Proposals to slash ground rents and save homeowners thousands have been unveiled by the government.
Housing secretary Michael Gove has launched a consultation that will set out options including capping ground rents at a so called “peppercorn” rate for existing leaseholders, freezing ground rents at current levels and capping the ground rents at a percentage of the property value.
Some leaseholders can be faced with ground rent clauses in their leases which result in spiralling payments with no benefit in return, and can cause issues for those who want to sell their properties.
The changes deliver on the government’s manifesto commitment to create a fairer system for the millions of leaseholders and form a key part of the government’s Long Term Plan for Housing.
Confirmed as part of the Leasehold and Freehold Bill in this week’s Kings Speech, the Department for Levelling Up, Housing, and Communities will consult on five proposals to decide the best way forward to benefit leaseholders. These are:
- Setting ground rents at a peppercorn;
- Putting in place a maximum financial value which ground rents could never exceed;
- Capping ground rents at a percentage of the property value;
- Limiting ground rent in existing leases to the original amount when the lease was granted; and
- Freezing ground rent at current levels.
This work builds on changes the government has already introduced to help tackle high ground rents for future homeowners.
The Leasehold Reform (Ground Rent) Act 2022 means that if any ground rent is demanded as part of a new residential long lease, it cannot be charged at more than the cost of one peppercorn per year – effectively setting the rate to zero.
Gove said: “People work hard to achieve the dream of homeownership. They plan, toil, sacrifice, save and should rightly be proud to get on the housing ladder.
“However, far too many are burdened with onerous ground rents – these punitive charges can leave some paying thousands of pounds a year for nothing in return.
“Ground rent can feel like an annual reminder that you do not own the land your home stands on, that your lease on it is finite, and that there is a payment for the privilege of staying there.
“We are taking further steps to right that wrong – consulting you, the public, about how best to change this system so leaseholders are not exploited any longer and can take back control of their own destiny.”
The proposals announced yesterday form part of the government’s long-term plan for housing to liberate leaseholders from the unfair and outdated leasehold system.
The Leasehold and Freehold Bill – which will be introduced to Parliament shortly, will:
- make it cheaper and easier for people to extend their lease or buy their freehold;
- increase lease extension terms to give people more security and peace of mind;
- give greater transparency over service charges and insurance commissions; and
- make it easier for people to manage their building themselves.
The public consultation will be open for six weeks and the government will carefully consider all responses to inform the final decision, as we aim to introduce reforms through the Leasehold and Freehold Bill.
Info below via Google:
The term peppercorn is said to have actually come from 16th/17th early century leases where the rent was, in fact, a single peppercorn a year. The spice was so highly valued that it was often used as a form of currency, and it played a significant role in the expansion of the Roman Empire.
The Leasehold Reform (Ground Rent) Act 2022 means that if any ground rent is demanded as part of a new residential long lease, it cannot be charged at more than the cost of one peppercorn per year – effectively setting the rate to zero.
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It’s the only way moving forward, especially for flats.
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It’s about time that the rules were changed to deal with existing leases. I wrote about this two years ago https://www.property118.com/ground-rent-reform-a-sledgehammer-to-crack-the-wrong-nut/ . At present, charging a £5pa ground rent in a new lease leads to a massive fine but buying a reversion with a ground rent that will double to tens of thousands of pounds a year is fine.
However, it would be sensible to allow more than a peppercorn so that the freehold has some value. Otherwise, the solvency of a corporate SPV that holds only one building relies on shareholders supporting it. The civil servants advising Gove don’t seem to understand how the property world works.
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