Government bans ground rent charges on new residential leases

The UK Government has banned landlords from charging ground rent to residential leaseholders on any new lease. This change will come into effect from the 30th June 2002 and is part of wider government aims and a reform package to make buying a home fairer, cheaper and more secure. This residential ban will extend to commercial retirement homes, but won’t come into effect until 2023.

What are ground rent charges?

Ground rent charges are payments made from a leasehold property owner to the person who owns the land that their property is built on.

A leasehold property is owned by an individual or individuals, but they don’t own the land the property is built on, so they have to take out a lease on the land. A common example is a flat within a block of flats, but some houses can also be leasehold properties.

Traditionally, ground rent charges must have been stated in the lease for the landlord to collect any money. But as of June 30th 2022, these charges can no longer be collected on any new leases.

Why has the government banned ground rent charges?

The reason for banning ground rent charges is two-fold.

Firstly, the government has stated that the property owner does not receive any distinguishable service for this fee. Therefore, it should be abolished. This is in contrast to flat service fees, which may cover the cleaning or decorating of communal areas or repairs to lifts and security systems.

And secondly, the government stated that some landlords are escalating ground rent charges rapidly, which deters many people from buying a leasehold property. Some landlords and home builders were doubling ground rent charges each year.

By eradicating ground rent charges in future residential leases, the government has made owning a leasehold property more attractive and contributed to its aim of making owning a home cheaper and fairer. The change comes off the back of other changes to leasehold properties, such as making it possible to extend a lease by 990 years to provide more stability to relevant home buyers.

What about existing leaseholders?

Existing leaseholders will still have to live by the terms of their current lease, which could mean continuing to pay ground rent (if it was included in the lease agreement in the first place!). If you’re about to sign a new lease before June 30th, you may want to make sure that the landlord is accounting for the new rule change.

Your existing lease may also be reduced to the amount payable at the start of the lease. The Competition Market Authority (CMA), on behalf of a government crackdown, has received commitments from major homebuilders to revert existing ground rent charges to their initial cost. This is being done to counter inflated ground rent fees over the years.

June 2022