Ban on ground rent will cut costs for future leaseholders

A government ban on charging ground rent on new leases is set to cut costs for future homeowners by hundreds of pounds a year.

The ban comes into force in England and Wales on 30 June 2022.

Leasehold is a form of home ownership that gives a leaseholder the exclusive right to live in a property for a fixed number of years. The lease is an agreement between the leaseholder and their landlord/ freeholder, listing the number of years and any other obligations and responsibilities placed upon both parties.

Ground rent is a charge that leaseholders pay to their freeholder – usually paid annually for long leases.

The charges provide no clear service in return and can be set to escalate regularly, with a significant financial burden for leaseholders.

The Leasehold Reform (Ground Rent) Act 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. This is known as ‘peppercorn ground rent’ and effectively sets the rate to zero.

In preparation, many landlords have already reduced ground rent to zero for homebuyers starting a new lease with them.

Anyone preparing to sign a new lease on a home in the next two months should speak to their landlord to ensure their ground rent rate reflects the upcoming changes.

The ban on landlords charging ground rent on new residential leases will also apply to retirement homes. This will come into force no earlier than 1 April 2023 and more details will be confirmed in due course.

In addition, thousands of existing leaseholders have also already seen a reduction in their inflated ground rent costs. In a government crackdown, the Competition Market Authority (CMA) secured commitments with major homebuilders to stop doubling ground charges every year for leaseholders.

Those who own properties with Aviva, Persimmon, Countryside Properties, Taylor Wimpey and others will see their ground rent returned to the rate it was when they first bought their home. The CMA’s investigation is continuing into Barratt Developments, Brigante Properties and the investment group Abacus Land and Adriatic Land.

Other measures to make homeownership cheaper, fairer and more secure include a new right for leaseholders to extend their leases to 990 years at zero ground rent and an online calculator to help leaseholders find out how much it would cost to buy their freehold or extend their lease.

Please contact us for more information about the issues raised in this article or any aspect of buying and selling a home.