Changes to Ground Rent for New Properties
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The Leasehold Reform bill is currently being debated in Parliament and it will abolish the ground rent charged on all new build property.

Ground rent is not the same as the standard monthly rent paid to the property owner, but it’s a rental charge for the ground on which the property is situated. It can either be paid on a bi-annual or an annual basis, but if payment is not made, it can result in the freeholder seeking to gain possession of the property.

 

What will the new Bill achieve?

The new Leasehold Reform bill will aim to remove ground rent charges for qualifying, new, long residential leasehold properties in England and Wales. These changes will be part of the most significant changes we’ve seen to property law in a generation.

This bill will be the first of the two-part legislation to reform the current leasehold system. These changes mean that if ground rent is demanded as part of a new, long residential lease, it cannot be for more than one peppercorn per year (hypothetical value). Future leaseholders will not have to meet any financial demands for the ground rent. This bill also prohibits freeholders from charging admin fees for collecting a peppercorn rent. Freeholders that charge ground rent may face fines of up to £5,000 if they were to breach the bill.

 

How does this affect Leaseholders?

Some leaseholders have found that their ground rents have been increasing every ten years and this is on top of their mortgage and any service charges, even if they have no outlook on selling the property. For these leaseholders, it seems like their only way out is to buy the freehold property, however, this is yet another area that is targeted by the profiteers.

Developers who have been selling newly built flats and houses as leasehold have been creating high annual ground rents and they have also been including provisions in leases for the rent to be increased (sometimes even doubled) after a certain period of time. Some buyers of this property type have been informed by the builder that they would have an opportunity to buy the freehold in the future. However, when the buyer actually tries to buy the freehold property, they find that the builder has already sold the property to an investment company. There are people who have been criticising the bill and are rightly complaining that it doesn’t go far enough. As the new bill is currently structured, it does not include existing leaseholders.

 

About Stuart Mosley

Stuart Mosley (CeFA, CeMap, CLTM) founded SJ Financial Solutions in June 2005 having spent 12 years with big corporates such as Halifax and Santander. He felt the personal touch and straight speaking was missing from financial and mortgage advice services and set up SJ Financial Solutions to change this.

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