The Queen’s Speech on 11th May saw the government set out its intention to introduce The Ground Rent Bill into Parliament. Briefly, new-build leaseholders of residential long leases will in the future no longer need to pay ground rent, other than a fixed ‘peppercorn’ amount.
Following the Queen’s speech the Ground Rent Bill was introduced into the House of Lords on the 12th of May.
The Bill is designed to tackle the inconsistency and ambiguity of ground rents for future leaseholders. It will ensure that leaseholders of new, long residential leases cannot be charged ground rent where there are no tangible services, making leasehold a more transparent and fairer system for homeowners. Ground rents will be set in law as a ‘peppercorn rent’, meaning that nothing more than a peppercorn can be sought from leaseholders. The provisions in the Bill will extend and apply to England and Wales.
The main elements of the Bill are:
- Restricting the charging of ground rents on new long residential leases.
- Enforcing the charging of a prohibited ground rent by way of a civil penalty regime, including fines of up to £5,000 for freeholders that charge ground rent in contravention of the Bill.
- Ensuring that there can be no financial demand for ground rent for all future qualifying leases, so that future leaseholders do not face unfair terms or significant ground rent liabilities.
- Having only selected exemptions, including:
- Some parts of the community-led housing sector, so they can retain the right to levy ground rent to maintain their ability to further promote community activities.
- Certain financial products which depend on leases where rent replaces interest-bearing mortgage payments, such as those drawn on by the older population for a type of equity release and the growing Islamic finance sector.
- Business leases, to allow people who need to live in the same premises as their workplace to continue to do this and agree with their freeholder the most beneficial and appropriate terms.
Why isn’t the government taking steps to ban ground rents outright?
If the government banned ground rents outright it would likely have far-reaching consequences that would affect non-residential leasehold properties.
To tackle the issue of ground rents in residential properties the government is legislating to require that ground rents have no financial demands and must be set at a genuine ‘peppercorn rent’ level, meaning nothing more than an actual peppercorn can be sought from leaseholders.
Why does the Bill only apply to future leases – what about existing leaseholders?
In January 2021 the government announced a package of leasehold reforms to help existing leaseholders with high ground rents. The reforms will be brought forward to address unfair practices in the leasehold sector in upcoming legislation this Parliament.
The proposed reforms will mean that any leaseholder who chooses to extend their lease on their home will no longer pay any ground rent to the freeholder. This will enable leaseholders to extend their lease without incurring any unnecessary or unfair expenses.
If you have an issue or concern with your ground rent you can get free advice and support by contacting us and speaking to an adviser. You can also find information online in our service charge/ground rent advice guide.
Will this legislation apply to shared ownership and Right to Buy leasehold properties?
Yes, the Ground Rent Bill will apply to shared ownership and Right to Buy leasehold properties once it comes into force.
What other steps are being taken to reform the leasehold sector?
The government is planning to bring forward further legislation in this session of Parliament to reform the process of enfranchisement. In addition, the government also intends to abolish marriage value and increase the length of statutory lease extension from 90 years to 990 years.
These steps are being taken to make it easier and cheaper for leaseholders to buy their homes. The changes will enable millions of leaseholders to extend their leases by a maximum term of 990 years at zero ground rent.
After reviewing the Law Commission’s report on Commonhold, the government is also committing to establishing a new Commonhold Council to prepare homeowners and the market for the widespread take-up of commonhold.
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