Who Owns A Leasehold Property? What Is Ground Rent? And Other FAQs

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In her latest blog, Conveyancing Solicitor Michelle Rock explains leasehold properties, ground rents and some of the questions often asked when purchasing a residential leasehold property..…

Owning a Leasehold property means the leaseholder has the exclusive right to live in a property for a fixed number of years, known as the term. The right is documented by way of a lease, which is the agreement between the leaseholder and their landlord (the Freeholder). The lease also sets out any regulations that the leaseholder (and the landlord) has to comply with, including provision to pay any Service Charge and Ground Rent.

What Is A Service Charge?

A Service Charge is a charge the leaseholder has to pay for the services on the whole development. The total Service Charge is usually split between the number of flats and can include the building insurance, maintenance and repairs to the building and communal areas, lighting, fire assessments etc.

What Is Ground Rent?

Ground Rent is the annual charge paid for the long lease to the landlord. This amount can vary per property and the lease will determine when the Ground Rent will increase and the calculation. Every lease is different but some Ground Rents double every 10/15 years and some increase in line with the RPI.

Current Problems With Ground Rent

Properties with escalating Ground Rents (including Ground Rents that double on a regular basis) are potentially difficult to sell for a number of reasons. Firstly, buyers need to ensure that they can afford the Ground Rent now and in the future. Secondly, potential buyers may be deterred from buying a property if the Ground Rent is unaffordable in the future and finally lenders do not lend on properties with unreasonable Ground Rents.

In addition, any Ground Rent over £250 can be classed in law as an Assured Shorthold Tenancy meaning that if the Ground Rent is not paid on time the landlord could repossess the property.

Due to these reasons, the issue of Ground Rent has become increasingly controversial, prompting the government to intervene.

Changes To Legislation

The Leasehold Reform (Ground Rent) Act 2022 came into force on the 30th June 2022. The new legislation means that any Ground Rent cannot be charged on new residential leases at more than one peppercorn per year. A peppercorn is a metaphor for a very small cash payment or other nominal consideration, used to satisfy the requirements for the creation of a legal contract. In layman’s terms it means that essentially no Ground Rent is payable.

The ban will also apply to retirement homes from early 2023.

What Does This Mean For Existing Leaseholders?

Existing leaseholders can choose to extend their leases and bring the Ground Rent to a peppercorn.

Existing leaseholders who do not choose to extend their leases may wish to consider approaching their landlord for a deed of variation to vary the onerous Ground Rent.

How We Can Help?

If you have any questions or queries regarding purchasing a residential leasehold property, please feel free to contact me on 01530 564498 or via email at m.rock@timms-law.com.

Michelle Rock Ashby Conveyancer