Government Reduces Ground Rents On Leasehold Newbuild Properties In England

In July 2017 the Government carried out a consultation to tackle unfair practices in the leasehold market. This was due to the view that this type of property ownership was increasingly being used as an unfair way of extracting money out of homebuyers.

This was particularly highlighted by the emergence of the leasehold new build properties over the past 20 years. Unlike flats which are almost always sold as leasehold properties, this relates to houses on new developments, which traditionally would have been sold as freehold. With this arrangement the purchaser becomes a tenant of the property with a long rental term who is required to pay an annual ground rent to the freeholder.

So what's the problem? Many people have argued that this arrangement is just as good as owning the freehold as the term of the lease is so long that several purchasers could own the property for their entire lifetime before the unexpired term would be anywhere near to expiring. However the following points have caused concerns:

  • The annual ground rent which is usually charged as a 'peppercorn' rent (a nominal figure) has been set as high as £200 +. In addition these leases include clauses which mean this amount will double on each rent review date (usually every 10 years). This can initially appear reasonable however you can see how this can increase to thousands of pounds within 30 years.
  • The leases also contain clauses which state any alterations to the property, such as adding a conservatory, cannot be carried out without the consent of the freeholder. Furthermore they will often charge administrative or consent fees for providing the same.

  • Finally the developer is often advising purchasers that they can buy the freehold to their property for a set reasonable amount. Whilst purchasers appreciate this figure will change over time depending on the property value, it has often been the case that this figure would significantly increase once the development had been completed or the freehold sold to an investment company.

The Government's solution to the above has been to announce that ground rents will be abolished going forward. However this does not address the freehold purchase issues or concerns for those who have already purchased these properties. It could essentially create a two-tier market between properties within the same development; those who have a hefty annual ground rent and those who do not.