Almost 4.5 million leaseholders will be offered the right to extend their lease by a maximum term of 990 years at zero ground rent, the housing secretary Robert Jenrick has announced today.
Today’s measures come as part of the biggest reforms to English property law for 40 years, fundamentally designed to make home ownership fairer and more secure.
Under the existing law many people face high ground rents, which freeholders can increase the with little or no benefit seen to those faced with extra charges. It can also lengthen and lead to increased costs when purchasing or selling the property.
Today’s changes will mean that any leaseholder who opts to extend their lease on their home will no longer pay any ground rent to the freeholder.
For some leaseholders, these changes could save them thousands, to tens of thousands of pounds.
Jenrick commented: “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 4.5 million leaseholders and chart a course to a new system altogether.”
Under existing 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. Today’s changes mean 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.
A cap will also be introduced on ground rent payable when a leaseholder chooses to either extend their lease or become the freeholder.
The government is also scrapping prohibitive costs like ‘marriage value’ and set the calculation rates to ensure this is fairer, cheaper and more transparent.
An online calculator will be introduced to make it simpler for leaseholders to find out how much it will cost them to buy their freehold or extend their lease.
New measures will also be introduced to protect those who own homes built specifically for older people.
The government has previously committed to restricting ground rents to zero for new leases to make the process fairer for leaseholders. This will also now apply to retirement leasehold properties.
Consequently, purchasers of these homes have the same rights as other homeowners and are protected from uncertain and rip-off practices.
Leaseholders will also be able to voluntarily agree to a restriction on future development of their property to avoid paying ‘development value’.
Mark Hayward, chief policy adviser, NAEA Propertymark, commented: “We have campaigned for years for changes to the leasehold system and event fees on retirement homes.
“The issue of escalating ground rent on leasehold homes has been a long-term scandal which has left many owners trapped and unable to sell their houses.”
Research by NAEA Propertymark, ‘Leasehold: a Life Sentence’, carried out in 2018, found that 46% of leasehold house owners were unaware of the escalating ground rent when they purchased their property.
Hayward continued: “Over one million households in the UK are sold through a leasehold, and this new legislation will go a long way to help thousands of homeowners caught in a leasehold trap.”
However, while many agents welcome the government’s initiative to reduce ground rents to zero for all new retirement properties, Hayward argues that this now needs to be extended to all retirement properties to create a level playing field.
He added: “Event fees remain a hugely contentious issue which many consumers still don’t understand so we need as much clarity and transparency as possible.”
Legislation will be brought forward in the upcoming session of Parliament, to set future ground rents to zero.
Comments (14)
Does anyone know if this change also benefits shared ownership properties, where part is owned by a housing association or similar?
Ground rents doubling more frequently than every 25 years have been a disaster waiting to happen ever since they were dreamt up. Buyers either didn’t understand or their solicitors didn’t explain the problem of doubling ground rents (though for anyone with a reasonable understanding of arithmetic the problem is blindingly obvious). Selling agents told buyers “This is normal. Why are you/your solicitor making a fuss about the ground rent? Everybody else in the block has accepted it” and because of a lack of choice buyers accepted onerous terms.
However, it is all very well reducing ground rents to £0 but that means the freehold has no commercial value and the freeholder cannot accumulate any capital from it. Third party freehold owners therefore either make money from insurance commissions/kickbacks and from managing the service charge (perhaps through a connected party) or they make no money and are forever close to being technically insolvent. Without money they cannot pay for their own accountants to prepare annual accounts unless the service charge allows and the directors may find themselves personally liable.
For what it’s worth my view is that it would be better for Parliament to legislate now to restrict all ground rents to the lower of the current ground rent and a specified rent, say £200 pa and only to allow increases as prescribed by regulation or perhaps to double every 25 or 30 years. That way freeholds are worth preserving.
Instead we have ministers shouting about “fairness” (which means what they think voters like) and pretending that if something is free it must be better than if it costs something.
I am aware that with current lease extensions ground rent is reduced to zero but my point still stands and unless leaseholders are prepared to manage the building themselves (which is not straightforward) they may solve one problem but create others. Imagine the chaos of a freehold owner being put into liquidation because the directors realise the company is insolvent.
If the leaseholders own the freehold they have to rely on everyone paying on time to fund services/pay for insurance or some of them have to bail out the others. A little ground rent oils the wheels. I know that Government has made its mind up and, as so often with property, the politicians don’t know and don’t care to find out how the system works and what the issues are.
100% agree. I have managed several buildings in the past where the Freeholder forward funded major works or deficits in service charge from tiny minority of non-paying leaseholders. That’s why Commonhold is not the panacea people imagine it is (they should manage property in Scotland if they want to see for themselves the issues it can cause) – similar to those alluded to above with share of Freehold.
Leasehold itself is not a scandal (just like most estate agents are not the stereotype) as there are good/ethical Freeholders who actively help and improve the running of their buildings where people like the fact that most maintenance responsibility is ceded to another party, as did I when I was a flat owner, the problem is as usual the small minority that exploit it. The other issue was always the solicitors not explaining to FTB’s what they were actually buying or the purchasers not educating themselves (delete one as per your personal view)
A cap and framework for even RPI increases on Ground Rent would be better IMO – the automatic right to extend definitely is correct course though.
Article mention “todays changes” a lot. Is there a link to actual legislation or have I missed it? Thanks
Its actually a very structured framework with foxed timescales providing the background for negotiation between surveyors. The valuations are complex and could be simplified but the outcome is fair. The fact is many many flat owners get poor legal advice from their conveyancers (no surprises there) when it comes to the nature of ground rent review terms contained within leases.
…completely agree
I had to go through a Lease Extension and it is (so far) one of the worst experiences in my life as there is no structure or logic to it what so ever.
In 2018 i started the process and instructed a Solicitor who was useless, i was told i needed to instruct a surveyor which i did and paid several hundred pounds for a privilege of being told we should offer £13,000 but the higher end could be £17,000 (so no exact figure.. just a lower and higher end). Im sure most can understand that generally most people dont have £10,000 just laying around the place and so i have to take 2 personal loans and a further advance on my mortgage to get the monies required.
Then after the offer of £13,000 was given then responded with a counter offer of; £26,000 without Ground Rent, £19,000 with Ground Rent. I could have screamed, neither figure was anywhere near the figure the Surveyor had supplied infact one was double! This dragged on back and forth until 2019 when out of nowhere i got new offers of £19,000 without Ground Rent or £13,000 with Ground Rent and so i ended up paying £13,800 to go from 1st January 1985 + 99yrs to 1st January 1985 + 189yrs with Ground Rent of £250 per year.
The amount i paid in hidden Solicitor fees, Surveyor fees and then the lump sum for the Lease Extension itself. Its an experience i NEVER want to repeat, my advice for anyone looking to buy Leasehold is DONT! Unfortunately it was all i could afford at the time if i wanted to own a home but with a Lease Term ticking down, do you really own it?
…why didn’t you go to the Tribunal?
Beat me to it…
I had no idea whether this was normal practice, the Solicitor.. Surveyor.. Freeholder all seemed to be acting as this was normal as terrible and terrifying as it was… my concern was that with everything going on i may need to sell quickly and i didnt want a low Lease Term to cause me problems in the future, i had no time on my hands to investigate especially as i needed this done.
Did your solicitor not tell you that you could have gone to the Leasehold Valuation Tribunal for them to independently set the price to be paid after inspecting the property and looking at all the facts?
If you couldnt agree a price voluntarily with the freehold that would have been your preferred option. Sometimes freeholders cut the bull at that point knowing that the Tribunal may set the price at lower that what they are currently asking.
But I agree many solicitors are not really up to the task of working in this more specialised area.
In 2019 I met a couple who had less than 1 year left on a 99 year leasehold house that they had lived in for about 45 years already. They didnt realise that they had the right to buy the freehold when they wished and were waiting for the freeholder to offer it to them at some point. They had the money available all the time.
With 1 year left on the lease Freeholder stuck the freehold in an auction and it sold for £100k. Prior to the auction they went to a solicitor for advice who wished them good luck in the auction. Absolutely shocking.
Solicitor completely failed to mention to them that they could have still bought the freehold there and then thus short circuiting the auction of the freehold or at least drastically reducing the price …so they could have bought it themselves at auction if they wished.
When it comes to solicitors remember if you pay peanuts you get monkeys.
There better be – but knowing the Government they will miss this crucial point – a precedent lease variation prescribed (mandatory) and with a maximum legal fee chargable by both landlord and tenant lawyers, or the tenants will still pay their £000s by lawyers charging to extend.
When an individual pays at multiple stages of a process and money is taken from one end, it’s often added to the other.
The only perceived benefit for the individual is that costs are no longer “hidden” although they might be no better off.