A First for London – Leasehold Flats with No Ground Rent

A London estate agent is now advertising leasehold flats in a new-build block with no ground rent to pay—a first for the capital, according to the sales literature. While some developers have already been offering 999-year leases with no ground rent, this shift raises important questions about the impact on the property market.

What Happens When Developers Remove Ground Rent?

Developers who remove ground rent tend to take one of two approaches:

• They hand over the freehold to residents for free—which may leave them struggling to enforce lease covenants.
• They retain ownership of the freehold but invest in an internal department to oversee and appoint managing agents, seeing today’s buyer as a potential future customer.

The Buoyant Market for Selling Ground Rents

Despite changes in legislation, many developers still sell their ground rents, as it remains a lucrative investment. The market has already adjusted investment yields since the government announced its plan to reduce ground rents to zero. The issue that has caused the most controversy is the doubling of ground rents by some freeholders, which has left leaseholders trapped in unfair agreements.

Government Action – But When?

The government has promised reform to the Housing Act 1988 to tackle unfair ground rent clauses. However, the timeline for implementation remains uncertain, leaving leaseholders waiting for change.

Should Ground Rent Be Retained at a Fair Level?

While the abolition of ground rent may seem like a win for leaseholders, there is an argument for keeping it at a reasonable level. Freeholders who charge ground rent have a vested interest in maintaining their investment, ensuring that blocks are well-managed, compliant with regulations, and properly maintained. If ground rent is abolished completely, freeholders may cut corners or show little interest in the condition of their buildings.

A Better Alternative – Transparency and Fair Pricing

A more balanced approach could be to:

• Outlaw doubling ground rent clauses.
• Cap ground rent as a percentage of the property value to make it fair and transparent.
• Ensure leaseholders can purchase their freehold at an affordable price if they choose to.

As we discussed in last week’s blog, removing ground rent entirely could lead to freeholders losing all financial incentive to maintain buildings, resulting in health, safety, and compliance risks. The key is to strike a balance—one that protects leaseholders while ensuring that buildings remain safe and well-managed.