Why the new ground rent rules aren’t enough 

From 30th June 2022, the government’s Leasehold Reform Act will take force, meaning ground rent charges will be banned on most new residential leases. Here’s why it might not be enough...

The Leasehold Reform Act is a new law set to take effect from July. It will mean anyone buying a leasehold property on a new long lease won’t have any ground rent to pay, which could mean over £100 worth of savings each month.

However, the law currently only covers properties with a new residential lease and therefore will only help future homeowners, not those with an existing leasehold property or those buying a property that has an existing lease.  

A ‘leasehold property’ means you own the property, but not the building or land and therefore you must pay an amount of ‘ground rent’ each month to the freeholder who owns the land. The alternative to a leasehold property is a ‘freehold property’, which means you own the building and the land it sits on.

While the new law is certainly a step in the right direction and will work towards reforming the leasehold system, it does pose a few problems for the more immediate future.  

In recent years, the leasehold sector has gained a very bad reputation due to unfair lease terms. Some developers and freeholders started creating leases that caused ground rents to double every 10 or 20 years to an uncapped amount, which often made it hard for those homeowners to sell or even mortgage their properties.  

Some of the bigger developers have agreed to amend leases like this so they are fairer, but the prices are still very high each month and the new law does nothing to support people affected by these leases and it’s very likely this will lead to a divide in the leasehold property market.  

Here’s an example to put it into perspective.

If you are a buyer who has a choice between two leasehold properties – one on a new lease with no ground rent or another with an old lease and £150 of ground rent to pay each month - naturally the one with the new lease will be more attractive because it’ll be much more affordable for you over the long term.  

Now imagine you are the homeowner of the property with the £150p/m ground rent and you’re looking to move. In order to compete with the new leasehold properties on the market that have no ground rent, it's very likely you would be forced to agree a discounted rate to account for the added cost of ground rent with your home, which doesn’t feel very fair.  

Looking at it this way makes it pretty clear why we don’t think the new legislation is enough as it stands. It’s undoubtably great for the future generation of homeowners, but it’s leaving existing leasehold homeowners unprotected and subject to either potentially sharp increases in their ground rent or forced to sell their home for less than they may like.  

If you are a homeowner with an existing lease, unfortunately there’s nothing in the current bill to directly help you right now. However, it has been reported that the government is working on a second bill which will include a new right for you to extend your lease to 990 years at zero ground rent, and as well as an online calculator to help you find out how much it would cost to buy your freehold or extend your lease.  

Unfortunately, it is still at the consultation stage with no implementation date set but hopefully this will be next to follow in the very near future, and we can say a proper goodbye to ground rent issues once and for all.  

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