Good news for future homeowners is coming at the end of June. Ground rent is set to be abolished on most residential leases from the 30th of June 2022, meaning that homeowners will no longer have to pay ‘ground rent’ to landlords.
The government has been looking at an overhaul in the ground rent system since an investigation by the Competitions and Market Authority (CMA) found “worrying evidence” that homeowners were being taken advantage of.
These findings, dubbed the ground rent scandal, have contributed to the new set of rules surrounding leasehold properties that are set to be in place from the end of the month.
Looking for a quick answer? Check out our drop-down menu below!
- Why Do People Pay Ground Rent?
- What Was The Ground Rent Scandal?
- Why Has It Been Abolished?
- What Are The Exceptions To The Ground Rent Abolishment?
- What Does This Mean?
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Why Do People Pay Ground Rent?
In England and Wales, there are two main types of property available to purchase. The property will usually be classed as either a freehold property or as a leasehold property.
If the property is a freehold property, then the buyer will own both the property and the land that it is situated on for an unlimited period of time. Thanks to the Civil Aviation Act of 1982, the buyer will also own the ‘airspace’ up to 500ft above their property as well.
On the other hand, if a property is classed as a leasehold, then the buyer will own the property itself, but they will not own the land that the property is situated on, this is instead owned by the freeholder. Instead of owning the property for an unlimited period of time, with a leasehold house you only own the property for a set period of time.
Ground rent is a nominal sum paid to the freeholder, however, with a lack of regulation surrounding it, unsuspecting homeowners have been paying ground rent that would double every few years, meaning that they would be charged hundreds and thousands of pounds in ground rent.
What Was The Ground Rent Scandal?
After thousands of leasehold homeowners complained about being mis-sold or misled over the terms of their lease an investigation by the CMA was launched which found “worrying evidence” of homeowners being taken advantage of.
It found that leaseholders faced punitive ground rents and service charges as well as others who were not made aware upfront that the property was a leasehold or how much it costs to extend a lease or to purchase a freehold.
The biggest problem that was unearthed in the CMA investigation was ground rent. For some leaseholders, ground rent would double every few years, meaning that they were paying £100s or £1000s in ground rent.
This meant that remortgaging their houses or selling the property was almost impossible as the ground rent was so high. As the terms of ground rent are written into the lease, it can be costly to have a legal team remove or amend it.
Why Has It Been Abolished?
The abolishment of ground rent is a result of an overhaul of the system that is being attempted by the British Government. This system aims to end ground rent charges in most properties across England and Wales so that homeowners aren’t trapped paying extortionate ground rent costs.
Under a new law that the government is passing, landlords will now be banned from charging ground rent to any future leaseholders in a move that will lead to fairer, more transparent homeownership for thousands of home buyers.
Many landlords have reduced ground rent to zero for home buyers starting a new lease with them in preparation.
Leasehold Minister, Lord Stephen Greenhalgh said that “This is an important milestone in our work to fix the leasehold system and to level up home ownership.”
What Are The Exceptions To The Ground Rent Abolishment?
There are exceptions to the abolishment of ground rent. The exceptions are as follows:
- Community housing leases
- Business leases
- Home finance plan leases
- Statutory lease extensions of houses and flats
What Does This Mean?
The abolishment of ground rent on most properties across England and Wales means that fewer homeowners will be taken advantage of and will be able to avoid paying increasing costs on a property that they own.
This overhaul of the ground rent system also includes future measures including an online calculator that will help leaseholders find out how much it would cost them to extend their lease or to buy the freehold itself and a new right that will allow leaseholders to extend their leases to 990 years at zero ground rent.
Anyone who owns a property with Aviva, Persimmon, Countryside Properties, Taylor Wimpey, and others will have their ground rent returned to the rate it was when they first bought their home.
This covers everything you need to know about the government’s plans to abolish ground rent, if you have any insight into the matter, questions, or queries, please feel free to get in touch!
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Alexandra is a junior content producer who enjoys writing articles and finding out more about the property market. Read more about Alexandra here.
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