The ground rent scandal is coming to an end, says Paul Lewis
All too often leasehold flats become unsellable
The Government has ended one of the scandals of leasehold. From this summer, new leasehold agreements for a single dwelling will have a ground rent of zero (though there is a delay for retirement developments, where the new law does not begin until 1 April 2023).
Ground rent is literally rent for the ground a leasehold building stands on, and leaseholders pay it to the freeholder who owns that land. It often starts at a modest amount but comes with escalation clauses allowing the freeholder to raise it every few years, in some cases doubling it every ten years. So after 20 years it’s four times as much. The prospect of further doublings means lenders will not provide mortgages, and so these homes become unsellable. Since June, all new leases signed must come with a ground rent set at “one peppercorn”. That puts into law the traditional term “a peppercorn rent”, which has always meant one that is effectively zero. The Leasehold Reform (Ground Rent) Act 2022 also bans administration charges associated with the rent, to forestall any cunning plan by the freeholder to impose fees for collecting, valuing or storing the peppercorn!
However, the changes do not extend to existing leases signed before the law began, which leaves millions of leaseholders without any relief. I have never been a fan of leasehold flats. All a leaseholder buys is the right to live in 100-odd cubic metres of air surrounded by concrete and glass for a fixed period (usually 99 years). But every year that passes reduces the value of that right, and after 20 years flats can become very hard to sell.
The procedures to extend leases are impenetrable and expensive, as are those that technically allow leaseholders to club together and buy the freehold. All too often, leasehold flats become an unsellable prison with high service charges. For more information, go to leaseholdknowledge.com and then search for “ground rent”.
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Paul Lewis presents Money Box on Radio 4. To read more of his advice, see radiotimesmoney.com