Ground Rent Reform: Charges to be banned on new leases

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From 30 June 2022, UK ground rent charges will be banned on most new leases in England and Wales. This move by the government forms the first part of a leasehold reform package that is aimed to make homeownership fairer, cheaper and more secure.

What are leasehold properties?

Before talking about the details of the new ground rent reform, it’s crucial to understand what leasehold properties are. In the UK, most maisonettes and flats are sold as leasehold. With these properties, you are buying the property but not the land it sits on. This means the owner doesn’t own the home outright.

Instead, the lease provides the right to occupy it for a period of time, and a lease is granted for a fixed number of years. Leases for new-build homes are often set at 99 or 125 years, but these can go up to 999 years.

When owning a leasehold property in England or Wales, you typically have had to pay ground rent to the freeholder on an annual basis. In recent years, some lease clauses have meant freeholders could increase ground rents dramatically.

What does the new ground rent reform mean?

Under the new legislation, anyone buying a property in England and Wales on a new long lease will be freed of the annual costs of ground rent. In some cases, ground rent has cost hundreds of pounds every year, while there was no real service in return. This change will help property owners be able to manage their bills.

Some property developers have already reduced ground rent to zero for buyers starting a new lease. Anyone who is planning to sign a new lease on a property in the next two months should speak to the owner of the lease to ensure the ground rent rate reflects these upcoming changes.

What additional reforms are expected in the future?

Further leasehold reforms will likely include a new right for leaseholders to extend their leases to 990 years for zero ground rent. However, the government has yet to announce when this will take effect.

Thousands of existing leaseholders have seen a reduction in their ground rent costs though. The Competition Market Authority secured commitments from a few major homebuilders to stop the practice of doubling ground rents every year.

The landmark change to UK ground rent and the future change to lease extensions are important reforms and will benefit homebuyers, property investors and the property market as a whole.

Professional legal and financial advice should be sought when buying a leasehold property or extending an existing lease. Consult a solicitor about what these changes mean for you.

For more information about leasehold properties, or investing in UK property, please get in touch with our team of advisors.

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