The government’s ban on charging ground rent on leases will come into force on 30th June 2022 across England and Wales.
Landlords will be banned from charging ground rents to future leaseholders, while offenders could be fined between £500 and £30,000.
The government urged anyone preparing to sign a new lease in the next two months to speak to their freeholder to make sure the ground rent rate reflects the upcoming changes. The government said in some situations no clear service was provided in return for the money.
Ground rents have long been controversial, as in some cases costs have doubled every 10 years to the point where leaseholders have struggled to sell their properties.
Lord Stephen Greenhalgh, leasehold minister, said: “This is an important milestone in our work to fix the leasehold system and to level up home ownership.
“Abolishing these unreasonable costs will make the dream of home ownership a more affordable reality for the next generation of home buyers.
“I welcome the move from many landlords who have already set ground rent on their new leases to zero and I urge others to follow suit ahead of this becoming law.”
These measures form part of the Leasehold Reform Bill, which was granted royal assent in February.
Some existing leaseholders will continue paying ground rents, though many have had their leases changed so ground rent no longer escalates.
Timothy Douglas, policy and campaigns manager for Propertymark, said: “These unfair and restrictive charges levied on leasehold homeowners have in some cases been allowed to become a cash-cow and abolishing them has been a long time coming.
“Propertymark has been a strong campaigner on this issue and it was our investigation in 2018 that helped bring the scale of it to light for the first time, revealing the impact it was having on the housing market as leasehold homeowners struggled to improve or sell their properties as a result.
“These changes only legally restrict ground rents on new leases, so we hope they are a catalyst for further reform by the housebuilding sector itself and the UK Government that will release the estimated over one million existing homeowners who remain locked into these agreements.
“Agents should be ready to understand the implications and the material information they need to provide to consumers when these properties come on the market from 30 June onwards.”
The government is consulting on replacing the ground rent system with commonhold. This is where all leaseholders in a block own a share of the buildings freehold and manage its maintenance themselves.
Mary-Anne Bowring, group managing director at Ringley, said: “Clauses in long leases which permit ground rents to compound over time is an onerous and wildly outdated industry practice.
“Levelling the playing field for new leaseholders by tidying up archaic principles of property law is welcome, but we should not overlook that this has no retrospective application, creating a two-track system between those who will continue to shoulder the burden, and future leaseholders in the right place, at the right time.
“Ground rents remain an important pillar in the professional management of long leases, ensuring that homes remain fit for purpose throughout their lifecycle – a benchmark which leaseholder controlled entities sometimes fall short on.
“Without investment income as an incentive Freeholders may resort to increasing event fees and insurance commissions – losing this asset class going forward may further fuel investment into UK the living sector including BTR. The government should be mindful not to discount the effectiveness of ground rents when fairly set and agreed.”
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