Proposed leasehold reform – No more ground rents for leaseholders

On 7th January 2021 the UK government announced that leaseholders will be given a right to extend their leases by a maximum term of 990 years and zero ground rent.

Robert Jenrick, the Secretary of State for Housing, Communities and Local Government, said:

“Across the country people are struggling to realise the dream of owning their own home but find the reality of being a leaseholder far too bureaucratic, burdensome and expensive.

We want to reinforce the security that home ownership brings by changing forever the way we own homes and end some of the worst practices faced by homeowners.

These reforms provide fairness for 4.5 million leaseholders and chart a course to a new system altogether.”

When you buy a leasehold property, you are often faced with a ground rent that must be paid to the freeholder. Ground rents can vary depending on the building, but they can be extremely high.

This is not the first time ground rent issues have arisen, as several years ago lenders refused to lend on leasehold properties that had increased ground rent, including doubling every ten years. This means that many owners of leasehold properties were unable to sell their property due to a clause in the lease which means the ground rent only rises.

Paying ground rent combined with a mortgage can be extremely onerous and it can make an owner feel they are paying charges to the freeholder on a property they already own. As property lawyers, we believe these changes to ground rent are long overdue and come as part of the biggest reforms in property law in over forty years.

What do the new reforms mean?

Under the new legislation leaseholders will have the right to extend their lease for 990 years and pay no ground rent to the freeholder. Additionally, leaseholders have often faced expensive charges to extend their lease and this will be reduce meaning the freeholders will not profit from extending a lease like they have done up until now. Leaseholders have often been unable to sell their lease to a buyer using a mortgage as most lenders will not lend on any lease that has a term of 55 years, which means that owners had no choice but to extend the lease if they wanted to sell to a buyer.

The Law Commission wants to move the system to commonhold, where owners will own the freehold of their individual apartment. They will not have to pay ground rent and have more control over how their building is managed.

The new reforms will help reduce the disparity between freehold and leasehold ownership and would simplify the law on extending a lease.

Natasha Lewis specialises in all aspects of buying and selling property – including leasehold and lease extensions and transferring ownership. To contact Lewis Denley’s Residential Property team, please contact us here.