing leasehold property owners the Act is not retrospective, meaning that whatever terms are already in your lease applying to ground rent will remain in force. There are however means to try and reduce this. It will be dependent on your individual circumstances and should be discussed with a member of one of our conveyancing teams.
For those currently buying
Most developers are already making ground rent a peppercorn rent in anticipation of the forthcoming law coming into effect. However, you should check with your conveyancer. All new leases prior to summer 2022 can still currently contain clauses that charge the leaseholder and can still be subject to doubling or other troublesome issues.
Further good news for leaseholders paying ground rent
Due to action by the Government together with the Competition Market Authority, some major homebuilders have already agreed to stop doubling ground rent charges for leaseholders on existing leases.
All of this continues the move by the Government to try and make leasehold properties more attractive to buyers. Which also includes:
- proposed future measures to create longer leases,
- and remove ground rent provisions,
- as well as adjustments to the process for leaseholders to purchase the freehold (in cases such as blocks of flats).
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