An end to rising Ground Rents in Residential Leases!

In the recent past there has been much publicity (for good reason) surrounding ground rents in long residential leases. Some leaseholders entered into leases when purchasing their homes with ground rent obligations which at first seemed affordable and were not considered an issue, but which later became substantially more expensive. Those ground rent obligations that attracted the most attention were known as “doubling” ground rents, where the amount payable doubled at fixed intervals throughout the term of the lease. In some cases the ground rent doubled every 10 years.

By way of example, leases are often granted for 125 years, and in such leases, if the annual payments for the first ten years were £200.00 (which to some does not seem an unreasonable amount), by the 51st year the amount payable would be an unreasonable £6,400.00! By the 121st year of such a lease the annual ground rent payable would be an unbelievable £819,200.00!!

Some developers and housebuilders entered into variations with leaseholders to vary leases with unreasonable ground rent obligations in order to reduce or fix the ground rents however there are still a substantial number of leaseholders left with an asset that is becoming increasingly more expensive. With the cost of living in many different areas of expenditure on the increase, this is a problem that many homeowners would not be able to sustain.

On top of the increasing cost of outgoings as a result of rising ground rents, lenders have strict requirements as to ground rents in residential leases and will not lend where leases contain unacceptable ground rent provisions. This therefore means than some leaseholders were trapped, not only with leases that were becoming increasingly expensive, but also ones that were far more difficult (if not impossible) to sell.

The government has however taken some action in order to prevent the situation from arising in respect of most new residential leases. There are of course some exceptions however this is widely seen as a very positive step.

The Leasehold Reform (Ground Rent) Act 2022 was given Royal Assent on 8th February 2022. When fully in force, it will limit the ground rent payable on most new long residential leases in England and Wales to one peppercorn per year (effectively £0.00). These restrictions are set to come into force on 30th June 2022, except in respect of retirement home leases where the restrictions will not apply before 1st April 2023.

Anyone who is about to enter into a new lease with a landlord prior to 30th June 2022 would be well advised to ensure that the ground rent provisions are in line with the upcoming restrictions.