Ground rents to be banned on new leases from 30 June saving homeowners £100s/yr – here's what's happening
Ground rent is to be scrapped on new leases in England and Wales from 30 June when the Leasehold Reform (Ground Rent) Act takes force, the Government announced today (22 April). From this point, ground rent on new leases will never be more than a 'peppercorn' amount – in other words zero – resulting in a potential saving of £100s a year for future homeowners and some existing leaseholders.
Details of the ground rent shake-up were formally unveiled in January 2021 as part of a number of sweeping reforms for leaseholders. But the date from which the new ground rent law will take effect was only officially confirmed today. The ban on ground rent will also apply to future retirement homes – though this won't take force until at least April 2023 due to it taking longer for retirement developers to adjust their systems.
The Leasehold Reform (Ground Rent) Act is the first of two bills the Government is working on, with this one primarily benefitting future leasehold homeowners. A second bill, which is intended to make it easier and cheaper for existing leaseholders to extend a lease, is still at the consultation stage with no implementation date yet to be set.
There are estimated to be 4.6 million leasehold properties in England and Wales. The Government's changes don't, however, apply in Northern Ireland or Scotland, where different systems are in place.
Unsure of the difference between a leasehold and freehold property? See our Leasehold versus freehold guide.
Here's what the new law means in practice for leaseholders
- Ground rent to be abolished on new leases.
The new law that is set to take effect from July ensures that if you buy a leasehold property with a new lease, there'll be no ground rent to pay on it.
Ground rent is a fixed annual fee that many leasehold homeowners have to pay to their property's freeholder, essentially for the use of the land on which the property stands. Traditionally this was only a nominal amount, but the past 20 years has seen a rise in leasehold properties with ground rents of £100, £200 and £250 a year (sometimes more).
In recent years, the leasehold sector has also been beset with complaints about unfair lease terms after developers and freeholders started creating leases that caused ground rents to double every 10 or 20 years, which often made it harder for affected homeowners to sell or mortgage their properties – though some major developers have agreed to amend leases on homes that have these onerous ground rent terms.
- Ground rent is also to be abolished on informal lease extensions.
For existing leaseholders, the new law also means that if you decide to extend your lease informally (though for most people the formal lease extension route is always the advised route), the freeholder who owns the lease will be not able to increase your ground rent for the remaining period of your lease term. From the moment the existing lease term expires and the new term takes effect, the ground rent will revert to zero.
However, while leaseholders who need to formally extend their lease will continue to automatically see a minimum of 90 years added to the length of their lease and any ground rent reduced to zero – this will still cost them £1,000s, sometimes £10,000s, depending on the lease's current length. The Government's second leasehold bill aims to make this process easier and cheaper, though we don't know yet when it will come in.
If you're a current leaseholder, our Should I extend my lease? guide walks you through exactly how leases work, why it's vital to NOT to let them drop below 80 years in length, and step-by-step info on how to extend them – including an indication of costs.
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