Ground Rent Zero Reform

Thousands of existing leaseholders set to benefit from zero ground rent!!

Under the Leasehold Reform (Ground Rent) Act 2022 which comes into force on 30 June 2022 the UK government have abolished charging ground rent on new leases and for lease extensions in England and Wales.

The act states that for any existing leases you still must pay ground rent, but not on the extension period of the lease. In the main new leases are those created by developers which means that there will be thousands of leaseholders who will not be covered from this act, but will benefit if they decide to extend their existing unexpired lease.

Freeholders or developers will be banned from charging ground rent to future leaseholders, under a new law that will lead to fairer, more transparent homeownership. It will also apply to retirement homes, which will come into force no earlier than 1 April 2023.

Many landlords have already reduced ground rent to zero for homebuyers starting a new lease with them. Anyone preparing to sign a new lease on a home in the next two months should speak to their freeholder to ensure their ground rent rate reflects the upcoming changes.

There are other proposals being looked at, one of them includes abolishing the marriage value (which is quite contentious in my opinion), but it is being looked at "marriage value" is the term used to describe an extra cost to the leaseholder which makes it more expensive to renew a lease when the unexpired term is less than 80 years. If the unexpired term is more than 80 years, then it does not affect your property valuation as much when it comes to marketing your property for sale.

From a freeholder’s point of view unexpired terms of less than 80 years is music to their ears because it gets them more money for their assets. Which is why I think this proposal will be drawn out as there are many big companies out there with big balance sheets which will be wiped out if this goes ahead.

The other proposal is the statutory lease extension period which currently is 99 years it may go up to 999 years which will be as good as owning a property outright for the leaseholder. This one has more chance of getting through the net, but it will be costlier to get a 999 year lease as opposed to the current statutory 99 year lease extension.

The other proposal is the formulae for lease extensions and enfranchisement, but we do not have much detail on this. And we do not know if the proposals are going to be good or bad for leaseholders.

As mentioned, the above are all proposals when you consider that the Leasehold Reform (Ground Rent) Act 2022 took 5 years to become law then you can see that it is unlikely that these proposals will become law anytime soon.

So, what happens to those leaseholders who have a short lease?

You really do need to look at your personal circumstances, look at your individual lease look out especially if it is getting close to 80 years and you need to deal with the law as it is today. Putting things off and speculating about what is going to happen in 5 years, will not cut the mustard if you have a short lease now. And it is gambling in a way or not very good property investment or sound use of your financial resources.

For anyone who has a short lease please do not bury your head in the sand we can help you get to a better place as we can refer you to good solicitors who specialise in this area. If you are thinking of extending a short lease, but are worried about the costs or are worried about your freeholder not playing ball or even if you have an absentee freeholder, help is at hand, pick up the phone and give us a call - after all improving the value of your asset and taking appropriate action to mitigate your risk is what counts.

Contact us if you require further help with a short lease complete your details and we will be in touch.