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Ground Rent in Residential Leases

Written by

Dona Awano

Published on

February 28, 2024

The law relating to the payment of ground rent in residential leases is changing as part of the government’s reform of the leasehold tenure. Leasehold specialist, Dona Awano explains what the reform means for both existing and new leaseholders, and how the Leasehold and Freehold Reform Bill could change things further.

What is Ground rent and why could it be a problem?

Many leasehold properties in England and Wales are likely to pay rent to the freeholder, known as Ground Rent. There is no set payment amount for this rent, and it varies from lease to lease. Some leases may require a fixed amount to be paid for the entire term of the lease while other leases may provide that the ground rent goes up at certain intervals during the term. For example, the ground rent could be £100 per annum payable for a term of 99 years, or it could be £50, rising to £100 and £150 with the increase kicking in every 33 years in a 99-year lease.

More recently, some leases were granted with a high initial ground rent with the frequency of the review every 5 or 10 years or based on a mathematical formula or a review linked to the retail price index or review to a percentage of the open market value of the property. A formula might make it difficult to easily work out how much the rent might increase to.
High starting ground rents and the frequency of reviews resulted in such leases being onerous which affected the leaseholder’s ability to sell the property or to get a mortgage.

Changes to new leases

In 2022 the Leasehold Reform (Ground Rent) Act 2022 (“The 2022 Act”) came into force.
The effect of the 2022 Act is that any new lease granted on or after 30 June 2022 will no longer be permitted to have a ground rent and would be granted for a peppercorn rent (no ground rent). This legislation however only applies to new leases and does not remove ground rents in existing leases, so it does not assist leaseholders with high and onerous rising ground rents in their existing leases.

I’m an existing leaseholder. Do I still have to pay ground rent?

This depends on the terms of your existing lease. If your lease was granted before 30 June 2022, your lease may require you to pay ground rent. Ground rent is payable if your lease requires payment of ground rent, and you receive a demand for payment from the landlord. The landlord must use a prescribed form to demand payment of the ground rent.

If you decide to extend your lease, changes to the ground rent payable under the lease will depend on whether you go down the statutory or informal routes.

There are two types of lease extensions – informal and statutory.

  • In an informal lease extension, ground rent in existing leases may be retained for the remainder of the existing term, whilst the new term will be at a peppercorn rent. See the Government guidance on the 2022 Act.
  • With a statutory lease extension under the Leasehold Reform Housing and Urban Development Act 1993, a leaseholder who qualifies is entitled to an extension of an additional 90 years at a peppercorn rent. The legislation already provides that the ground rent becomes a peppercorn.

What are my rights if the ground rent under my lease doubles every 10 years?

The government has been looking at ways to assist current leaseholders with onerous ground rent provisions in their leases. Actions that have already been taken and are proposed going forward include the following:

  • Investigation by the Competition and Market Authority

The Competition and Market Authority (“CMA”) started investigating high ground rents with high frequency of reviews in long leases in 2019. During its investigations, the CMA worked with some major developers and freeholders to offer voluntary deeds of variation to their leaseholders. This removes the rising provisions and keeps the rent at the original amount it was at the start of the lease for the rest of the term of the lease.

The developers are also contributing towards to the leaseholders’ legal fees in obtaining the deed of variation.

  • Government consultation

Following the Kings Speech, on 09 November 2023, the Department for Levelling Up, Housing and Communities launched a consultation on capping ground rent in existing leases. The government has indicated that the responses will inform the proposed reforms in the Leasehold and Freehold Bill to stop escalating ground rents in existing leases. The consultation sought views on five proposals to decide the best way forward in relation to capping ground rents in existing leases. The options are:

  1. Setting ground rents at a peppercorn (zero ground rent);
  2. Putting in place a maximum financial value which ground rents could never exceed (£250 per annum is proposed);
  3. Capping ground rent in residential leases at a percentage of the property value (0.1% of the property value is proposed);
  4. Limiting ground rent in existing leases to the original amount when the lease was granted; and
  5. Freezing ground rent at current levels.

An impact assessment has also been published, showing the final impact of the options put forward in the consultation. The consultation ended on 17 January 2024 and the outcome is awaited.

  • The Leasehold and Freehold Reform Bill

Finally, in the Leasehold and Freehold Reform Bill (Leasehold and Freehold Reform Bill – Parliamentary Bills – UK Parliament ) which is currently making its passage through parliament, one of the new provisions in the Bill is to introduce a new right for leaseholders to buy out their ground rent, at a price, if the lease still has more than 150 years left to run. This is without the need to obtain a lease extension.
Progress of the Bill through parliament can be viewed here. See Leasehold and Freehold Reform Bill: call for evidence – UK Parliament

About the Author

Dona Awano is a solicitor at Amphlett Lissimore, specialising in the niche area of leasehold property law. Based in our Crystal Palace office, Dona’s work includes collective enfranchisement, lease extensions, right of first refusal, freehold acquisition of houses, right to manage, licence for alterations, and service charge and management disputes.

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