The Definition of a Ground rent is the “rent 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 a ground rent has been a standard payment that a tenant must pay annually to a Landlord where there is an agreement for a long lease of a property. https://www.gov.uk/leasehold-property explains the nature of a leasehold property which usually means you are buying a residential flat, although some developers have been selling recent new-builds under leasehold contracts.
A problem has arisen due to some Landlords have put into the lease an unreasonable escalating ground rent during the term of the Lease. The Leasehold Reform (Ground Rent) Act 2022 became law on the 30th June 2022 and has been brought in to prevent the Landlords charging such an unreasonable rent. From this date, anyone buying a home on a new long lease will no longer be subject to a landlord charging ground rent.
There are however a number of important issues to consider:
- The law does not have retrospective effect
- The law does not apply to lease extensions that are dealt with by agreement.
- The downside of the new lase is that there is now a dual market with new leases compelled to have a peppercorn ground rent but there are old leases for properties where Landlords are permitted to continue to charge a ground rent
- Given that landlords are losing a potential income stream they may look to new service charge provisions and the payment of management fees as replacement.
This significant change in the law is only part of a series of a government’s reform package aimed at making homeownership cheaper, fairer and more secure. Proposed reforms that are also:
- An entitlement for leaseholders to extend their leases to 990 years at zero ground rent and reduced costs;
- The abolition of marriage value.
- The capping of ground rents at 0.1% of the freehold value and prescribe rates for the calculations at market value.
- Changes as to the way a premium is calculated.
- Allow for redevelopment breaks during the last twelve months of the original lease , or the last five years of each period of ninety years of the extension to continue , subject to existing safeguards and compensation. • Enabling leaseholders of long residential leases to buy out the ground rent without the need to extend the lease term.
If you are intending to buy a leasehold property you will need to consider carefully what is your best option for you and ,if you decide to buy a property with an existing ground rent , you should discuss with your Solicitor the potential options you may have to change the ground rents that are payable under this lease.
