Relief for future Leaseholders with imminent ban on Ground Rents

The Government is taking action to assist future homeowners, and to rid them of annual rent costs known as ground rent.  From 30^th June 2022, the Leasehold Reform (Ground Rent) Act 2022 will come into force, following which anyone buying a home on a new long lease will now be freed from these annual costs.

The decision taken by the government to ban ground rent being charged on new leases in England and Wales, can be traced back to the early 2000s, when property developers in larger numbers than had previously been the case, started to retain ownership of freeholds and only sell their properties as leaseholds.

Homeowners found themselves facing ground rent payments which having seemed reasonable initially, would then double every few years to a not insignificant annual payment, for which they received nothing in return.

Under the new legislation landlords will only be able to charge a nominal ‘peppercorn’ ground rent in any new long leases of residential property.  The legislation will apply to new leases of a single residential dwelling, for a term of more than 21 years in length, granted for a premium.

In addition, landlords will be banned from charging administration fees for collecting any ‘peppercorn’ ground rent.  Anyone found to be breaking the new rules could find themselves facing fines of as much as £30,000.

The delay between the new law being announced and coming into force has meant that some homebuyers may be looking to delay any purchase until after the 30^th June deadline.  To keep purchases moving, many landlords have already started reducing any ground rent to zero for anyone starting a new lease which would be caught by the leigislation.

Homebuyers contemplating signing a lease between now and 30^th June should consider speaking to their landlord and ensure the rate of ground rent being imposed reflects the upcoming changes.

Home ownership reforms in the pipeline

The ban on ground rents for new leases is intended to be only the first of a number of reforms to the system of home ownership.

Further measures the Government has pledged to introduce include the right for leaseholders to extend existing leases to 990 years at zero ground rent, and the introduction of an online calendar to help leaseholders work out how much it will cost to extend their lease or purchase their freehold.

While changes that will impact mainly on new homebuyers have been introduced or promised, the Competition Market Authority (CMA) has been engaged in investigations into the impact on existing leaseholders.

The result of this investigation has been to secure commitments from developers such as Aviva, Persimmon, Countryside Properties and Taylor Wimpey to return any ground rent payable on their properties to the rate as it applied when the property was originally purchased.

At the time of writing the CMA is still involved in investigations into the developers Barratt Developments and Brigante Properties, along with investors Abacus Land and Adriatic Land.

The ban on ground rents for new residential leases will also apply from 1^st April 2023 to retirement homes, with more details on how this particular ban will operate to be released in due course.

If you have concerns about your leasehold arrangements, please get in touch with Elaine Durkin, Joint Head of Residential Conveyancing here at Ansons, Elaine can be contacted on 01543 431180 or by email: edurkin@ansons.law

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