Ground rent has been back in the news again recently as campaigners celebrated another step forward in their fight to abolish residential leasehold in England and Wales.
Fifteen businesses, including investment firms and housing associations, who bought freeholds from developer Countryside have now agreed to remove unfair terms, which in some cases saw ground rents as much as double every 10 years. It means thousands of leaseholders will now only pay the amount charged when their home was first sold.
The Competition and Markets Authority (CMA) wrote to businesses requesting the removal of the terms from their contracts. It had already secured the same commitment from Countryside and other major developers after launching enforcement action in 2020.
This latest victory is undoubtedly good news for the 3,400+ homeowners affected, but also a timely reminder for anyone purchasing property to make sure they – or rather their conveyancer – have done their leasehold homework.
Freehold v leasehold
Property in England and Wales falls into two main categories: Freehold or leasehold.
Freehold means you own the property and the land it stands on for an unlimited period. Leasehold, however, means you do not own the land and only own the property for the duration of your lease.
In cases of leasehold, you will be charged something called ground rent which can be fixed or escalating, the latter meaning it will increase over the course of your lease. The lease document should include details of the amount, future increases, and the frequency with which you will have to pay.
Leases are typically 90+ years and grounds rents are typically around £50 per year – but it is important to note that this is not always the case, and you are strongly advised to check the small print before you sign. Your conveyancer should explain to you all aspects of the lease and set out how the ground rent will or could change over the term of the lease.
It is important that you understand the ground rent that you will need to pay. Under current laws, if you are unable to pay your ground rent or your lease expires, the property technically passes to the freeholder.
What’s changed?
As mentioned above, not all cases are the same and there have been many stories in the media in recent years about the leasehold scandal. People who have found themselves forced into handing over large sums in ground rent after unwittingly buying leasehold properties, which they are subsequently unable to sell.
It led to the launch of the National Leasehold Campaign, a group set up by angry homeowners who aim to abolish leasehold and make commonhold mandatory for flats.
Up until now, most flats have been sold as leaseholds as it was more clear-cut given they were built on a shared piece of land.
Commonhold – a model already used in many other countries – allows residents to own their own properties but share ownership of and responsibility for common areas and services.
The government has long promised action on the leaseholds issue and, earlier this year, we finally saw some with the introduction of the Leasehold Reform (Ground Rent) Act 2022.
The Act, which comes into force later this year, will end onerous ground rents for new, qualifying long residential leasehold properties in England and Wales.
Freeholders will only be able to charge a nominal, peppercorn rent and will be banned from charging administrative fees for collecting it, with failure to comply carrying fines of up to £30,000.
The government has also promised that as leases expire, people will be able to extend them for up to 990 years with zero ground rent, but it is not clear when this will come into force.
Critics say this still leaves many stranded in leasehold properties, forced to pay through the nose at a time when the cost of living is sky high. That’s why the continued pressure applied by the CMA to developers and businesses who have bought freeholds is so significant.
What to look out for
Campaigners have accused developers of making contract wording deliberately confusing in the hope that unsuspecting buyers won’t realise what they’re agreeing to until it’s too late.
A good conveyancer will cut through the jargon and identify, firstly, if the property you’re looking at is leasehold and, secondly, what the stipulations are.
If you are buying a leasehold property, when shopping around for conveyancers it’s good to ask what their experience with leasehold properties is.
Choosing a regulated conveyancer will also afford you greater protection and rights to redress should anything go wrong.
We require all of our practices to display the CLC’s secure badge in a prominent place on their website, which if you click on it will take you through to a page confirming they are regulated by us and that the website you are on is genuine.
You can find a list of approved conveyancers plus guides to buying and selling on our website here.
Stephen Ward is director of strategy and external relations at the Council for Licensed Conveyancer
