Leasehold ground rent

The Leasehold Ground Rent Bill will become law later this year, and is set to revolutionise the law on leases in England and Wales. 

The current position is that under a lease agreement, a tenant has to pay ground rent to the landlord, usually on an annual basis. There has been a growing trend in recent years for ground rents to double every five or ten years, which had led to owners of leasehold properties being stuck in properties which they can't sell. The aim of the new law is to ensure that more people are not caught in the same trap. 

The reforms will make it law that the ground rent will be set to zero for all new leases granted, starting from the date the Act receives Royal Asset. It had been proposed that ground rent should be zero for current leases as well, although unfortunately that has not happened. We will need to wait and see whether anything can be done to help those caught in the ground rent trap in the future. Their only option at the moment is to sue conveyancing solicitors who failed to advise about ground rent, which can be time consuming. 

The new ground rent is set at "one peppercorn", a historical rent which effectively has a zero value. This will be hugely beneficial for those looking to buy a leasehold property as they will no longer have to pay rent which can amount to several hundred pounds a year initially, with the ability to double over many decades.

If owners of freehold property try to impose ground rents, the leaseholder will be able to apply to the First-Tier Tribunal to have the ground rent term changed to a peppercorn. If wrongly claimed ground rent is not returned to the leaseholder within 28 days, the freeholder can be liable for a fine of £500-30,000 per lease. Therefore, it is important for landlords to understand the requirements of the legislation before it becomes law.

Freeholders and landlords will also not be able to seek any "administration fee" for collecting the peppercorn rent from the leaseholder, in case any landlords saw this as an opportunity to claw back what they might have been expecting to receive in ground rent.

The new act will apply to new shared ownership properties where the tenant does not own the whole of the property. There are some exceptions, including community led housing and business leases, where it will remain permissible for ground rent to continue to be claimed by landlords.

With regards to leases which require extensions, the new law will take effect once the lease is within the extension period. The landlord can continue to request ground rent for the length of the original lease only, and once the lease is within the extension period, the landlord or freeholder must request only a peppercorn rent.

This new act could have an impact on developers, as they will no longer be able to charge ground rent for years to come on the properties that they sell. Buyers of leasehold property with ground rent clauses would be well advised to delay their purchase until this summer, if that is possible, when the bill is expected to  pass into law.

Overall, once the bill becomes law, this will be a positive change for those looking to buy a leasehold property, as they will not have to deal with uncertainty and problems associated with ground rent charges. However, existing owners of leasehold property may have to wait longer before the government decides to help them.

If you want to talk to an expert lawyer about buying or selling your leasehold property, or if you own a leasehold property with an unfair ground rent clause, contact us today to find out how we can help you.