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 leasehold-dynamics'>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 leasehold-dynamics'>ground rent, this shift raises important questions about the impact on the property market.

What Happens When Developers Remove Ground Rent?

Developers who remove leasehold-dynamics'>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 leasehold-dynamics'>ground rents, as it remains a lucrative investment. The market has already adjusted investment yields since the government announced its plan to reduce leasehold-dynamics'>ground rents to zero. The issue that has caused the most controversy is the doubling of leasehold-dynamics'>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 leasehold-dynamics'>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 leasehold-dynamics'>ground rent may seem like a win for leaseholders, there is an argument for keeping it at a reasonable level. Freeholders who charge leasehold-dynamics'>ground rent have a vested interest in maintaining their investment, ensuring that blocks are well-managed, compliant with regulations, and properly maintained. If leasehold-dynamics'>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 leasehold-dynamics'>ground rent clauses.
• Cap leasehold-dynamics'>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 leasehold-dynamics'>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.