When you own a leasehold property, one of the charges that comes with it is ground rent – that’s an amount you pay every year to the freeholder for the ground that the property sits on.
The problem is that most leases allow for this to be increased periodically and many new-build companies sold properties with escalating ground rent clauses written into their leases allowing the payment to be doubled every few years.
This led to some leaseholders having to pay unreasonably large sums of ground rent, while some found their properties were essentially unsellable because the ground rent was so high.
Owners of leasehold properties also have to pay a service charge for maintenance of the building, which is sometimes deemed as unreasonably high. And another issue has been relatively short leases (e.g. 125 years) combined with the cost and length of time it takes if an owner wants to extend their lease or even buy out the freeholder. Some owners even find it hard to get hold of the freeholder at all!
Thankfully, the Government and other industry organisations have recognised these issues and have already begun to take action.
Michael Gove, the Levelling Up Secretary, said in January this year:
“…the fundamental thing is that leasehold is an unfair form of property ownership. It is an outdated feudal system that needs to go. In crude terms, if you buy a flat, that should be yours.”
He has stated that he wants to scrap the whole leasehold system before the next general election and that the Government intends to introduce legislation in the final sessions of parliament this year to do just that.
So, is leasehold really on the way out?
The reality is that leasehold has been in existence for hundreds of years and untangling all the different legal arrangements isn’t something that can be done overnight. But some significant steps have already been taken:
- CMA investigation, leading to some companies scrapping ‘doubling ground rent’ terms
In June 2021, following a government request for the Competition and Markets Authority (CMA) to investigate unjust ground rent practices, Aviva become the first company to commit to removing terms in their leasehold contracts that caused ground rents to double. They agreed that:
- Their leaseholders’ ground rents would revert to the original amount when the property was first sold
- The ground rents would not increase over time
- Those people who had already paid for increases would be refunded that money.
By March 2022, more companies - including Countryside Properties and Taylor Wimpey – had committed to striking out terms that doubled ground rents and 15 businesses had agreed to remove such terms. That meant more than 3,400 leaseholders’ ground rents would revert to the amount charged when they first bought their home, and the CMA Chief Executive said at the time that they intended to put more housing developers ‘under the microscope’.
- Leasehold Reform (Ground Rent) Act 2022
A legal change was then made in June 2022, when the Leasehold Reform (Ground Rent) Act 2022 came into force in England and Wales. This requires ground rent on new leases for residential property to be restricted to a ‘peppercorn’ rent of zero. For retirement properties, the Act’s provisions only apply from 1st April this year, and for lease extensions, the current ground rent will continue until the end of the current lease period, then it must be zero for the additional period.
- New-build developments and renewed leases must be for 990 years
If a lease drops below 80 years in length, the property usually falls in value because mortgage companies are reluctant to lend and cash buyers generally want to buy at a discount. Steps to tackle this have begun, with new developments and lease renewals now being up to 990 years.
And there are also plans to make sure all sellers of leasehold property receive the leasehold pack in a reasonable timeframe and the price they have to pay will be capped.
More details on the changes are in this parliamentary summary.
Buildings with cladding: Leaseholder protection for the cost of making them safe
72 people lost their lives in the 2017 Grenfell Tower fire, largely because of dangerous building cladding and other fire safety failings. Since then, a number of changes have been made to the rules around fire safety for blocks of flats.
On 28th April 2022, the Building Safety Act (England) was granted Royal Assent, heralding ‘the biggest improvements in building safety for a generation’ (DLUHC). As part of the Act, where there are historical building safety defects that need to be rectified, there is financial protection for qualifying leaseholders of flats in buildings above 11 metres or 5 storeys.
As long as you don’t own more than three UK residential properties, building owners can’t charge you for removal of or remedial works on dangerous cladding. There is also protection from the costs associated with other interim fire safety measures for the building, e.g. waking watches.
The government website has a list of developers that have signed its Building Safety Pledge, confirming that they will meet the cost of fixing all life-critical fire-safety risks in buildings over 11 metres in height. And at the end of January, Michael Gove announced that developers would have a six-week deadline to sign a contract committing them to fixing unsafe tower blocks, or they would be banned from building new homes.
If you already own a leasehold property or you’re considering buying a flat to let and have any questions, we’re here to help. Just contact your local Your Move branch and have a chat to one of the team.
Interested in finding out how much income you could achieve from your Buy to Let property(ies)? Book a free lettings valuation with a local Your Move lettings expert today and find out.
The Your Move Content Marketing Team
