Do I still need to pay my ground rent?

The Leasehold Reform (Ground Rent) Act 2022 came into force with effect on 30 June 2022 abolishing ground rents on all new long leases of flats and houses so that only a peppercorn rent, which is effectively zero, can be payable under the new leases.

The Act also restricts ground rents to zero on retirement properties to ensure that those who live in retirement housing benefit from the same reform as other leaseholders. The changes to ground rent for retirement properties will come into force no sooner than 1 April 2023.

Where a leaseholder of a flat extends their lease through the statutory process, and so pursuant to the Leasehold Reform, Housing and Urban Development Act 1993, the ground rent will be reduced to a peppercorn as part of that statutory process and so lease extensions for flats remain unchanged and are therefore exempt from the provisions of the 2022 Act.

For existing leaseholders of both houses and flats who extend their leases by voluntary agreement with their landlord, the ground rent now has to be restricted to a peppercorn rent on the newly extended term. But note that the ground rent still has to be paid under the provisions of the previous lease (pre-extension) until the end of the original term.

The legislation does not apply retrospectively and so any leaseholder with a rent reserving a lease will still be obliged to pay that rent.  Many leaseholders have however already seen a reduction in their ground rent. Many major homebuilders granted leases with crippling frequent doubling ground rent provisions.  In a Government crackdown, the Competition Market Authority (CMA) secured commitments from major homebuilders to stop them charging doubling ground rents.

Those who own properties with Aviva, Persimmon, Countryside Properties, Taylor Wimpey and others will see their ground rent reduced to the rate when the lease was originally granted.

The CMA’s investigation is continuing into Barrett Developments, Brigante Properties and the Investment Group, Abacus Land and Adriatic Land.

Some developers and other leaseholders are agreeing to vary ground rent provisions in existing leases so that, instead of frequent doubling ground rents, the rent is increased, sometimes at less frequent intervals by reference to the Retail Prices Index.  However, given recent and likely further increases in interest rates, that concession is looking less attractive.

Aviva has agreed to:

• remove doubling ground rents;
• remove inflation-linked ground rents which were substituted for doubling ground rents.

It is believed that the ground rents will be reduced to the figure before any doubling or inflationary increase ocurred.

• refund any doubled ground rent or any inflation increased ground rents already paid.

Persimmon has agreed to:

• sell freeholds to leaseholders at a discounted price;
• refund leaseholders who have already bought their freeholds the difference between what they paid and what the discounted price would now be.

Many leaseholders with existing ground rents will find that their leases are unmortgageable and unmarketable and the only solution will be to extend their lease pursuant to the statutory route and buy out the ground rent so that it is reduced to a peppercorn in their new lease.

The other point of contention relating to ground rents is that, where a ground rent exceeds £1000 in Greater London or £250 elsewhere, a landlord will have a mandatory right to secure possession where the ground rent is in arears for a specified and limited number of weeks.  Most lenders will not lend against leasehold property where the rent exceeds that limit.

The problems for leaseholders continue and, whilst the Government has done much to help new leaseholders, existing leaseholders are in many cases still stuck with their ground rents.

If you have any questions regarding this subject please contact Katherine Simpson or any member of the residential property team.

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