Government announces ground rent reforms to benefit leaseholders

The Government has announced proposals to cut ground rents to help homeowners in leasehold properties.

Elizabeth Crouch Senior Associate Solicitor & Head of Residential Property provides an update.

Housing Secretary Michael Gove has launched a consultation that will set out options including capping ground rents at a so called “peppercorn” rate for existing leaseholders, freezing ground rents at current levels and capping the ground rents at a percentage of the property value.

He said some leaseholders can be faced with ground rent clauses in their leases which result in spiralling payments with no benefit in return and can cause issues for those who want to sell their properties.

The proposals are part of the Leasehold and Freehold Bill, announced in the King’s Speech.

The Department for Levelling Up, Housing, and Communities will consult on five proposals to decide the best way forward to benefit leaseholders. These are:

• setting ground rents at a peppercorn
• putting in place a maximum financial value which ground rents could never exceed
• capping ground rents at a percentage of the property value
• limiting ground rent in existing leases to the original amount when the lease was granted
• freezing ground rent at current levels.

The Leasehold Reform (Ground Rent) Act 2022 means that if any ground rent is demanded as part of a new residential long lease, it cannot be charged at more than the cost of one peppercorn per year – effectively setting the rate to zero.

The Secretary of State for Levelling Up, Housing and Communities, Michael Gove, said the Leasehold and Freehold Bill – which will be introduced to Parliament shortly, will also:

• make it cheaper and easier for people to extend their lease or buy their freehold
• increase lease extension terms to give people more security and peace of mind
• give greater transparency over service charges and insurance commissions
• make it easier for people to manage their building themselves.

If you would like advice about the legal aspects of buying or selling a home please contact Elizabeth on 01697 72378 or click here to send her an email.