Ground Rents Abolished on New Leases issued after 30th June 2022
Ground rent is to be scrapped on new leases in England and Wales from 30th June when the Leasehold Reform (Ground Rent) Act takes force. After 30th June, ground rent on new leases will never be more than a ‘peppercorn’ amount – in other words zero – resulting in a potential saving of £100s a year for future homeowners and some existing leaseholders.
This means that from July, if you buy a leasehold property with a new lease, there’ll be no ground rent to pay on it. The changes will also apply to future retirement homes – though this won’t take force until at least April 2023 due to it taking longer for retirement developers to amend their practices.
The Leasehold Reform (Ground Rent) Act is the first of two bills the Government is working on, with this one primarily benefitting future leasehold homeowners. A second bill, which is intended to make it easier and cheaper for existing leaseholders to extend a lease, is still at the consultation stage with no implementation date yet to be set.
This would then mean that if existing leaseholders decide to extend their lease informally (though for most people the formal lease extension route is always the advised route), the freeholder who owns the lease will be not able to increase your ground rent for the remaining period of your lease term. From the moment the existing lease term expires and the new term takes effect, the ground rent will revert to zero.
However, while leaseholders who need to formally extend their lease will continue to automatically see a minimum of 90 years added to the length of their lease and any ground rent reduced to zero – this will still cost them £1,000s, sometimes £10,000s, depending on the lease’s current length. The Government’s second leasehold bill aims to make this process easier and cheaper, though we don’t know yet when it will come in.
Ground rents are completely separate to service charges, and therefore service charges will still remain payable on developments where service charges apply, to allow funds to be collected in order to maintain the communal land and buildings such as flats/apartments that are shared by all leaseholders. If you are unsure of what ground rent is, read our ground rent blog for more information here: https://www.realtymgt.co.uk/what-is-a-ground-rent/