Government reforms to ground rent for leasehold ownership

Julia Madden, 11th January, 2021

Government reforms to leasehold ownership provides fairer and more secure home ownership for leasehold proprietors

Millions of householders in England own their homes on a leasehold basis and pay an annual ground rent to the freeholder of the property. Typically, this ground rent is set at a low “peppercorn” rate, however some developments of leasehold homes contain clauses in the leases which provide for the rents to rise at regular intervals using various formulae. Furthermore, freeholders can increase ground rents whilst failing to offer any benefit to leaseholders. As a result, the leasehold system has become a source of contention as property owners are faced with increasingly high ground rents and costs for extending their lease, sometimes leaving them unable to sell their homes.

What are the changes?

Following recent Law Commission recommendations, millions of leaseholders in England will now be given the right to extend their lease by up to 990 years at zero ground rent, in a government bid to make leasehold home ownership “fairer and more secure”.

Currently, leaseholders of houses can only extend their lease once for 50 years and pay a ground rent, and flat owners are able to extend their lease multiple times with a peppercorn rent for 90 years. Under the reforms, both leaseholders and flat owners will be able to extend their lease up to 990 years with zero ground rent, and all new retirement properties will be sold without a ground rent.

Additionally at present, extending a lease currently comes at a cost, however under the reforms, the government has advised that it would alter the way that these costs are calculated, including the removal of costs such as the “marriage value”, which allows the freeholder to share any potential profit from an extension with the leaseholder.

When will these changes be implemented?

Legislation on ground rents is planned for this parliamentary session. As a result, many leaseholders who are currently contemplating a lease extension may be best advised to ‘bide their time’ until the details of the legislation are revealed; given that significant changes will be necessary to complex legislation, it is likely that the proposed reforms will take some time before they are incorporated into law.

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Contact the author: Julia Madden

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