Around 5 million people in the UK own a leasehold property. Ground rents were abolished for most new residential leasehold properties in England and Wales in 2022 but remain for existing leasehold homes. If an existing lease contains an onerous level of ground rent payable by a tenant, it can make it difficult for them to sell or remortgage their property. This is set to change from late 2028.
What is a leasehold property?
A leasehold property is a home owned for a fixed number of years under a lease agreement with a freeholder. The freeholder owns the land and usually the structure of the building. Leaseholders typically pay ground rent, service charges and may face restrictions on alterations or subletting.
What is ground rent?
Ground rent is an annual fee paid by the leaseholder to the freeholder simply for the use of the land on which the property stands. The amount is set out in the lease and, in some cases, can increase over time.
What changes have been proposed?
The Government have recently published a draft Leasehold and Commonhold Reform Bill in which they plan to:
1. Ground rent capped at £250 per year
Future ground rents payable under any residential lease will be capped at £250 per year in England and Wales, ultimately reducing such rent to a peppercorn (zero) after 40 years.
2. Ban the sale of new leasehold flats
The bill proposed prohibiting the sale of new leasehold flats giving future owners outright ownership rather than a diminishing lease interest. This give leasehold owners greater control over how their buildings are managed.
3. Abolition of forfeiture
Forfeiture, whereby leaseholders can lose their home and the equity they built up if they default on a debt as low as £350, will be abolished
4. Greater control for leaseholders and pathway to commonhold
The Bill will make it easier for existing leaseholders to convert to commonhold, which means occupants jointly own the ground a flat is built on as well as the building, without an expiring lease. The Government’s press release states “those living in the building will have a say in the annual budget and how the building is run, and new protections when things go wrong. Current leaseholders will also be given the opportunity to switch to commonhold, where the majority of residents agree to it.”
5. Increased transparency and accountability
“The reforms build on action currently being undertaken by the government to implement the Leasehold and Freehold Reform Act 2024, including increased transparency over service charges so that leaseholders can better hold their landlords to account.”
How can we help
If you have questions regarding your residential leasehold property, contact us to speak to a member of our specialist Real Estate team.
