Ground rent is a type of rent paid by the tenant of a leasehold property to the landlord or freeholder. It is a yearly fee that is paid in addition to the rent paid for the property itself. Historically, ground rent has been a common feature of leasehold properties, with landlords charging tenants a fee for the right to use the land on which their property sits.
However, in recent years, the practice of charging ground rent has come under scrutiny. Many have criticized the practice as being unjust and exploitative, with tenants paying exorbitant fees for the right to live in their own homes. As a result, there have been calls for the abolition of ground rent on all new leases of leasehold properties.
The government has responded to these calls by introducing the Leasehold Reform (Ground Rent) Act, which effectively abolishes ground rent on all new leases of leasehold properties, by capping all new leases to a maximum ground rent of £0 per year.
The new law, which came into effect in June 2022, means that landlords will no longer be able to charge ground rent on new leases of leasehold properties. While existing leaseholders will only benefit from this reform if they choose to extend their lease, otherwise they will be obliged to pay ground rent until the agreed review date.
From the tenant's perspective, the abolition of ground rent is a positive development. The reform will help to reduce the financial burden on those who are struggling to afford housing and will help to make housing more affordable and accessible for new tenants.
From the landlord's perspective, the abolition of ground rent may have negative consequences. Ground rent is a source of income for landlords and freeholders, and its abolition could impact their ability to maintain and improve the properties they own. Some landlords argue that ground rent is a necessary part of the leasehold system, as it ensures that tenants have a vested interest in the property and are more likely to take care of it. Few reports suggest that landlords and freeholders may look to compensate for the loss of ground rent by raising the price of their property.
The new law will also cap ground rent to a maximum of £0 per year on all retirement properties and this change is expected to come into force no earlier than April 2023.
In conclusion, the abolition of ground rent on all new leases of leasehold properties is a complex issue with both positive and negative consequences. On the one hand, it will help to make housing more affordable and accessible for tenants, as well as reduce the financial burden on those who are struggling to afford housing. While on the other hand, it may have negative consequences for landlords and freeholders, and could lead to an increase in property prices.
It is essential that freeholders and leaseholders understand the implications of the reform and seek advice accordingly.
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