It applies to new properties in England and Wales, and restricts ground rents to one peppercorn per year equivalent to one token sum, such as a pound, which effectively limits ground rents to zero financial value.
This aims to makes leasehold ownership “fairer and more affordable”, according to the government. The bill has now been given royal assent, meaning it is now law.
Some amendments did not make it into the bill including the requirement for landlords to inform leaseholders of the changes introduced and an amendment which would have eliminated ground rent for existing properties.
Timothy Douglas, head of policy and campaign at Propertymark, said the association had campaigned for several years for changes to the current leasehold system which solved the problem of escalating ground rents.
He said: “This legislation is progress and whilst the unsuccessful amendment to remove ground rents from all existing leasehold properties would have strengthened the legislation, it is positive that ground rent charges will now be restricted on newly created long leases of houses and flats to an annual rent of one peppercorn, a token of no financial value.”
He added that it was vital that agents be aware of the new rules and said the minister has committed that the rules will come into force within six months of royal assent being given.
In its leasehold report, which outlined key measures it wanted introduced and came out in 2018, Propertymark said all developers should adhere to the consumer code for home builders, buyers of new build homes should have an ombudsman scheme, freeholders of leasehold properties should be required to sign up to a redress scheme and developers should not build on land they do not own the freehold.
Propertymark also proposed that when it comes to selling the freehold, homeowners should get first refusal and it should not be sold unless homeowners are consulted and given the choice.
It added consumers needed to be better educated, proposed the introduction of a digital logbook for each property that is bought and sold, called for “overarching statutory regulation of the whole sector” and asked that the government promote the benefits of using a professional estate agent.
Millions of existing leaseholders still have rising ground rents
Jonathan Frankel, head of the property litigation department at Cavendish Legal Group, said the current legislation did not address problems for millions of existing leaseholders and ground rents.
He continued: “There is no certainty on a date for the introduction of a second bill, that may well incorporate some or all of the proposed reforms from the Law Commission. Meanwhile, existing leaseholders still have to contend with rising ground rents that make their property difficult to sell.
“For existing leaseholders unwilling to keep their lives on hold any longer, the only viable way forward will be to seek own legal solutions through leasehold enfranchisement. This would involve claiming a statutory lease extension in order to turn their ground rent into a peppercorn, and would enable them to resolve their situation without having to wait for further legislation to go through.”
In 2020, the Law Commission made a range of proposals, including reform on leasehold enfranchisement, right to manage and commonhold.
According to the latest statistics from the Department of Levelling Up, Housing and Communities, there are around 4.6 million leasehold dwellings the UK, which is around 19 per cent of English housing stock.
The highest proportion of leasehold properties were in London and the North West which were at 34 per cent and 31 per cent respectively. East Midlands was the lowest at nine per cent.
