The leasehold reform bill, designed to restrict ground rents for future leaseholders, has now become law.
After passing through the Commons and the House of Lords, the Leasehold Reform (Ground Rent) Bill received Royal Assent, making it an Act of Parliament.
The Act will restrict ground rents on most new long residential leases in England and Wales to the value of zero, or as otherwise known, a token “peppercorn” rent per year.
Although the new law effectively abolishes ground rents on new leaseholds, it does not currently extend to existing leaseholders.
A second bill has been promised in future to address issues with existing leases. Timeframes have yet to be announced but Lord Greenhalgh has committed to the commencement date for this bill being within six-months of Royal Assent.
Commenting on the progress made Eddie Hughes, Parliamentary Under-Secretary of State for Rough Sleeping and Housing said:
“I am delighted that we have put an end to ground rent charges for future homebuyers, as our ambitious reforms become law.
“This truly monumental change will set ground rent to zero on new leases from this summer – providing real life benefits to future leaseholders and saving them hundreds of pounds a year.
“This is the first step in a whole raft of government reforms to protect leaseholders and end unfair practices in the market.
“We continue to work towards making it easier, quicker and cheaper for leaseholders to buy their freehold or extend their lease.”
The passing of the Act comes as welcome news for new leaseholders but property experts have criticised it for excluding existing leases from the ban. Industry leaders say this still leaves a large number of leaseholders facing unmanageable and extortionate ground rents each year.
Jonathan Frankel, head of the Property Litigation Department at Cavendish Legal Group, said:
“Although this new legislation will mean anyone purchasing a property with a newly created lease will have their ground rent limited to a nominal sum of one peppercorn per year, it does not address the problems that millions of existing leaseholders are facing with their ground rents.
There is no certainty on a date for the introduction of a second bill, that may well incorporate some or all of the proposed reforms from the Law Commission. Meanwhile, existing leaseholders still have to contend with rising ground rents that make their property difficult to sell.
For existing leaseholders unwilling to keep their lives on hold any longer, the only viable way forward will be to seek own legal solutions through leasehold enfranchisement. This would involve claiming a statutory lease extension in order to turn their ground rent into a peppercorn, and would enable them to resolve their situation without having to wait for further legislation to go through.”
Linz Darlington, CEO of Homehold, commented:
“The passing of the Leasehold Reform Bill through both houses of Parliament is excellent news for future leaseholders – it will ensure that they do not find themselves in the same situation as those existing leaseholders who have ground rents escalating to tens of thousands of pounds per year.
The bill does nothing to help existing leaseholders, and if it is not followed swiftly by further reform, could make their situations worse.
By banning ground rents on new leases, leaseholders of flats with ground rents will essentially find that their properties become second-class assets – making them harder to sell and mortgage.
This was the opening of a window of opportunity where freeholders will be able to incentivise leaseholders to accept terms on lease extensions and new leases which will soon be illegal. Despite protestations from both Liberal Democrat and Labour Lords, an amendment to introduce a safeguard to stop that happening was withdrawn.
In order to improve the situation for existing leaseholders, we need the second part of the reform to be introduced without delay. It is disappointing that when pressed on whether this second bill would be in the next Queen’s Speech, Lord Greenhalgh refused, simply stating “I cannot give a commitment about what will appear, but my expectations are that leasehold reform will be front and centre around his [Michael Gove, secretary of state for housing] ambition for a wider reform of housing.”
17 responses
Clients are bound to ask conveyancers whether it is now safe to buy leasehold homes.
The website of the Leasehold Knowledge Partnership (which administers the All Party Parliamentary Group for reform of leasehold and commonhold ) shows that much is still uncertain
The conveyancing sector should come together to promote consistent, consumer-friendly advice
One step closer to resolving unfair leasehold practices. This has been anticipated for some time and developers have been changing their practices to fall in line for the most part.
However, more of an issue is the existing housing stock and finding that your property has effect become toxic.
Pursuing a lease extension is not an option for many home owners and they are potentially left in an untenable position.
I anticipate this will lead to further claims or attempts to claim against conveyancers who acted in good faith at the time of purchase in a situation which, at the time, was acceptable and normal practice.
A retrospective second bill is needed urgently to level this playing field and place all in the same position. Otherwise we solve one issue whilst creating a much larger and wider one.
Has any progress been made for existing leaseholders or has this been swept under the carpet.
My daughter has just lost her sale because of ground rent issues after spending £1500 getting to within weeks of exchange of contracts.
It’s a disgrace to deal with new builds and leave so may other people unable to sell or frightened to purchase.
Absolutely disgraceful cop-out by the housing minister. Makes one wonder who is lobbying who these days !
This is totally unfair all existing leases ground rent should also be dropped to zero
It’s really important for existing leaseholders, like myself, for the second part of the reform to be introduced without delay. The increasing ground rent are making our property harder to sell and mortgage.
It’s so unfair we need all existing leases ground rent also be dropped to zero.
The landlord are taking advantage with these ground rents in every way, it need to stoped.
There’s no time like the present…
We now have a new King, a new Prime Minister and a new Secretary of State for Housing;
Surely this presents us with a powerful and undeniable opportunity to raise the ground rent issue again on behalf of existing leaseholders?
I wonder how many of those who govern us have a financial interest in keeping things the way they are.
It is all very well passing a new act to protect new buyers from the archaic practice based on medieval rules to protect the crown from losing control and receiving payment for land that a building now stands on. The millions of existing leases have a ground rent and increases within the lease that allows landlords to charge substantial ground rent, rising over time for doing absolutely nothing bar raising an invoice legally payable by the so called tenant.
It is daylight robbery and needs urgent reform by the government. We hear a member of the House of Lords does not know when a new Act will be presented on this matter and Parliament seems not to care. Outrageous.
The law must be extended to include ALL of the existing leaseholders, they should really have been the first to benefit from any leasehold reforms, especially the very large number of older people who are still being ripped off with ground rent and exorbitant management fees that they receive NOTHING in return for.
Totally agree
the problem most leaseholders face is not ground rent but unreasonable demands towards reserve funds contributions which freeholders claim as essential and inflate the prices in one lump sum and not through a gradual process
Parliament needs to expedite the law to get rid of ground rent payments. This is an unfair and extra burden of those having to pay this on top of monthly mortgage payments.
Ground rent should be banned not only for new but also for existing leaseholders and hope Michael Gove will see the injustice of this and have this passed through Parliament. Agree totally with comments above this should be dropped to zero.
Why would they just ban it for new leases but not existing ? is this not bias , there are millions of homeowners with this issue and no way of getting out of it with out this reform , it should have been abolished for all leaseholders old and new I am confused why this has not been done in one go ? this would surely be more beneficial in the long run as people would not hesitate in buying apartments in the future but now as it stands is a minefield & a risk very off putting making the market stagnant and the homeowners stuck .
I recently lost a buyer for my property due to periodic ground rent charges. In order to raise funds for fire stopping works (new government legislation) I applied for a lifetime mortgage which was declined due to existing ground rent charges.
I now have to attempt to apply for a statutory lease extension in order to take advantage of zero ground rent on a new lease. Does anyone have an idea of the cost of this?
How do we lobby to make this new rule fair and include ground rent payees from pre June 2022?
As stated by all above it is unfair and arbitrary to abolish ground rent from one date and not include others.