Conveyancing Expert Says Ground Rent Cap Might Be Controversial, But It’s Welcome News For Homebuyers
News that ground rents will be capped at £250 per year as part of a shake-up of the leasehold system have had a mixed reaction from the property industry, but experts from the north of England’s leading conveyancing firm believe it’s a positive step.
Yorkshire based LCF Residential, which is the specialist conveyancing division of leading Harrogate law firm, LCF Law, has an unrivalled understanding of the local property market in Yorkshire. The firm works with homebuyers and sellers, as well as estate agents and nearly every mortgage lender in the UK.
The government recently unveiled its draft Leasehold and Commonhold Reform Bill, which states the ground rents that leasehold property owners in England and Wales pay to their freeholders, will be capped at £250 a year.
Government estimates suggest there are more than 5 million leaseholders in England and Wales, and 4.2 million of these pay ground rent. Often leasehold properties are flats and apartments, although they can sometimes be houses, and although ground rents were abolished for most new residential leasehold properties in England and Wales in 2022, they still regularly apply to existing leasehold homes.
The bill also outlined plans to ban the sale of new leasehold flats and give homeowners greater control over how their buildings are managed.
Julie Davis from LCF Residential said: “Ground rents are controversial because leaseholders pay them to freeholders, which are often pension funds, for the right to occupy land their home stands on, without receiving any services in return. Plus, ground rents can double, or increase in line with inflation, at fixed intervals.
“Capping ground rents at £250 a year, before effectively reducing it to zero after 40 years, could hit pension funds and companies that invest in freehold properties which might collapse. The Residential Freehold Association argues that if professional freeholders leave the sector, it could disrupt the lives of residents in apartment developments, as well as interrupting ongoing building safety projects, including cladding replacement programmes.
“However, this cap could also save some people hundreds or even thousands of pounds each year. Crucially, it will also make leasehold homes much easier to sell because often buyers steer clear of them because of worries about continually escalating ground rents and certain lenders also choose to avoid them.”
Julie added: “Another key part of the bill relates to banning leasehold homes except in certain cases, meaning developers will no longer be allowed to sell new flats as leasehold homes. Instead, new flats will be commonhold and buyers will collectively own the building and the ground it’s built on, but it’s still to be confirmed if and how existing leasehold flats will become commonhold properties.
“In addition, it’s worth noting there’s still a long road ahead before all this becomes law. The bill is now subject to a government consultation and will be scrutinised by MPs before it reaches Parliament, with the new legislation potentially being introduced in 2028.”
LCF Law is an award-winning full-service law firm, which operates regionally, nationally and internationally, with over 145 people across offices in Leeds, Bradford, Harrogate and Ilkley.
