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The Leasehold Reform (Ground Rent) Bill

23 November 2021

The Leasehold Reform (Ground Rent) Bill is intended to put an end to ground rents for new qualifying long residential leasehold properties.

Currently, freeholders can charge as much as the lease allows and take enforcement measures if not paid. In some situations, an unpaid ground rent can lead to forfeiture of the lease. Ground rent has therefore been causing concern for leaseholders and equally many lenders have been concerned about high and escalating ground rents. Leaseholders subject to high ground rents can feel trapped paying high fees and any potential buyer will be unlikely to be able to raise a mortgage if
the ground rent is over £250 per annum.

On 12 May 2021, the Leasehold Reform (Ground Rent) bill was introduced in the House of Lords to set future ground rents to zero (“a peppercorn”). The bill is currently waiting for the third reading in the House of Lords before being passed to the House of Commons.

The bill, as currently drafted, prevents a new lease from requiring the leaseholder to pay a “prohibited rent”. This is a ground rent of any more than a peppercorn, meaning future leaseholders will not be faced with financial demands for ground rent. The bill goes on to also ban freeholders from charging administration fees for the collection of rent.

This will put future leaseholders in a better financial position and abolish the annual financial payment to the freeholder with no tangible service received. The bill goes on to set out a maximum financial punishment of £5,000 for freeholders who try to charge a prohibited rent. The bill currently therefore protects new leaseholders financially.

The bill does not rectify all the issues with some modern leases, but it does deal with the problem of escalating ground rents and the cost this can have.

The prohibition of ground rent will likely prevent freeholders from selling freeholds as an investment to third parties. The implication this will have on a developers’ desire to build leasehold properties is unknown; this will close an income stream for them, which encourages leasehold developments.

The intention of the bill to make the leasehold system fairer and hopefully end the sale of freeholds as a financial investment is clear.

Currently, it’s a step in the right direction, but the bill is not yet in force and could be subject to changes before being enacted.

For concerned leaseholders, there are in some circumstances potential options available, such as a deed of variation or a statutory lease extension.

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Disclaimer: All legal information is correct at the time of publication but please be aware that laws may change over time. This article contains general legal information but should not be relied upon as legal advice. Please seek professional legal advice about your specific situation - contact us; we’d be delighted to help.
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