Government proposals to slash Ground Rents

At present, some leaseholders are faced with controversial ground rent clauses in their leases which can result in payments that spiral upwards, with no benefit in return, and can often prove to be majorly problematic for homeowners when they come to sell their properties.

These latest proposed changes are part of the Government’s manifesto commitment to create a fairer system for millions of leaseholders and they are also an integral part of their key long-term plan for Housing.

These suggested changes were confirmed as part of the Leasehold and Freehold Bill in the recent King’s Speech.  The Department for Levelling Up, Housing, and Communities will consult on five proposals to decide which is the best way forward  that could benefit leaseholders. They include:

• Setting a peppercorn ground rent i.e. one that is particularly low.
• Putting into place a maximum financial value which ground rents could never exceed.
• Capping ground rents at a percentage of the property value.
• Limiting ground rent in existing leases to the original amount when the lease was granted.
• Freezing ground rent at the current levels.

These proposals will build on the changes that the Government has already introduced in order to tackle the problem of high ground rents for future homeowners.

The Leasehold Reform (Ground Rent) Act 2022 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 – effectively setting the rate to zero.

Michael Gove said: “People work hard to achieve the dream of homeownership. They plan, toil, sacrifice, save and should rightly be proud to get on the housing ladder.

“However, far too many are burdened with onerous ground rents – these punitive charges can leave some paying thousands of pounds a year for nothing in return.

“Ground rent can feel like an annual reminder that you do not own the land your home stands on, that your lease on it is finite, and that there is a payment for the privilege of staying there.

“We are taking further steps to right that wrong – consulting you, the public, about how best to change this system so leaseholders are not exploited any longer and can take back control of their own destiny.”

The proposals announced last week form part of the government’s long-term plan for housing to liberate leaseholders from the often outdated and unfair leasehold system which leaves many facing extortionate bills over the years.

The Leasehold and Freehold Bill – which will be introduced to Parliament shortly and is expected to make these improvements:-

• To make it cheaper and easier for homeowners to extend their lease or buy their freehold.
• To increase lease extension terms thus giving homeowners more longer term security and peace of mind.
• To ensure there is greater transparency over service charges and insurance commissions.
• To make it simpler for people to manage their building themselves.

This public consultation will be open for six weeks and the Government will be expected to cautiously and accurately consider all responses to make a fully informed final decision, as they aim to introduce widescale reforms through the Leasehold and Freehold Bill.