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Ground rent scrapped for extended leaseholds in property law reform

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  • 07/01/2021
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Ground rent scrapped for extended leaseholds in property law reform
Leaseholders who extend their lease by up to 990 years will no longer need to pay ground rent to the freeholder, housing secretary Robert Jenrick has announced.

 

This will be a change to the current rules which allows leaseholders of houses to only extend their lease once for 50 years with ground rent. Meanwhile, leaseholders of flats can extend as often as they want with a nominal ground rent for 90 years. 

The new rules mean leaseholders of flats and houses have the same rights to extending their leases. 

A cap will also be introduced on the ground rent payable when a leaseholder decides to either extend the lease or become the freeholder. 

An online calculator which works out the costs for each option will also be set up to help leaseholders make their choice. 

Older homeowners will also be protected under the rule changes which will see ground rents reduced to zero applied to new retirement leasehold properties. This aligns with previous government promises to restrict ground rents to zero for new leases. 

Additionally, leaseholders will be able to agree to a restriction on any future developments on their property giving them the option of avoiding development value costs. 

The government has also established a Commonhold Council, which is a collective of leasehold groups, industry professionals and the government, to prepare homeowners and the property market for an increased take up on commonhold. 

The commonhold model allows homeowners to own their property on a freehold basis and gives them control over the costs attached to home ownership. Under the model, blocks are jointly owned and managed, meaning when someone buys a flat or a house, they own it completely and can make decisions about what happens to it.  

Legislation to set future ground rents to zero will be brought forward in the upcoming session of Parliament, which will be the first part of a two-step reformation process. 

A response to the remaining recommendations made by the Law Commission will also be prepared. 

Jenrick said: “Across the country people are struggling to realise the dream of owning their own home but find the reality of being a leaseholder far too bureaucratic, burdensome and expensive. 

We want to reinforce the security that home ownership brings by changing forever the way we own homes and end some of the worst practices faced by homeowners. These reforms provide fairness for 4.5m leaseholders and chart a course to a new system altogether. 

Professor Nick Hopkins, commissioner for property law at the Law Commission, added: “We are pleased to see government taking its first decisive step towards the implementation of the Law Commission’s recommendations to make enfranchisement cheaper and simpler.  

The creation of the Commonhold Council should help to reinvigorate commonhold, ensuring homeowners will be able to call their homes their own. 

 

More to be done

Mark Hayward, chief policy adviser at Propertymark, said: “While we welcome the government’s initiative to reduce ground rents to zero for all new retirement properties, we would argue this needs to be extended to all retirement properties to create a level playing field.

“Event fees remain a hugely contentious issue which many consumers still don’t understand so we need as much clarity and transparency as possible.”

Beth Rudolf, director of delivery at the Conveyancing Association, said she wanted to see the plans for the legislative agenda as similar announcements had been made in the past with no changes to the law.

She added: “Without legislation the issues which currently blight leasehold properties and make owners of leasehold property regret they bought them, and the misbehaviour of lease administrators, will continue.

“[But] the announcements by the government today are a fabulous first step towards resolving those issues and we look forward to hearing the ministry’s plans and timetable to introduce the required legislation.”

 

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