HM Government: Ground rent changes for leaseholders

Prime Minister Sir Keir Starmer has announced ground rent will be capped at £250 per year, with plans to abolish leasehold for new flats as part of sweeping reforms to the “outdated and feudal” system.

When you buy a leasehold property (rather than a freehold), it means that you own the home but not the whole building (assuming it’s split into a number of leasehold units), and specifically you don’t own the ground upon which it is constructed.

The ground and the responsibility for maintaining and managing the communal areas and the grounds lie with the freeholder (or landlord) who has sold the lease for the property to you. A leasehold property is almost certainly going to be a flat, in large part because it is now forbidden for houses to be sold as leasehold.

As part of the leasehold agreement that you sign when buying the leasehold, there will be a number of stipulations that apply regarding how the property can be used, with potential charges for general maintenance and ground rent spread among the leaseholders.

Government announces £250 ground rent cap

Ground rent is a charge that a landlord can currently apply to its leaseholders and could be set at any amount they choose. As part of the current Labour Government’s election promises in 2024 was a statement that they would overhaul the whole approach to leasehold and specifically focused on capping the “unregulated and unaffordable” amount that the landlord can charge for ground rent, and ending the process whereby residential leaseholders pay over the odds each year for no appreciable service in return.

In an announcement on TikTok on 27 January, Prime Minister Sir Keir Starmer confirmed that the ground rent would be capped at £250 per year, which would then be changed to a “peppercorn cap” after a period of 40 years. This comes as part of a broader shake-up of the leasehold system, which the Government has acknowledged as being “outdated” and “feudal”.

Key reforms in the leasehold shake-up

As part of the major reorganisation of the leasehold system, the Government also plans to ban new flats being sold as leasehold with legislation designed to give homeowners control over the homes they are buying and living in.

The plans will also abolish the forfeiture clause of leasehold ownership, whereby leaseholders can lose their home and built-up equity by defaulting on a debt as low as £350, with a rebalancing of the system to improve the relationship between the landlord and leaseholder.

Expected savings and benefits for leaseholders

In the announcement, the Government stated that over five million leaseholders and homeowners in the future will benefit from “stronger control, powers and protections”, with a projected saving of £4,000 over the course of the average lease. This will also free up the opportunities for selling the properties that are currently disadvantaged by the high levels of ground rent being charged. Combined with considerations such as lease extensions, these reforms will help leaseholders maintain and improve their property’s value and marketability.

Government plans for commonhold reform

The announcement also touched on an improved commonhold process – which allows leaseholders to own collectively the common areas of the whole property rather than it being the responsibility of a landlord (essentially, the commonholders become their own landlords). Provisions will also be made to improve the commonhold regulations and to make it easier for leaseholders to switch to commonhold. More details will become clear in the coming days and months.

Secretary of State for Housing Steve Reed said in response to the Prime Minister’s announcement:

“If you own a flat you can be forced to pay ground rents that can become completely unaffordable.

We said we’d be on the side of leaseholders – which is why today we are capping ground rent – helping millions of leaseholders by saving them money and giving them control over their home.

The leasehold system has tainted the dream of home ownership for so many.

We are taking action where others have failed – strengthening home ownership and calling time on leasehold for good.”

The draft Commonhold and Leasehold Reform Bill will be sent through Parliament for discussion, amendment and ratification, and Homeward Legal will be watching and reporting on the developments with interest.

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