The Leasehold Reform (Ground Rent) Act 2022 is committed to “setting future ground rents to zero”*
The recent Leasehold Reform Act has significantly changed how ground rents work, and future legislation is set to change the face of leaseholds even more. The Government has banned ground rents for most new residential leasehold properties in England and Wales. This would mean you avoid paying costly ground rents and management fees on your properties.
Here’s everything you need to know about leasehold laws.
What is a leasehold property?
Freehold property means outright ownership, whereas a leasehold property simply gives the right to live in a property for an established period of time. Leases usually last between 99 and 125 years – but can go up to 999 years. The land on which a leasehold property is built is owned by another party.
Why would anyone buy a leasehold property?
Owning a leasehold gives you the right to live in a property for a set period of time. But technically, in the eyes of the law, you're essentially a tenant of the freeholder. You can opt to buy the freehold of a house - either under the law or by asking the freeholder to see whether they are willing to sell the freehold informally.
Is a 999 year lease as good as freehold?
In simple terms, acquiring a 999 year lease enables a flat owner to have a title that is 'as good as freehold' and therefore more marketable than for example a 85 year lease. The leases will also give the flat owners rights and obligations in respect of each other, which protects each other's interests.
There are estimated to be around 4.6 million homeowners with leasehold properties in the UK today, most of which are flats. Previously, if you purchased a property as a leaseholder, you would have to pay ground rent on an annual basis to whoever owns the freehold.
What is Ground Rent?
Ground rent is a form of rent that is paid by a leaseholder to their landlord, the freeholder, for the occupation of their land. Before the Leasehold Reform (Ground Rent) Act in 2022, ground rents were regularly paid and could be expensive. However, this act has massively changed how leaseholders pay ground rent.
Are peppercorn rents legal?
The Act also restricts landlords from charging admin fees for the collection of peppercorn rent, discouraging them from collecting an actual peppercorn from leaseholders. Any landlord who is found guilty of breaking the laws of the act is liable to a penalty of up to £30,000.
What are the leasehold law changes?
New leasehold laws have significantly changed ground rent, effectively making it nil. As of 30th June 2022, the Leasehold Reform Act 2022 has restricted ground rents on new leases to ‘one peppercorn’ annually, which has historically referred to a ground rent of low value. The Act means that any ground rent demanded as part of a new, regulated residential long lease, where a premium is paid, may not exceed more than one peppercorn per year. This means that from the 30th June 2022, ground rent has been effectively restricted to zero financial value.
So, will leasehold be abolished in the UK?
It’s thought that the feudal system needs to go. And we need to move to a better system. The Government is set to change the laws surrounding lease extensions. Leaseholders will be able to extend a lease by 990 years instead of a maximum of 90 years. Additionally, marriage value – which refers to the possible increase in the value of a property coming from the new lease – is set to also be abolished. Currently and up until May 2024, leaseholders are responsible for paying 50% of the increase in the market value of the property, meaning they could end up paying thousands in marriage value.