The government has committed to tackling onerous ground rents in residential long leases. But have the steps taken solved this long-standing problem for leaseholders?
As of 30 June 2022, ground rent under new long residential leases (usually granted for a term of 21 years or more) has been abolished by the implementation of the Leasehold Reform (Ground Rent) Act 2022 (“the Act”).
This is a welcome relief for leaseholders of new builds whose leases are caught by the Act. The legislation means that they will no longer be trapped by historically high ground rents, particularly as developers can no longer set onerous or escalating ground rent review patterns which increase exponentially year on year.
As the legislation does not apply retrospectively, the government has looked at other ways to seek to address the problems which landlords have caused by incorporating onerous ground rents into their leases. Specifically, the Competition and Markets Authority launched an investigation in 2019 into landlords’ of long residential leases potential breaches of consumer protection law. Following that investigation, the CMA commenced enforcement action against several housing developers in 2020 which has since seen nine freehold investor companies and four nationwide property developers giving undertakings to the CMA in an attempt to restore fairness to lease terms.
These undertakings mean that investment firms, housing associations and housing developers have had to agree to the following:-
- To stop selling leasehold properties with doubling ground rent clauses
- The removal of doubling ground rent terms that were converted to be based on the Retail Price Index
- Ground rents for affected leaseholders to remain the same as when the leasehold property was first sold and are not to be increased over time
- To provide prospective purchasers with more transparency about the actual annual costs they will be expected to pay
Although some housing developers have committed to assisting freeholders in removing the doubling ground rent or Retail Price Index clause, many of them have sold the freehold. In those situations, it means that leaseholders are still faced with the nightmare of hefty ground rents and problems regarding the saleability of their leasehold properties.
Whilst the Act and the undertakings secured by the CMA clearly help leaseholders when it comes to stamping out onerous ground rent obligations, there remains a large proportion of leasehold property owners who are still caught in the ground rent trap.
If you are concerned about the mortgageability or saleability of your leasehold property due to ground rent issues contact our specialist team for expert advice.
Jacqui is a senior paralegal and Nick Martyn, a partner in the firm’s leasehold enfranchisement team at RWK Goodman