Government Announces Ground Rent & Leasehold Reform
The Housing Secretary, Robert Jenrick, announced in January this year that legislation will be introduced giving leaseholders the right to extend their leases to up to 990 years paying no ground rent. Under the present law, a flat owner can extend their lease by 90 years (and do away with ground rent) on payment of a lump sum, but the costs can be considerable and the procedure is technical and can be long-winded. The shorter the lease, the higher the cost.
Further measures will be introduced to protect the elderly – the proposal is that no ground rent can be charged in relation to new retirement homes.
Ground rents have been a big issue in the media over the last year or so. This is largely because of major developers imposing significant (and increasing) ground rents on new flat developments. The right to receive such rents in a period of low-interest rates makes the residual freehold of a block of flats a valuable asset, so it is no surprise that developers wish to take advantage of that.
It is worth noting that ground rents and leases are set when a lease is granted. They cannot be subsequently varied unless the leaseholder agrees. Some media comment seems to suggest that ground rents can be increased by the freeholder without consent but this is not the case. The major issue is that people are often not advised properly about the details of their leases, or do not take the trouble to read them. Good advice at the start is essential.
Ground rents in leases should not be confused with service charges, which are payments made to cover the cost of communal items such as insurance, roof repairs, external redecoration and maintenance of common areas like shared gardens. There is a good deal of statutory protection for leaseholders in relation to service charges. Service charges are a cost that homebuyers need to take into account when deciding what they can afford.
Owners of freehold houses may also need to make ongoing payments to a developer or management company. These payments, called ‘rentcharges’, are often imposed by developers to cover the cost of repairing and maintaining shared facilities such as sustainable urban drainage, private roads, amenity areas, visitors parking and the like. These payments can increase over time. Some commentators have criticised rentcharges, as if they are just a source of profit for the developer. This is not the case. The reason for rentcharges is a reluctance on the part of highway authorities, water companies and the like to take responsibility for new roads, drains and sewers, meaning that the developer has to maintain them. Similarly, planning authorities insist on visitors parking, amenity areas etc., but will not take over the maintenance of these areas, leaving them with the developer.
Both developers and house buyers need good advice at the start about these aspects, and whilst ground rents may soon be a thing of the past, service charges and rentcharges are here to stay.
If you need legal advice regarding ground rents, lease extensions or rentcharges, please feel free to contact me directly via steven.leigh@GAsolicitors.com or call 01752 203500. I am property law specialist and Partner at GA Solicitors with considerable experience in both real estate law and commercial property law. An Oxford University graduate with over 40 years of legal experience, I ought to be able to help navigate you through any uncertainties you may have. You can find out more about me on my Profile page.
All content on this website (inclusive of guides, blogs and imagery) is strictly copyrighted by Gill Akaster LLP, trading as GA Solicitors. It is not to be used by any third party without prior contact and permission. Any requests for content should be sent to katy.mckenna@GAsolicitors.com.