Govt scraps ground rent for millions of leaseholders

Govt scraps ground rent for millions of leaseholders
Credit: Ian Forsyth/Bloomberg

Leaseholders will be given the right to extend their lease by up to 990 years at zero ground rent under government plans announced today.

The changes mean that a leaseholder who chooses to extend their lease will no longer pay any ground rent to the freeholder.

Many people face high ground rents under the current law, according to the government, with freeholders able to increase ground rent with “little or no benefit” to leaseholders.

Article continues after advert

The government said the changes will benefit 4.5m people, who could save "thousands to tens of thousands of pounds".

Housing secretary Robert Jenrick 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 4.5m leaseholders and chart a course to a new system altogether.”

A freeholder owns both the property and the land it stands on, while leaseholders only own the property.

Under current rules, leaseholders of houses can only extend their lease once for 50 years with a ground rent. This compares to leaseholders of flats who can extend as often as they wish at a zero ‘peppercorn’ ground rent for 90 years.

In a report in July the Law Commission said there was “no reason” for leaseholders’ rights to diverge, and recommended a uniform right to extend a lease for all qualifying leaseholders.

Both house and flat leaseholders will now be able to extend their lease to a new standard  990 years with a ground rent at zero.

In its report the Law Commission said an extension of 990 years would ensure that a lease only needs to be extended once.

The government is also introducing a cap on ground rent payable when a leaseholder chooses to either extend their lease or become the freeholder. An online calculator will be introduced to help leaseholders determine the cost of doing so.

Furthermore, the government will restrict ground rents to zero for retirement leasehold properties (homes built specifically for older people), so purchasers of these homes have the same rights as other homeowners.

Beth Rudolf, director of delivery at the Conveyancing Association, said: “The announcements by the government today are a fabulous first step towards resolving those issues and we look forward to hearing the ministry’s plans and timetable to introduce the required legislation.”

Natasha Rees, partner and head of property litigation at Forsters, said the proposed reforms would give “significant comfort” to leaseholders who are subject to onerous ground rents.

But Ms Rees warned: “Given that significant changes will be required to what is very complex legislation it is likely to take at least a year before this happens. In the meantime, leaseholders are likely to bide their time.”