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October 3, 2018

Leasehold Reform Proposals – Ground Rents

It is estimated that there are over 5 million leasehold properties in England and Wales – around 20% of the total housing stock. Approximately 60 per cent of all leasehold properties are privately owned, which makes around 3 million of us leasehold property owners.

Given these figures, it is unsurprising that there has been much media interest in the recent government proposals to reform what it describes as “unfair practices in the leasehold market.” One of these so-called unfair practices is the charging by landlords of relatively high, and often escalating, ground rents.

Ground rents are annual payments charged to the tenant, usually a flat owner, for the occupation of land and they date back to Roman times.  Traditionally they were nominal, often a peppercorn or even a white rose, but in recent years they have increased significantly and are now seen as a substantial source of income for landlords.  The new levels of ground rent charged, coupled with the fact that leases invariably allow landlords to increase them over time, has led to concern, particularly amongst mortgage lenders, that the value of properties is adversely affected. This in turn has led to lenders refusing to lend and property owners finding themselves unable to sell.

In July 2017 the government launched a consultation, which included questions on ground rents, followed by a response to feedback published in December 2018. This response suggests that the government intends to introduce legislation limiting ground rents on new leases to a peppercorn. What is currently unclear is how any such legislation will affect existing leases.  At least one national house builder has already taken the proactive step of financing lease variations for original buyers of flat sold with ground rents doubling every 10 years.  It remains to be seen whether or not others follow.

Our residential conveyancing team is highly trained on all aspects of leasehold properties and we are closely following all developments in this area.

For more information on this topic please contact Danielle Parles on 01604 683 825.

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