Joanne Wood
Legal
Ground rents to be capped at £250.00 per year for leaseholders
The Leasehold Reform Act 2022 put an end to ground rents for all new residential long leases granted on or after the 30 June 2022 in England and Wales, however this did not apply to existing leases.
Ground rent is an annual payment due under a residential long lease to the freeholder of the building, and whilst some leases have fixed ground rent, many others have ground rents which cannot easily be calculated or determined.
Leases with doubling ground rent clauses, unusual escalating ground rent provisions, or ground rents which are calculated with RPI inflation can affect a borrower’s ability to obtain a mortgage, and many flat owners are finding themselves with flats which they cannot sell.
For many years there has been a call in the industry for sweeping changes to be made in this area, and whilst the changes which were implemented by the Leasehold Reform Act 2022 were very welcome, this only applied to new leases.
Today the Government have announced that that ground rents are to be capped at £250.00 a year for existing residential long leases in England and Wales. The reforms will be published in the draft Leasehold and Commonhold Reform bill, which will be introduced on Tuesday. BBC news has reported that the bill will now be scrutinised by MPs on the Housing Committee before making its way to Parliament, with the Government suggesting that the cap could come into force in late 2028.
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Joanne Wood
Paras Mercioniu
Dawn Verney from our Residential Property team said:
“Whilst many in the industry have been calling for all existing leases to be reduced to a peppercorn ground rent, much like the grant of any new leases under the 2022 Leasehold Reform Act, the capping of ground rent to £250.00 per year, on all existing residential long leases, will come as a welcome relief to many flat owners. This will be particularly welcome to those who have had trouble in selling their flats due to escalating or doubling ground rent provisions, which are unacceptable to many lenders.”