Produced by :- Christopher Lewis BSc (Hons) Building Surveying
Graduate Surveyor at DEESURVEYS Ltd
New legislation can have a huge impact on people and business and this is no less true than when said legislation applies to property.
From 2018 to 2019 between 16% and 19% of all housing in England and Wales were leaseholds and alongside those leaseholds came ground rents. These modern ground rents often came with short term review periods and other terms which would, for example, double the ground rent at each review period which could be as frequent as every five to ten years. This has as one might expect resulted in some ground rents quickly growing larger than an occupier can easily afford. This high rate of growth has in some cases even resulted in some lease agreements being classified as assured tenancies under the Housing act 1988 with the potential for mandatory possession orders in the event of a failed payment. One might think that the immediate solution to a buyer’s problem is to sell the property and move elsewhere, but with the leasehold agreements in place the high ground rent would remain with any subsequent buyer. As a result, these properties have been incredibly difficult to sell on without first acquiring the Freehold via Leasehold Enfranchisement. Problems such as this and others in the leasehold market led to Sajid Javid announcing in 2017 that the Government planned to reform problems with leasehold practices. Now in 2021 we are seeing the result of these ambitions being acted on.
The Leasehold Reform (Ground Rent) Bill 2021-22 promises to end the current state of affairs. The bill was introduced by Lord Greenhalgh to the House of Lords and is currently awaiting its third reading before it will pass to the House of Commons. If passed through the bill proposes to do the following:
- Effectively eliminate ground rent as part of a leasehold agreement by enforcing peppercorn rents on all new leasehold agreements from the date the bill is passed.
- Any voluntary lease extensions would see the ground rent continue as described in the original agreement with the ground rent reverting to a peppercorn at the point the extension comes into effect.
- Any Regulated leases would also see their terms changing to allow for a peppercorn rent rather than what currently exists.
Currently these changes will see ground rents slowly disappear as only existing ground rents will remain with those slowly disappearing through voluntary extensions while regulated leases with undesirable terms would also change immediately. However, there is still the issues of currently existing ground rents which fall outside these areas which could in theory remain for several decades. In theory this could result in a some property remaining adversely affected. Discussion about this matter is expected in the third reading in the House of Lords but there will be resistance to any potential amendments to the bill to address this problem. The problem is that ground rents are simply too profitable and this has resulted in vital parts of the investment economy becoming reliant on existing ground rents.
Currently ground rents are a very profitable venture, with ground rents actually being sold and traded, sometimes at values as great as thirty-five times the yearly ground rent value. As a result, investment companies and pensions rely on ground rents to maintain their value. So simply eliminating ground rent in existing agreements could have a dramatic impact on pension funds and other investment groups and subsequently harm the economy and the financial futures of a great number of people. The debate could easily go in either direction. However, should the third reading see no changes as it currently stands there will remain a number of leaseholds which will continue to suffer the problems associated with ground rent.
If you want to learn more about the background of the Leasehold Reform (Ground Rent) Bill 2021-22 and see its progress through parliament you can read up on it and track its progress via the links below:
Background and explanation of the Bill:
The progress of the Bill:
Or, contact Chris or Gavin via the Contact Us page on our website www.deesurveys.com