Is the clock TikTok-ing on Ground Rent?

Now that the dust has settled on the Prime Minister’s announcement that the Government is proposing to introduce a cap (and eventual phasing out) on ground rents, I wanted to take a further look at the proposal and its anticipated impact on leaseholders. In the hours following the announcement, I was asked to provide expert comment to News on the Block, which you can read here.

Let’s not underestimate the Government’s PR machine. The fact that the PM made this announcement via TikTok leaves no doubt that the PM was attempting to appeal to the younger generations who are, in some cases, struggling to sell or re-mortgage their properties due to unfavourable ground rent provisions in their leases.

What is ground rent?

It is important to distinguish ground rent from service charge; ground rent is a payment that is made by the leaseholder to the freeholder, with no requirement for the freeholder to do anything in return for that payment. It is, in essence, a continued and guaranteed investment for the freeholder following the sale of all flats within a certain block.  Conversely, a service charge is an amount of money demanded by a landlord or managing agent and is used to pay for the upkeep of communal areas and maintenance of facilities (such as lifts).

What is the Government’s proposal?

The Government proposes to cap ground rent at £250 per year for existing leases, eventually reducing to a peppercorn rent (zero) after forty years. This will ultimately wipe out ground rent after forty years.

The Government has estimated that the owners of 3.8 million properties in England and Wales pay ground rent. According to figures published in the English Housing Survey 2023/24, 23% of leaseholders reported paying a zero ground rent. According to the same survey, the average ground rent was £304, with the median being £120.

If you review the policy document, the Government’s own figures suggest that the cap will only impact between 770,000 and 900,000 leaseholders who pay more than £250 per year, with more than half of these leaseholders (an estimated 490,000 to 590,000) living in London and the South of England.

Will I pay ground rent on a new build?

The Leasehold Reform (Ground Rent) Act 2022 brought an end to ground rent for most new leasehold properties in England and Wales. Those leaseholders with leases already in place at the time the new legislation was introduced were still required to comply with their ground rent provisions.

Overall, the PM’s announcement will be welcomed by leaseholders. The introduction of a ground rent cap, followed by the eventual phasing out of ground rent, will provide much-needed flexibility for leaseholders, with many currently locked into their leases and unable to dispose of or remortgage their properties due to crippling ground rent provisions.